UPDATE: AmEx CFO: $150 Million-$200 Million More In Net Interest Costs
February 04 2009 - 4:56PM
Dow Jones News
American Express Co.'s (AXP) net interest costs will likely rise
by $150 million to $200 million in 2009, Chief Financial Officer
Dan Henry said at the company's financial community meeting
Wednesday.
The additional cost stems from the difference between the
company's investments of its excess cash in low-risk, low-yielding
securities and the higher borrowing costs the company faces while
fulfilling its funding requirements, Henry said.
AmEx will invest excess cash in securities such as U.S.
government debt, mortgage securities backed by Fannie Mae (FNM) and
Freddie Mac (FRE), money-market funds and the debt of companies
that is insured by the Federal Deposit Insurance Corporation, said
Henry.
The company had $21 billion in cash balances as of the end of
the fourth quarter.
AmEx reported at the end of January fourth-quarter net income of
$172 million, or 15 cents a share, compared with $831 million, or
71 cents a share, a year earlier. The results included a $273
million after-tax charge related to severance programs tied to
previously announced layoffs.
Looking beyond 2009, through 2011, return on equity, an
important measure for investors, will decline, said Henry, because
of moderate growth and potentially higher capital requirements. In
addition, the company also has to pay a 5% dividend until 2011 on
the government's three-year preferred stock investment in AmEx. The
company received $3.4 billion in January from the U.S. Treasury's
Troubled Asset Relief Program in exchange for the stake in the
company.
Henry declined to provide a range or a number as an estimate of
the return on equity during this period. Return on equity will
total at least 20% after AmEx has completed its dividend payments
to the government in 2011, Henry said. This measure stood at 33.4%
as of Dec. 31.
The company issues charge cards, which must be paid off each
month, as well as credit cards that allow customers to carry a
balance. Unlike other card companies, which either issue plastic or
process the transactions, AmEx does both. AmEx earns the bulk of
its income from card fees it charges consumers and processing fees
it charges merchants such as grocery stores and gas stations.
In recent trading after the market close Wednesday, AmEx shares
were up 1% to $16.56.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com