American Express 2Q profit tumbles 38 percent

The company, known for catering to some of America's wealthiest consumers, said the effects of the weakening economy were evident even among its more established members with excellent credit.

For the period ended June 30, the company reported net income of $653 million, or 56 cents per share, compared with $1.06 billion, or 88 cents per share, in the year-ago period.

Analysts, on average, expected earnings of 83 cents per share, according to Thomson Financial.

Shares in American Express plunged $4.50, or 11 percent, to $36.40 in aftermarket trading. Its shares are down about 21 percent for the year.

The results include a $374 million addition to credit reserves, reflecting higher credit losses and the expectation for increased write-offs in the third and fourth quarter.

The company's U.S. card services division reported a profit of just $21 million, down from $580 million a year ago. Revenue net of interest expense in the segment rose a modest 1 percent to $3.6 billion. Results were hurt by a $1.5 billion provision for loan losses, up from $640 million in the 2007 quarter.

The net loan write-off rate, including both on-balance-sheet cardmember loans and off-balance-sheet securitized cardmember loans, was 5.3 percent, compared with 2.9 percent in the prior-year quarter.

Chairman and Chief Executive Kenneth I. Chenault said in a statement that fallout from the weakening economy accelerated in June with consumer confidence dropping, unemployment rates rising and home prices falling at "the fastest rate in decades."

"Consumer spending slowed during the latter part of the quarter and credit indicators deteriorated beyond our expectations," Chenault said. "The scope of the economic fallout was evident even among our longer term, superprime cardmembers."