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American Express 3rd-Period Net Grew
By 9.5% as Card Growth Led the Charge

NEW YORK -- American Express Co., helped by growth in its flagship charge-card business in the U.S. and overseas, posted a 9.5% increase in third-quarter earnings.

Net income rose to $574 million from $524 million a year ago. Operating profit per diluted share -- which was the same as net -- rose 14%, to $1.25, from $1.10 a share a year earlier. The $1.25 figure is a penny higher than a consensus of analysts' estimates compiled by First Call.

Revenue climbed 6.4%, to $4.79 billion, which the company said fell short of its long-term target of at least 8% annual growth.

Investors weren't surprised by the results. American Express rose 50 cents to $88.125 in New York Stock Exchange composite trading.

Higher Card Charges

Although the number of American Express cardholders in the U.S. has been stagnant at about 29.5 million for at least the past year, the company has succeeded in its campaign to boost the amount charged on its cards. U.S. volume during the latest quarter rose 9.1%, to $41.5 billion.

Outside the U.S., where the company has been promoting its cards aggressively, both the number of cardholders and the amount charged have grown. Cards in circulation outside the U.S. during the quarter rose almost 14%, to 14.6 million, while volume climbed 3.6% to $15.2 billion.

American Express said earlier this year that it intended to focus on increasing its volume in the U.S. rather than on new card customers. The company has also long complained that it is unable to expand through partnerships with banks because of rules imposed by archrivals Visa U.S.A. and MasterCard International Ltd. on their member banks.

Alleged Anticompetitive Practices

That topic is a central theme of a Justice Department antitrust suit, filed this month, alleging anticompetitive practices at Visa and MasterCard. Both companies deny the government's accusations.

At the end of June, American Express's U.S. market share for total credit-card and debit-card purchase volume stood at 18%, compared with 25% for MasterCard and 50% for Visa, according to Nilson Report, an industry newsletter.

Despite its big international presence, American Express hasn't been involved in the kind of risky investments and loans that have hurt other financial-services firms in the two months since Russia effectively defaulted on its debt and devalued the ruble.

"The market is relieved that in a very difficult period for financial-services companies, American Express came through unscathed," said Mark Alpert, analyst with BT Alex. Brown Inc.

Net-Loss Ratio

Loss provisions on the company's charge cards declined 22% to $224 million from $284 million a year ago. The net-loss ratio, which measures losses as a percentage of billed business on charge cards, fell to 0.48% from 0.52% a year ago.

Overall, the company's Travel Related Services unit, which includes credit cards, saw earnings rise 17% to $362 million.

At American Express Financial Advisors, the company's mutual-fund and financial-services unit, profit rose 15% to $211 million because of higher fee revenue from increased assets under management and higher sales of mutual funds.

At American Express Bank/Travelers Cheque, which includes the company's traveler's-check business, earnings fell 36% to $43 million, in part due to a one-time gain of $16 million a year earlier. This year, profit was hurt by the economic problems in Asia, which caused lower interest income and commissions. That was only partially offset by higher foreignexchange trading revenue.

Overall, American Express's return on equity, an indicator of the profitability of financial-services companies, stood at 23.9%, up from 23.3% a year ago.
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