AmEx forecasts stronger profits for the remainder of 2022 despite accumulating higher provisions

American Express Co on Friday forecast its full-year profit to be higher than expected, but created higher provisions to prepare for possible defaults in the face of an economic downturn, sending its shares down sharply.

Big US banks have claimed that the financial health of consumers has remained strong despite aggressive rate hikes to curb inflation that could tip the economy into recession, but some believe that tightening could cause a rise in the defaults.

To better prepare for defaults, AmEx constituted provisions for a value of 778 million dollars in the third quarter, versus analysts’ estimate of $604.1 million.

We are aware of mixed signals in the broader economy and have plans to pivot should the operating environment change dramatically,” said AmEx CEO Stephen Squeri.

Still, the company expects to post a full-year profit higher than its previous forecast of $9.25 to $9.65 a share.

Strong travel and leisure growth in its international markets helped AmEx beat earnings estimates for the September quarter. Spending volumes in the segment exceeded pre-pandemic levels for the first time this quarter.

Net earnings rose 3% to $1.88 billion, or $2.47 per share, beating market estimates of $2.41, according to Refinitiv IBES data.

Revenue rose 24% to $13.6 billion, while expenses rose 19% as AmEx had to spend heavily on customer rewards, compensation and marketing.