American Express Co , reported better-than-expected earnings on Thursday as it slashed costs, and said it intended to repay government bailout funds as soon as regulators allow, sending its shares up 6 percent.

The company said it expects another round of cost cutting in the second quarter, which follows efforts in October to cut costs by $1.8 billion through eliminating 7,000 jobs and lowering marketing and advertising expenses.

We continue to be very cautious about the economic outlook, said Ken Chenault, chairman and chief executive, in a statement.

In February, the company took the unusual step of offering $300 to U.S. card holders to pay off their balances and close their accounts, in an effort to reduce its credit risk.

Those efforts may have contributed to the 16 percent decline in spending volume on its cards.

American Express long catered mainly to wealthy consumers, but earlier this decade it began reaching out to a wider range of clients, resulting in rising loan losses.

In the first quarter, net income available to common shareholders fell to $361 million, or 31 cents per share, compared with $985 million, or 85 cents per diluted share, in the same quarter last year.

Excluding an after-tax gain of $136 million from legal settlements with Visa Inc and MasterCard Inc , the company posted earnings of 20 cents per share, beating analysts' average forecast of 14 cents, according to Reuters Estimates.

Revenue fell 18 percent to $5.9 billion, but expenses fell 22 percent to $3.6 billion, helped by the restructuring plan.

While we did see some recent improvement in early delinquency rates, overall credit indicators reflected rising unemployment levels and the broad-scale weakness in the economy, Chenault said.

American Express shares rose 6.1 percent to $22.15 in after-hours trading after closing at $20.97, up 7.93 percent on the New York Stock Exchange. The company's stock has risen 12 percent in 2009.


American Express, founded in 1850, became a bank in November as bond markets closed down and lenders outside the banking system began looking to fund themselves with deposits. Being a bank also helped American Express win access to $3.4 billion of capital from the government's Troubled Asset Relief Program.

Stronger financial institutions that were pressed to take TARP money last year, or that chose to, are now looking to pay it back because of the strings tied to the funds, including pay limitations for senior executives. Goldman Sachs Group Inc issued $5 billion of shares last week to help repay its $10 billion of TARP money. JPMorgan Chase & Co said last week it has the resources to repay the government immediately. It is not clear if regulators will approve the paybacks.

American Express said it hopes to repay the funds if regulators allow and after the stress tests, the results of which will be announced for all banks in coming weeks.

The company said it has $25 billion of excess cash and marketable securities. American Express said in March it may sell its stake in Industrial and Commercial Bank of China, <1398.HK> which at the time could have raised more than $600 million of capital.

In American Express' U.S. card service business, charge-offs -- the annualized rate at which the company wrote off bad loans during the quarter -- rose to 8.5 percent from 7.0 percent in the previous quarter. The charge-off rate is likely to rise by anywhere from 2 to 2.5 percentage points in the second quarter, and another half a percentage point in the third quarter, the company said.

Spending volume on its cards globally fell 16 percent to $139.2 billion from the same quarter last year, but the company's outstanding cards rose 4 percent to 91.6 million.

(Reporting by Juan Lagorio; Editing Bernard Orr)