Credit card issuer American Express (AmEx) fell into the red in the fourth quarter, a first in almost 25 years, due to a heavy burden related to the recent tax reform adopted in the United States.
The company immediately suspended its planned share buyback program for the first half of the year, explaining that this decision was motivated by the fact that it intended first to rebuild its levels of regulatory capital. This announcement was poorly received on Wall Street where the the company’s stock price lost more than 2% in electronic exchanges after the close of the session. In the last three months of 2017, the New York based financial giant lost $ 1.2 billion as a result of a review of its accounting following the recent US tax reform, lowering the tax rate for companies.
Last year, the company was in the green with a net profit of $825 million. The loss announced Thursday is not really a surprise because AmEx had already prepared the ground earlier this month by indicating in its quarterly accounts a charge, which amounted to $ 2.6 billion. This provision is due to the cost of repatriation to the United States of profits previously held abroad by subsidiaries and to the immediate recognition of taxes that had already been paid, some of which will be repaid later (deferred tax assets – DTA).
Excluding this charge, AmEx is profitable: Adjusted earnings per share is $ 1.58, higher than the $ 1.54 expected on average by financial analysts. Over the year, adjusted earnings per share were $ 5.87 against $ 5.85, a net profit of $ 2.74 billion, down 49%.
AmEx has also managed to increase its revenues in a highly competitive environment: the quarterly turnover is up 10.2% to $ 8.84 billion and 4.2% over the year to 33.47 billion. Analysts were forecasting $ 8.72 billion and $ 33.34 billion respectively. Expenses for owners of AmEx cards have increased by 11% in the last three months, loans by 14% and defaults have fallen. For the current year, the company has delivered a rather optimistic earnings forecast, saying that it anticipates adjusted earnings per share in the range of $ 6.90 and $ 7.30, against 7.04 expected on Wall Street. “Overall, we believe the tax reform will be positive for the US economy and American Express,” said CEO Kenneth Chenault, who will be replaced at the end of the month by Steve Squeri.