Credit Card Debt Management

The first two quarters of 2008 have been a real mixed bag for American Express. On the bright side, the company saw two rulings in its favor in legal claims that MasterCard and Visa were intentionally blocking banks from partnering with competitor AmEx. The $4 billion in settlement payments from those antitrust suits could not have come at a better time.

According to Bloomberg.com, American Express stock has dropped nearly 20 percent, historic losses within a six-month period for the company. The losses are being blamed largely on the current economic slowdown affecting consumer spending and the business climate.

What’s interesting is that even AmEx’s top clients (and the ones who the company most aggressively recruits), the big spenders with high credit scores, are having issues. According to CEO Kenneth Chenault:

“We are seeing very affluent people who have had historically very, very strong spending history with us cutting back.”

Late and uncollectible loans were higher than expected in the second quarter, according to Chenault. The company’s long-term forecasts are being put on hold until the economy improves, and tracking has halted for the company’s $4 to $6 earnings per share forecast for 2008.

The news is further proof that AmEx, Discover, and Capital One are shaky investments for shaky times. Visa and MasterCard, however, have no exposure to bad loans because they are not lenders. Though Visa and MasterCard may be more stable, many investors (very likely including Warren Buffet, who owns 13 percent of AmEx stock) might be inclined to advise the purchase of AmEx, Discover and CapOne stock while the getting’s good. America’s obsession with credit cards isn’t going away any time soon, so the companies are sure to rebound.