American Express earnings plunge 79%

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NEW YORK (CNNMoney.com) -- American Express reported a steep decline in earnings in the latest quarter, the company said Monday, citing slower consumer spending and rising delinquencies.

The credit card giant said net income fell 79% to $172 million, or 15 cents a share, down from $831 million, or 72 cents a share, during the same period a year ago.

Earnings for the New York City-based firm based on continuing operations were $238 million, or 21 cents a share. Analysts were expecting a profit of $235 million, or 22 cents a share, from continuing operations according to Thomson Reuters.

Kenneth Chenault, AmEx's chairman and chief officer, cited a decline in overall cardmember spending as well as a rising number of late payments for the company's latest performance.

"Our fourth quarter results reflect an operating environment that was among the harshest we have seen in decades," Chenault said in a statement.

During the last three months of 2008, spending by cardholders fell 10% to $160.5 billion from $177.5 billion a year ago.

Adding to those woes, however, were U.S. consumers' and businesses' inability to keep up with their payments, as the rate at which loans turned bad nearly doubled during the quarter compared to the same period a year ago.

Looking ahead to 2009, Chenault warned of weaker spending by its cardholders, adding that he expected delinquencies and uncollectible card balances would continue to climb.

American Express (AXP, Fortune 500) investors however, seemed relatively encouraged about the news. AmEx stock, which finished 5% lower Monday, gained nearly 3% in after-hours trading.

Analysts and rating agencies alike have wondered recently about AmEx's ability to withstand a deep and prolonged recession. Yet the latest results from AmEx, which has often been viewed as a proxy for credit card trends, suggest that the company has remained relatively secure despite tough economic conditions.

But like other companies across the financial services sector, AmEx has taken bold steps to insulate itself from the fallout.

In late October, the company unveiled plans to cut 7,000 jobs, or approximately 10% of its workforce, adding that they expected the restructuring to generate a $1.8 billion cost benefit next year.

Less than two weeks later, AmEx converted into a bank holding company. The move gave the company the ability to grow its deposit funding sources and also allowed it to access funds from the government's $700 billion bank bailout program.

So far, AmEx has received $3.39 billion from the Treasury Department in exchange for preferred stock and warrants.

Daniel Henry, the company's chief financial officer, told analysts during a conference call Monday evening that without government funds from the Troubled Asset Relief Program, or TARP, AmEx would have rein in credit extended to the consumers, small businesses and corporate customers its services.

"TARP is enabling us to continue to provide credit to the marketplace," he said.