American Express profit falls, but beats estimates

NEW YORK (Reuters) - American Express Co said on Monday third quarter earnings fell more than 20 percent as it set aside more money to cover growing losses in its credit card business, but there was relief the results were not worse and its shares rose 7 percent.

The company offered a gloomy outlook for the future, noting that economies globally are likely to be weaker well into next year and cardholder spending is likely to stay soft.

But it also said it is taking steps to reduce its credit risk, cut costs and decrease investments in marketing.

"I was expecting such a bad quarter. There's a sense of relief now," said Andrew Boord, an equity research analyst covering financial stocks at Fenimore Asset Management, which owns American Express shares.

American Express's third-quarter earnings from continuing operations fell to $861 million from $1.1 billion in the same quarter last year.

Diluted earnings per share from continuing operations fell to 74 cents from 94 cents in the same quarter last year. Analysts had on average expected 59 cents a share before items, according to Reuters Estimates.

Third-quarter net income, which includes results from discontinued operations, fell 24 percent to $815 million.

American Express, a Dow Jones industrial average component, said consolidated provisions for losses increased 51 percent to $1.4 billion.

Delinquencies on American Express cards have crept higher as the financial crisis has weighed on the ability of some consumers to pay their bills.

The company is selectively scaling back credit lines from some U.S. customers, cutting expenses and reducing efforts to gain new customers domestically.

American Express's shares rose to $26.02 in after-market electronic trading.

FALLING LOAN VOLUME

American Express' total global outstanding loans fell 9 percent from the same quarter last year to $45.8 billion, considering only loans on the company's balance sheet.

"Cardmember spending is likely to remain soft. Loan growth will be restrained, in part because of the steps we are taking to reduce credit risks, and credit indicators are likely to reflect the continued downturn in the economy and throughout the housing sector," Kenneth Chenault, American Express' chairman and chief executive, said in a statement.

Amid the difficult environment, Moody's Investors Service cut American Express' debt ratings one notch to "A2" from "A1," which could lift the company's borrowing costs.

The cost of protecting the company's debt against default immediately after the results came out fell to 580 basis points, or $580,000 per year for every $10 million of principal insured, from 615 basis points before the release.

American Express shares have fallen about 53 percent so far this year through Monday's close, compared with a roughly 33 percent decline in the Standard & Poor's 500 index .

(Reporting by Juan Lagorio, additional reporting by Dan Wilchins, Editing by Andre Grenon)