Credit-card market has changed greatly since he took over; Squeri to be next CEO
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 19, 2017).
Kenneth Chenault, the head of American Express Co. and one of the country's most prominent African-American corporate leaders, will step down as chairman and chief executive Feb. 1, capping a 16-year run at the iconic card company as it grapples with a new wave of competition.
The 66-year-old executive will be succeeded as CEO by Stephen Squeri, a three-decade AmEx veteran who previously ran its division in charge of corporate cards. As vice chairman since 2015, Mr. Squeri, 58, had spent more time meeting with shareholders, leading many to believe he was on the shortlist to be the next chief executive.
Shares slipped 0.5% to $91.60 in after-hours trading Wednesday despite the company reporting stronger-than-expected earnings and revenue for the third quarter and raising its profit guidance for the year.
Mr. Chenault's departure comes after a tumultuous period in which he fought to revive AmEx's fortunes following the loss of a key partnership with Costco Wholesale Corp. and as the company's pre-eminent product, the Platinum card, came under attack from J.P. Morgan Chase & Co.'s Sapphire Reserve card.
The Long Island, N.Y., native had a stellar run for most of his time atop the New York-based company. But AmEx's recent travails have cast a shadow over his tenure -- something he fought to escape before stepping aside.
Despite a booming credit-card market that recently surpassed $1 trillion in balances, AmEx has ceded market share and some shareholders have questioned where long-term growth will come from. Many senior executives have left the company, and Mr. Chenault suffered a personal loss with the unexpected death in 2015 of his would-be successor, AmEx President Ed Gilligan.
The company's main focus in recent years has been ramping up lending to consumers and small businesses while also searching for new ways to appeal to millennials, many of whom crave different kinds of rewards and are more comfortable moving money with their phones than a credit card.
Still, AmEx's stock has rebounded of late as the company addressed some of shareholders' biggest concerns. In the past year, shares have rallied more than 50%, compared with a 28% rise in the Dow Jones Industrial Average. In recent months, shareholders say Mr. Chenault has appeared more upbeat and confident in his meetings with them.
In early June, the company said it won the rights to become the exclusive issuer of the Hilton Worldwide Holdings Inc. credit cards starting in 2018, beating out Citigroup Inc.
"We're completing a two-year turnaround ahead of plan and getting ready to start a new chapter," Mr. Chenault said on a conference call with analysts Wednesday. He added that the process of finding a new CEO had been under way for about five years and included candidates from inside and outside the company. He called Mr. Squeri "an excellent strategist and a strong leader."
One key constituent consulted by the company was Warren Buffett, whose Berkshire Hathaway Inc. is the largest AmEx shareholder with a 17% stake. A shareholder in the company for 53 years, Mr. Buffett said Wednesday that he had spoken to both Mr. Chenault and Mr. Squeri and in an interview added that the company had "made a terrific choice."
"We talked a lot about this change over the last few months, and I'm 100% on board," Mr. Buffett said.
In an interview, Mr. Squeri said there would be some organizational changes at the company in the next three months as Mr. Chenault prepares to retire.
Few would argue that the credit-card market has changed dramatically since Mr. Chenault took over in 2001. Two of the most significant changes: increasing competition from banks and more emphasis on rewards for consumers.
Since the end of 2001, AmEx shares have beaten the market, rising 195%, compared with a 131% rise in the Dow and a 23% bump for the S&P 500 financial-stock index, according to FactSet. In the last three years, however, gains have been tougher to come by, with AmEx shares rallying only 12%, compared with a 41% rise in the Dow and a 45% move in S&P 500 financial stocks.
AmEx has traditionally focused on card holders who pay their bills in full each month, but that means the company doesn't typically generate the interest revenue needed to offer as much in points and other quantifiable rewards that some big banks have been doling out in recent years.
Some former executives have said Mr. Chenault kept the company on the sidelines while rewards cards boomed, focusing instead on projects like prepaid cards popular with less affluent customers.
"We've been in this lending business for a long time," Mr. Chenault said in an interview. "We were able to come out of crisis faster and stronger than anyone else."
Mr. Chenault in recent months has been telling shareholders and analysts about other cards that started out hot and then fizzled out. In fact, his view was vindicated somewhat this year when J.P. Morgan scaled back its Sapphire Reserve offering by lowering its initial sign-up bonus amid concerns that the card's initial terms might not make enough money for J.P. Morgan.
"Everybody doubted us and we're delivering," said Mr. Chenault at an investor meeting in July, according to a person who attended the meeting.
Mr. Buffett, who has long been a fan of Mr. Chenault's, said the company was right to part with Costco, even though it was a short-term hit to the company. "Every bank in the world would kill for their credit experience," he said, adding that "millennials are as enthused" about the company's cards "as old guys like me."
Unlike some retiring CEOs, Mr. Chenault is also leaving as chairman. The retiring CEO currently serves on the boards of Procter & Gamble Co. and International Business Machines Corp.
The company on Wednesday said it now expects to make profit of $5.80 to $5.90 a share for the year, up from its earlier view of $5.60 to $5.80 a share.
Joann S. Lublin and Maria Armental contributed to this article.
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(END) Dow Jones Newswires
October 19, 2017 02:47 ET (06:47 GMT)