American Express may hurt itself by cutting business
American Express (NYSE: AXP) is heading back to being a charge card company for people with good credit. In a recession, this move may be the right one to help its earnings today, but as the economy recovers, it may be leaving some very valuable business to Visa (NYSE: V) and large banks.
According toThe Wall Street Journal, "In an attempt to mitigate the damage, AmEx is retreating from an ill-timed expansion of its credit-card business."
Smart move or not? In the short term, it would be impossible to question a decision that will help earnings in the next several quarters. If AmEx can dump customers whose ability to pay their monthly balances has weakened, it only helps its liability profile and the size of its writedowns.
What happens, however, when the recession ends and all those fairly affluent people who may have fallen behind on their payments because of job losses or overextended credit due to the run up in the housing market become good risks once again? By then, those former AmEx customers may be doing business with other credit card companies and banks who let them pay off their balances over time during the recession.
AmEx may be helping its earnings now, but it is shrinking its business and customer base. In a year or two, when consumer credit recovers, it may regret downsizing
Douglas A. McIntyre is an editor at 24/7 Wall St.