American Express 2Q 2010 Earnings

Looks like some pretty good results from American Express (AXP). The Stock is not extremely cheap right now but the business continues to perform well.

Earnings topped $ 1.017 billion compared to $ 337 million in the same quarter a year ago. The improvement in earnings comes down to the fact that billed business is coming back post-recession and a continuing improvement in credit quality. This rate of increase in earnings obviously won't continue as it is a normalization coming out of a recession more than anything else.

Some comments from Ken Chenault, chairman and chief executive officer:

"Cardmember spending rose 16 percent and improved credit indicators continued the year-long trend that began last spring," said Kenneth I. Chenault, chairman and chief executive officer.

"Spending rose across all segments with the largest increases coming from corporate cards, cards issued by our bank partners, charge cards and premium co-brand products where many cardmembers tend to pay in full each month."

CNBC: American Express Posts Earnings Above Expectations

TheStreet.com: AmEx Tops Wall Street Profit View

Also, AmEx CFO Daniel Henry discussed the impact of new regulations on the business in yesterday's American Express Q2 Conference Call. Here's an excerpt from the call:

As we've discussed in prior quarters, the impact from the CARD Act within yield is significant. However, we have worked to mitigate it through repricing activities over recent quarters. Our objective is to migrate back to the historical yield level of 9%. We believe our pricing is appropriate and reflects the necessary revenues for our business. But uncertainty does exist regarding the impact of the look-back or regulatory review required on a go-forward basis.

Staying with the CARD Act, we do not expect the revised late fee rules, which will be implemented in August, to have a material impact. We believe the CARD Act is more significant for us than financial reform due to the nature of our business model, which is not impacted by many aspects of the reform. With regard to financial reform legislation, we support the general principle of financial stability and consumer protection underlying the legislation. However, there clearly are costs associated with it. Many of the aspects will play out over time, giving us the ability to adopt to the changing marketplace.

While other industry participants have discussed details regarding debit pricing risk pursuant to the Durbin amendment, our charge card and credit cards are not directly impacted by the potential debit pricing adjustments. With regard to discounting, while merchants have long had the ability to provide discounts for payment of cash and check, the additional ability of merchants to discount price for payments with debit cards versus credit cards creates some additional uncertainty. However, based on our commitment to deliver high-quality customers and services to merchants, we are confident in our ability to adapt to the changing environment.

Despite the noise it remains quite a good business.

Adam

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