American Express shares tumble as 2Q profit falls

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."

In a conference call with analysts, American Express executives said the company has begun to notice problems even among cardholders with credit scores ranging from 650 to 750, and those who hold mortgages on multiple properties. As a general rule, those with a credit score above 650 receive the lowest interest rates.

The pinch felt by American Express' superprime cardholders mirrors a similar trend among borrowers at JPMorgan Chase & Co.

The bank said last week that even its more creditworthy borrowers are now failing to make their mortgage payments--the charge-off rate for prime mortgages nearly doubled from the first quarter to the second. JPMorgan CEO Jamie Dimon said his expectation is that those losses could triple during the remainder of 2008.

If economic conditions worsen, American Express said it will be forced to add to its credit reserves.

Quarterly revenue rose 8 percent to $7.48 billion, slightly below analysts' estimate of $7.6 billion. Revenue was boosted by strong growth in the company's international card services segment, as well as its global network and merchant services division and global commercial services unit.

Revenue from its international card services division increased 20 percent to $1.3 billion, due to higher cardmember spending and borrowing.

American Express no longer forecasts long-term earnings-per-share growth of between 4 percent and 6 percent, based on expectations of continued economic uncertainty and higher write-off levels. The company expects third- and fourth-quarter write-off rates to be higher than June levels.

The lender also hinted at various cost-trimming initiatives, including possible job cuts, that would result in restructuring charges in the second half of the year.