American Express Is On A Downward Spiral

With the competition coming down on American Express like a ton of bricks, the last half a year has been especially rough on the popular credit card company. Macquarie Research has even downgraded the company’s rating from “Neutral” to “Underperform”, a reflection of American Express’ recent string of financial misfortunes.

  • In describing the credit company’s newest rating, it was noted that the company was having an uphill task maintaining market share, let alone experiencing growth
  • The company’s obvious struggles to stay profitable and protect its business interests in the last six months have become an issue of concern, especially for business partners and owners of American Express shares


Termination Of the Costco Co-Branding Deal

The most notable setback to the company’s future financial prospects was its loss of a 16-year co-branding deal with Costco in February. According to American Express, there was no point in continuing to be in a business agreement that no longer made any economic sense. At least that was what the company’s top brass stated after attempts to extend the deal fell through.

Not long afterwards, Costco had cut another deal with Visa whereby Citi would serve as the exclusive provider of Costco’s co-branded credit cards. The new deal is planned to come in to force in April 2016 across all Costco stores in the US and Puerto Rico, when the current deal with American Express comes to an end.

Costco customers will also be possible for customers to make payments using MasterCard debit cards, but American Express will no longer be accepted after the end of the set April deadline. The exclusive Costco co-branding agreement made American Express about $80 billion worth of business every year. With 10% of American Express Cards being Costco Cards, the end of this agreement will certainly rock the company for a year or so.

JetBlue Ended Co-Branding Agreement With AmEx

Unfortunately, the loss of the Costco deal was not the only major blow the company has had to deal with in the recent six months. The credit company’s deal with JetBlue also came to an end. To make matters worse, most airlines are demanding for better deals, otherwise, they are more than willing to take their business elsewhere. This largely explains why JetBlue ended the AmEx co-branding agreement. This may not seem like much, but for American Express, it is a sign of tougher times ahead. Thanks to the AmEx network, American Express was the preferred partner in airline, retail and restaurant business. Therefore, the fact that it can no longer hold its own against the competition in these strongholds means that worse times might be on the way for the company.

Lost Antritrust Case

As if that was not enough, American Express lost an antitrust case, which further compounded American Express’ seemingly unending string of problems. In the case, it was revealed that American Express had made attempts to ban its merchants from encouraging their customers from using cheaper alternatives than American Express.

Needs Of Credit Card Users Changing At The Expense of Credit Card Companies

The relationship between credit card users and credit card providers such as American Express has also soured over the recent past. People are less willing to have balances on their credit cards. Issuers of credit cards are having to do a lot more to make sure holders of their cards have greater balances on their credit cards, and this involves providing larger rebates on purchases, sign-up bonuses, and longer interest-free periods for people who move balances from other cards. In general, credit card transaction revenue has been passing back to the customer at higher rates, which has been putting a squeeze on the revenues credit card companies can make.

Global Operations Less Profitable

AmEx’s global operations are also currently proving to be a problem. The company is losing lots of money to wild fluctuations in currency exchange rates. This, of course, translates into bad earnings for the company, even as it deals with relentless competitors.

Plummeting Share Price

Over the last one year, the value of American Express shares has dropped by around 13%. However, 9% of this drop has been experienced within the last six months. After Costco dropped American Express, AmEx stock lost over $5 billion of its market value. More specifically, AmEx shares fell by 6.4%.

The prospects for future stock price are even grimmer, according to analysts. The maximum expected rise in stock price towards the end of March is just 7%, which will not be enough to compensate the fall in price experienced over the last six months. On the other hand, it is estimated that the stock may fall by slightly over 21%, which would push the price of American Express shares to a historical low.