American Express, the credit card company, issued a thumping profits warning last night, sending its shares diving and potentially foreshadowing a new leg of the credit crisis.
The company, whose customers spent $647bn (£323bn) on 86.4 million Amex cards last year, said even long-standing borrowers it believed to have gold-plated credit histories have begun falling behind on their payments.
Ken Chenault, its chief executive, said Amex was not going to meet its profit forecasts for the year and would have to cut staff and other costs to free up cash for greater provisions against bad loans.
Amex shares were down more than 11 per cent in after-hours trading following the release of second-quarter earnings figures that did not come close to meeting Wall Street's expectations.
The company said net income was $653m, compared to $1.06bn in the same three months last year. Earnings per share came at 56 cents against forecasts of 83 cents.
"The fall-out from a weaker US economy accelerated during June," Mr Chenault said, "with consumer confidence dropping, unemployment rates moving sharply higher and home prices declining at the fastest rate in decades. Consumer spending slowed during the latter part of the quarter and ... the scope of the economic fall-out was evident even among our longer-term, 'super-prime' card members."
The company has set aside an extra $600m to cover expected bad loans and would be much more cautious about taking on new customers, it said.
Amex has been among the most aggressive marketers of new cards in recent years, after deciding to move away from its origins as a charge-card company whose customers were required to pay off balances every month. Investors have become increasingly worried that it has taken on risky borrowers in order to build market share, and Amex shares had already lost more than 20 per cent of their value since the start of the year.
Last night's results also included a $136m charge to reflect the declining value of its retained interest in securitised loans – that is, card-member loans that Amex has parcelled together, cut into chunks and sold to other investors.
Debt market traders have become concerned that the deteriorating economy will lead to rising credit card arrears, in turn leading to rising defaults on securitised loans. That would be a new parallel – albeit smaller – to the problems in the mortgage market, where rising numbers of foreclosures caused ripple effects through the global credit markets.
Amex was one several high-profile American companies reporting disappointing quarterly earnings last night, potentially presaging a rocky start to stock market trading in London this morning. Apple, the iPod maker, reported a profit of $1.07bn, thanks to soaring sales of its Macintosh computers but its forecasts for sales and profits over the coming months were lower than Wall Street had been hoping.
Shares in Apple and in Texas Instruments, the microchip giant that also reported results, were both off more than 10 per cent in after-hours trading.