By Hugh Son
July 22 (Bloomberg) -- American Express Co., the biggest U.S. credit card company by purchases, dropped as much as 12 percent after second-quarter earnings fell more than analysts estimated and Chief Executive Officer Kenneth Chenault withdrew his 2008 forecast.
American Express declined $4.81 to $36.09 in early German trading, the biggest drop since the terrorist attacks of Sept. 11, 2001. Futures contracts indicate the Standard & Poor's 500 Index may fall 0.6 percent today.
Chenault said yesterday on a conference call that New York- based American Express was hurt by the increase in U.S. unemployment and the decline in house prices and consumer confidence. The business climate is ``much weaker'' than earlier assumptions, he said.
``I don't think the environment's going to be helpful to the company over the next nine to 12 months,'' said Craig Maurer, an analyst at New York-based Calyon Securities, who has a ``buy'' rating on American Express, in a Bloomberg Television interview.
American Express's profit from continuing operations dropped 37 percent to $655 million, or 56 cents a share, falling short of analysts' estimates of 82 cents. The company also said it added $600 million before taxes to reserves for loan losses in the U.S.
The economic slowdown worsened in June, affecting American Express's wealthier cardholders with high credit scores, Chenault, 57, said on the call. Late and uncollectible loans exceeded expectations in the quarter and will rise as the year progresses, Chenault said. The U.S. lost 62,000 jobs in June, the sixth straight period of shrinking payrolls.
American Express is ``no longer tracking'' to a prior forecast for 4 percent to 6 percent earnings per share growth for this year, Chenault said in a statement. The company won't meet longer-term targets until the economy improves, he said.
Second-quarter profit at the U.S. credit card unit dropped 96 percent to $21 million, as provisions for losses more than doubled to $1.5 billion. Uncollectible debt in the division rose to 5.3 percent of loans from 2.9 percent a year earlier.
``We are seeing very affluent people who have had historically very, very strong spending history with us cutting back,'' Chenault said.
American Express, Capital One Financial Corp. and Discover Financial Services lost more than 33 percent of market value in the past year as consumers struggled to repay debt of all types.
Moody's Investors Service has a negative outlook on credit- card lenders and said defaults ``will most certainly'' rise this year. Stressed consumers are tapping plastic as access to home- equity loans falls, New York-based Moody's said in a report published in February.
Delinquent credit-card accounts rose more than 1 percentage point from a year earlier to 3.99 percent in May, according to data compiled by Bloomberg.
Some of American Express's loan losses will be cushioned by about $4 billion in settlement payments from Visa Inc. and MasterCard Inc. American Express said last month it settled an antitrust suit against MasterCard for $1.8 billion. Visa and bank partners settled in November for $2.25 billion.
American Express ranked first by the total value of purchases and cash advances to U.S. cardholders in the first half of 2007, according to the Carpinteria, California-based Nilson Report, a trade publication. JPMorgan Chase & Co. and Bank of America Corp. placed second and third, respectively.
Billionaire Warren Buffett's Berkshire Hathaway Inc. is American Express's largest shareholder with 151.6 million shares, equal to a 13 percent stake at the end of March, according to regulatory filings compiled by Bloomberg.