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Apr 24, 2020

AmEx promises US$3 billion in cost cuts, new platinum rewards

Signage is displayed inside the American Express Co. Centurion Lounge during a media preview event at Los Angeles International Airport (LAX) in Los Angeles, California, U.S., on Thursday, March 5, 2020. AmEx has told shareholders that spending on membership services, which includes its lounge collection, will be its fastest-growing expense this year—cost decisions that came prior to the current crimp on global travel due to coronavirus. Photographer: Patrick T. Fallon/Bloomberg

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American Express Co. said it’s seeking to cut US$3 billion in costs after the coronavirus pandemic caused a plunge in spending on the firm’s cards.

The slowdown the credit-card issuer began to see in March as a result of nationwide shelter-in-place orders has “dramatically” impacted spending on its cards in April as well, American Express warned Friday. Provisions for loan losses rose to US$2.6 billion in the first three months of the year as unemployment soared.

Chief Executive Officer Steve Squeri, who led expense-reduction efforts at American Express before taking the helm in 2018, said the planned cost cuts are the largest he can remember the company undertaking. American Express will keep investing in mobile capabilities as well as customer service and collections, he said.

“It was important for us to stick with those initiatives that inevitably would be important when this crisis ended,” Squeri said on a conference call with analysts. “We’re focused on ensuring that when this crisis is over, we have been there for our customers and are ready to hit the ground running.”

American Express shares were little changed at US$81.87 at 9:50 a.m. in New York. They’ve dropped by more than a third this year, compared with a 30 per cent decline for the S&P 500 Financials Index.

The company’s first-quarter expenses fell five per cent to US$7.24 billion, helped by declines in spending on cardholder services and rewards.

Net card fees climbed 18 per cent to US$1.11 billion in the first quarter. Squeri said the company will refresh many of its popular products, including its Platinum card, to include new rewards for services customers use while stuck at home, such as wireless internet and television streaming.

AmEx joined competitors including Discover Financial Services and Alliance Data Systems Corp. in adding to provisions to cover souring loans. American Express also said it’s begun offering short- and long-term financial assistance programs to consumer and small-business cardholders.

Spending on the firm’s cards climbed six per cent in January and seven per cent in February before plunging 23 per cent in March. Discount revenue -- a measure of the fees AmEx collects each time a consumer swipes a card at checkout -- declined six per cent to US$5.84 billion.

Almost 30 per cent of spending on American Express’s cards comes from travel and entertainment, including airlines, lodging and dining, which have been hit hard by the pandemic.

Earlier this month, Hilton Worldwide Holdings Inc. said it pre-sold US$1 billion of points to AmEx as the hotel chain sought to raise cash. Hilton is one of AmEx’s largest co-brand partners, with the lodging company’s cards representing about two per cent of spending on the firm’s network and five per cent of its loans.

American Express was among the first financial firms to have large swaths of its staff start working from home amid the pandemic. Squeri said in the statement that the company is committed to making no pandemic-related job cuts this year.