American Express 1Q profits rise 31 percent, helped by taxes

Credit card giant American Express recorded its second-highest quarterly profit in its history on Wednesday, driven by strong customer spending on its namesake credit cards and a much lower tax bill.

New York-based American Express earned a profit of $1.63 billion, or $1.86 a share, compared with a profit of $1.25 billion, or $1.36 a share, a year earlier. The results beat analysts' expectations, who were looking for AmEx to report a profit of $1.70 a share.

Like other financial companies, American Express benefited greatly from the new tax law. The company's effective tax rate dropped from 32 percent to 21.5 percent. While pre-tax profits rose 13 percent from a year earlier, the amount of money AmEx paid in taxes fell by 24 percent. It's a similar drop that other financial companies such as JPMorgan Chase and Citigroup also reported this month when they announced their results.

American Express, founded in 1850, has only made more money in 90 days during the second quarter of 2016, which was when AmEx sold its Costco portfolio of credit cards to Citigroup.

AmEx's results were boosted by a 10 percent increase in U.S. card member spending last quarter compared to a year ago. American Express earns a fee for every transaction that crosses its network, which has been at the center of the company's business model for decades.

But increased competition has forced AmEx to charge merchants less to take their cards. The company's average discount rate, the fee it takes for every transaction, was 2.37 percent in the quarter, down from 2.43 percent a year earlier.

To boost profits, American Express has been encouraging card members to carry a balance and have started marketing loans, a change in the company's business model, which used to rely heavily on charge cards that have to be paid off entirely at the end of the each month.

Interest income from loans was $2.33 billion in the quarter, up $1.86 billion from a year earlier. But that increase in lending has come with an increase in the number of customers who have been unable to repay their balances. AmEx wrote off 2 percent of all loans in the first quarter, up from 1.7 percent a year earlier.

This quarter marks a transition for American Express. The company's long-time Chief Executive Kenneth Chenault retired on Feb. 1, replaced by Steve Squeri. Chenault ran AmEx for 17 years through some of the company's biggest challenges, including the Sept. 11 attacks, the financial crisis, and increased competition.

While it is still too early to see any fundamental changes, Squeri has already made his mark in some ways. The company rolled out a new brand and advertising campaign this week, with the mottos "Don't live life without it" and "Don't do business without it," paying homage to the company's long-time slogan of "Don't leave home without it."

The company now expects its full-year profits to be at the high end of its previously forecast range of $6.90 to $7.30 per share.