American Express reported record quarterly profits in its earnings report Friday, as the high-end credit card company fights negative consumer impacts from a weak economic environment driven by interest rates — and even turns a profit from it .Thank you for reading this post, don't forget to subscribe!
The credit card giant’s earnings of $15.4 billion and $3.30 per share both came well above consensus analyst estimates, breaking the previous quarter’s record low and setting a new sales record for Q3.
American Express cardholders spent $420.2 billion during the third quarter, an increase of 7% year-over-year, evidence of “strong” spending, as demand for American Express’ higher-fee credit cards remained “high,” CEO Stephen Squeri said. said in a statement. Earnings Release.
The boost in consumer confidence comes amid warnings about what the highest interest rates in nearly two decades would mean for discretionary spending as borrowing costs continue to rise.
And it’s not just that higher rates have failed to reduce spending among cardholders, but the company actually has the Federal Reserve’s pedestrian campaign to thank for the increased profits.
Its $3.4 billion net interest income was a 34% increase year-over-year and a massive 73% jump from Q3 2021.
Since last March, the Federal Reserve has raised the target federal funds rate from near 0% to 5.25% to 5.5%, the fastest rate increase seen in decades as the central bank moved aggressively to reduce inflation Is. The financial services industry has felt the acute impact of these rapid rate changes, especially as evidenced by three of the four largest bank failures in US history during the first half of this year. Although the US briefly entered a technical recession last year, the economy has so far proven resilient due to strong consumer spending as retail sales continue to grow, albeit at a slower pace. However, there have been recent signs of US consumer weakness. The Conference Board’s consumer confidence index slipped to a nearly 12-month low last month and the destruction in the bond market reached historic levels as the yield on the 10-year US Treasury note rose above 5% for the first time in 16 years.
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American Express rivals Visa and MasterCard will both report quarterly results next week. Most of the credit card giants’ big bank competitors have mostly reported strong earnings over the past two weeks.