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US credit card company American Express is shedding 7,000 jobs as it grapples with a surge in bad debts among customers who are feeling the pinch from the global economic slowdown. In a sign that the credit crunch has reached even relatively affluent cardholders, AmEx is embarking on cuts to save $1.8bn (£1.1bn) annually.
AmEx's workforce will be reduced by 10%. The firm has imposed a recruitment freeze and has vetoed pay rises for its management. Spending on travel, consulting and entertainment will be scaled back and the group will reduce its budget for technology and marketing.
Kenneth Chenault, chief executive, said: "The re-engineering programme we announced today will help us to manage through one of the most challenging economic environments we've seen in many decades."
Shares in AmEx have fell 26% this month amid rising concern about a slowdown in consumer spending and an increase in delinquent debts in the credit card industry. AmEx last week revealed a 23% in third-quarter profit to $861m. It made accounting provisions for losses of $941m. In a year, the proportion of debts to be written off by AmEx has doubled from 3% to 6.1%.
AmEx has clamped down on customers' credit limits and has tightened criteria for applications for new cards. The rating agency Standard & Poor's recently put the company on watch for a downgrade, saying that "dislocations in the global credit markets are resulting in unprecedented challenges for wholesale-funded institutions, including AmEx".
Americans owe about $900bn on credit cards. In a joint proposal, business leaders and consumers' representatives this week called on the US government to back "a programme of forgiveness" in which lenders would reduce the amount owed by customers by up to 40%.
Travis Plunkett, legislative director of the Consumer Federation of America, said the plan would "help many customers in serious debt pay back much of what they owe and avoid bankruptcy".
Banks, including Citigroup and JP Morgan, have made it clear that credit card liabilities are likely to rise.
On the upside the US postal service is expecting to deliver less junk mail from credit card firms.
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