New York: In a stark acknowledgment of the tough times ahead in the credit card industry, American Express Co. plans to cut 7,000 jobs, or about 10% of its worldwide work force, in an effort to slash costs by $1.8 billion in 2009.
The New York-based credit card issuer which has reported four straight quarters of profit, declines as an increasing number of consumers struggle to pay off debt and is also suspending management-level salary increases next year besides instituting a hiring freeze.
The job cuts will be across various business units, but will primarily focus on management positions, the company said. Additionally, American Express said it plans to scale back investments in technology and marketing and business development, and streamline costs associated with some rewards programmes. The company will cut expenses for consulting and other professional services, travel and entertainment and general overheads.
Restructuring on the anvil
As a result, American Express plans to take a restructuring charge of between $240 million and $290 million in the fourth quarter. The company has been gearing up for a big restructuring for some time, first announcing in July that it planned to reduce overall costs and staffing levels, and take a related charge during the second half of the year.
24% drop in Q3 profit
Last week, American Express reported a 24% decline in third-quarter profit. The report echoed recent results from JPMorgan Chase & Co., Citigroup Inc. and Capital One Financial Corp. showing that the credit card environment is worsening as cardholders have trouble paying off debt and pull back their spending.
Even a company like American Express, which prides itself on catering to a more well-heeled clientele, is not immune. The company’s customers tend to be more affluent than those of other card companies, but they are more heavily concentrated in California and Florida, where the slumping housing market is taking a toll. American Express also has a higher percentage of small-business customers, and small businesses tend to miss payments more than individuals, executives have said.
American Express has been able to finance its operations amid the tight credit markets, but the efforts have been tougher and more costly.
Shares rose 60 cents, or 2.4%, to $25.81 in afternoon trading. Shares have traded between $20.50 and $61.55 in the past 12 months.