Amex Earnings Drop, Defaults Rise
American Express announces its earnings earlier this week, posting a 38% drop in 2nd quarter earnings. An interesting quote from American Express CEO, Kenneth Chenault, shows the credit crunch/defaults are being seen across all types of customer bases. Chenault said:
Over the past month or so we have seen clear signs that the U.S. economy is weakening. Unemployment rates, as we know, took the largest jump in over 20 years. Home prices declined at the fastest rate in decades and consumer confidence is at one of the all time low points… This fallout was evident across all of our consumer segments, even our longer-term super prime card members… In other words, more and more consumers who are falling behind in their payments are remaining delinquent.
Does this mean it is hitting Black card members too? I don’t know for a fact, but it wouldn’t surprise me if some were included. As reported earlier, Amex has really been paying close attention to customer charging habits, not allowing some purchases in an effort to limit exposure to consumer risk. It will be interesting to see if they tighten the reigns on the ability to get a black card in the US. I have heard many voice an opinion that it has become increasingly too easy to receive a Centurion card in the US. Membership is current hovering somewhere around 20,000. What do you all think, will they tighten the reigns on Centurion memberships?
On a side not, Jeremy Enke made a list of the 10 things he can’t buy with his black card.
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Comments
I think they should do away with the $5,000 “joining fee” and just up the annual fee instead.
And, they should broaden their co-operation with vendors providing VIP benefits, which have eroded since 2005 and continue to erode further in 2008.
In 2008:
They have lost all of their ties to Saks Fifth Avenue this year, dropped the Mandarin Oriental arrangement in 2008, they stopped the Luxury Hotels benefits, they lost some other hotel arrangements, dropped the SPG Platinum last year, and severed ties with Hyatt 2 years before, etc)
In fact:
Delta Airlines now competes directly with Amex’s own Centurion and Platinum members by offering their own Premium Amex Card which actually gives priority to all other “VIP Tier” frequent fliers - even above those who actually fly enough miles to earn the status.
In other words:
1. if you fly 50,000 miles - you will get Gold Status with Delta
2. if you have a Centurion card - you will get Gold Status too.
3. if you have the Delta Premier Amex card (which is $450 annually, and gives you many Amex Platinum benefits too) you can fly, let’s say, only 20,000 miles - and you will not only get Gold Status with Delta, but
A) you will take priority over any other Gold Status member including those in categories 1 and 2.
B) you will have better lounge access than even a Centurion member.
C) you will bump any other Gold Status member from getting an upgrade (those in categories 1 and 2) and take their upgrade instead.
So, Centurion is just increasing membership to collect the $5,000 joining fee - and dropping benefits and services relating to the card itself.
Long term - that just means they are encouraging high-revenue Centurion customers to defect to Citi Chairman, Merrill+, Mastercard WorldElite, and other premium cards which cost less - while offering increasingly similar benefits…
Bring back the benefits - or “vintage” customers will defect and you will be left with just the “new” people who pay $5,000 for a one-time ego-massage !!!
This was bound to happen.
If you extend credit with no limit and a credit crunch hits then you are bound to suffer the consequences as I dob’t know the priorities of rich people but I imagine that fuelling your sports car/Maybach/Roller may be higher on your list than paying your Amex bill
Personally I ensure that all my debts are covered and this is the main reason I have an Amex Credit Card rather than a charge so I can spread the payments.
I reckon this will result in Amex charge cards having a defined credit limit as with credit cards and perhaps they will insist that you pay by direct debit (as its known in the UK, not sure of the system in the US) so that Amex have a greater chance of getting their money.
I personally would like to see tighter membership requirements. There are way too many people with the card now. The personal service has dropped in terms of what they can get or do for me at restaurants and travel.
It would be great if they raised the limit or only accepted people with the income not just people that can spend the limit and automatically get the card. Also with the economy in its current state, I wonder if a lot of the people that have it because they spent the limit will renew after the first year.