Credit Card Giant Plans To Cut Costs Up to $1 Billion
Apr. 27, 1992
NEW YORK (AP) _ American Express Co. said Monday it plans to cut operating costs at its main card and travel division by up to $1 billion over three years as it tries to rebound from recent difficulties.
The unit has been battered by the recession and bad publicity over high fees charged to businesses that accept the company's flagship green, gold and platinum cards.
American Express Chairman James D. Robinson III told shareholders the company would cut $500 million to $1 billion in expenses at its Travel Related Services unit from credit provisions, marketing and interest costs, and operations.
Adding to the company's troubles was the release Monday of a book describing an alleged smear campaign undertaken by some American Express executives against a rival international banker.
The book, by Wall Street Journal reporter Bryan Burrough, does not directly link Robinson to attempts to discredit Edmond Safra, who ran a bank acquired by American Express in 1983 but who resigned after disagreements the following year. But the book suggests Robinson might have known about the efforts.
Robinson said at the shareholders meeting: ''I was not aware of, did not authorize, did not condone any effort to spread false or defamatory information about Edmond Safra or his banks.''
Robinson acknowleged that American Express, believing Safra had violated an agreement not to compete with the bank, began an investigation of Safra and an effort to oppose Safra's application for a Swiss banking license.
''At some point, unknown to me, the investigation went beyond its intended bounds, and unfavorable articles about Mr. Safra appeared in the press,'' he said. In a public apology in 1989, Robinson called the smear campaign ''unauthorized and shameful.''
Harry Freeman, a former American Express executive vice president who resigned after public disclosure of the campaign, has denied its existence and sued the Journal and Burrough for $50 million.
Robinson's announcement on the company's cost-cutting came in a speech that acknowledged the problems affecting American Express, which this month reported a 6 percent drop in first-quarter operating profits.
''They've come to realize that the credit card business is perhaps not any longer a growth market,'' said John Keefe, a brokerage industry analyst who follows American Express.
''In order to increase profits that means they're going to have to increase their market share and ... provide more to the bottom line,'' he said. ''If revenues aren't growing they're going to have to do it through costs.''
Robinson said American Express' stock price has been ''lousy'' so far in the 1990s, tumbling from around $40 a share in 1989. On Monday, American Express fell 75 cents to $21.87 1/2 in heavy New York Stock Exchange trading of more than 2 million shares.
''Concerns over asset quality, dilution from the need to raise equity, negative surprises - these have shaken analysts and investors,'' Robinson said. Last year, American Express encountered bad publicity over a boycott by some restaurants because of high fees for accepting its charge cards. The company also took a large restructuring charge to pay for credit defaults and internal turmoil at its Optima credit card division.
The company's performance was hurt by the Gulf War, which reduced international travel, and the recession, which hindered consumer spending.
Robinson said consumer spending appeared to be increasing, the company's troubled Optima division had been overhauled and its Shearson Lehman Brothers investment banking unit was performing well.
Responding to complaints about service fees for American Express cards, Robinson said the company had adjusted some prices, paid more attention to business relationships and axed businesses discouraging card use.
American Express handed out flyers at the shareholders meeting with an 800 number to call to inform the company about merchants that discourage customers from using the card. American Express justifies higher fees on the grounds that its cardholders spend more money and the card itself attracts business.