As a part of a new companywide reengineering initiative, American Express Co. (AXP), Monday announced a series of cost cutting measures, including 4,000 job cuts, expected to produce cost benefits of about $800 million during the remainder of 2009.
Kenneth Chenault, chairman and CEO of American Express said, "While we have remained solidly profitable at a time when some parts of the card industry were incurring substantial losses, we continue to be very cautious about the economic outlook and are therefore moving forward with additional reengineering efforts to help further reduce our operating costs."
The New York-based credit card company, which was granted bank-holding status in November last year, said that its reengineering plan includes a reduction of staffing levels, scaled back investment spending, and further cutbacks in operating costs.
The company will eliminate about 4,000 jobs or about 6% of its workforce from which the company expects to incur an after-tax restructuring charge of $117 million to $163 million in the second quarter. The staff reductions will occur across business units, markets and staff groups. The company expects to save about $175 million from these staffing decisions.
In addition, American Express said it has reduced investment spending on marketing and business development, from which the company expects to realize cost benefit of about $500 million. However, the company said it will make substantial investments in selective growth opportunities, business building initiatives and customer service support.
The company further plans to scale back its operating costs by cutting expenses for consulting and other professional services, travel, and general overhead. The company expects to realize benefits of about $125 million from this move.
American Express noted that the plans announced today are in addition to the $1.8 billion benefits tied to the reengineering plan announced in October 2008. The cost-cutting plan represents a reduction from previously planned spending levels for the year.
American Express was among the 9 banks that passed the U.S. government's "stress test." The "stress test" results showed that 10 of the 19 U.S. banks tested must raise a total of $74.6 billion in capital, while the 9 others, including American Express, do not require additional capital to withstand deepening recession.
U.S. banks have been racing to sell non-guaranteed debt because regulators have said that selling debt with a five-year term or greater was a key condition of being permitted to repay funds from the Treasury's Troubled Asset Relief Program. By repaying TARP funds, banks will be able to function independently and without any unnecessary restrictions on bonus payments and salaries to executives.
Earlier this month, American Express sold $3.0 billion of non-guaranteed senior debt, comprising $1.25 billion of 7.25% five-year notes and $1.75 billion of 8.125% 10-year notes.
American Express also sold half of its stake in Industrial and Commercial Bank of China, or ICBC, to a select group of investors through a private sale as the lockup period on the shares expired Tuesday. The company reportedly sold the shares at a discount.
American Express closed Monday's regular trading session at $26.13, up $1.90 or 7.84% on a volume of 23.48 million shares. In the after-hours, the shares lost 8 cents. The stock has been moving in a range of $9.71 - $49.99 for the past 52 weeks, with an average daily volume of about 31.97 million shares for the past three months.
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