American Express turns big fourth-quarter profit on credit card spending

American Express enjoyed an income of $1.1 billion in the final three months of 2010, an increase of 48 percent over the same quarter in 2009, according to the company's latest regulatory filings. This was largely due to its U.S. Card Services division pulling in $701 million in the quarter, up 70 percent from the previous year, as consumers were more conscientious about paying their monthly bills and losses to defaulted credit card debt decreased.

"With cardmember spending up 15 percent this period, we reached all-time records for the quarter and the full year," said American Express chairman and chief executive officer Kenneth Chenault. "Credit indicators strengthened and the amount we needed to set aside for problem loans declined significantly from a year ago. Unemployment levels and housing remain a concern, but other aspects of the economy continue to show signs of improvement."

American Express saw the amount of money it had to set aside to cover defaulted credit card debt fall to $111 million in the quarter, the filing said. That was a decrease of 68 percent from the $346 million worth of charge offs it dealt with in the fourth quarter of 2009. The company noted the declines were largely the result of improved credit quality.

It also observed an 18 percent increase in revenues, to $3.8 billion from $3.2 billion, on interest expense, the report said. This was the result of greater securitization for the company, as well as higher consumer spending with these accounts, though the latter was offset by a smaller number of accounts overall.

Many consumers have made a greater effort to avoid taking on credit card debt over the last several months, as they have become more conscious of how these accounts affect their overall finances. Some have begun to rely more heavily on debit cards and cash to make everyday purchases. However, the holiday season may have caused Americans to use their credit accounts to purchase gifts, leading to increased fourth quarter profits for most major lenders.