This has been a big week for both American Express and Citibank. One bank is dealing with lower than expected earnings while the other is adjusting to growing pains associated with a new CEO.
Admitting its card members aren’t spending like they usually do, shares of American Express took a small hit late Wednesday. The hit came after the credit card giant’s expectations weren’t met. The company itself has been reining in its own spending, partly due to slower growth during the first half of the year. Overall, the profits grew by a weak 1%. Its shares are hovering around $59.37. Revenue, however saw a 4% increase; still, it was less than what analysts had been hoping to see. They predicted $7.93 billion and in reality, the numbers were just short of the expectations, coming in at $7.89 billion.
American Express customers are spending, just not at the levels they were a year or two ago. Spending climbed to 8%; however, the company is used to double digit spending.
It represents slower growth than we were generating earlier in the year, a trend that we’re seeing among major card issuers,
said CEO Kenneth Chenault in a statement released late Wednesday. He then went on to say even tighter reins will be used in the coming months and it’s all because of slower than expected growth and economic recovery.
But they’re not alone. Many of its competitors are experiencing the same “mixed bag” financial news. And, like American Express, all are looking for ways to lessen the potential problems.
During a conference call earlier – before the numbers were released – CFO Dan Henry announced the American Express prepaid card, Serve, would soon be the focus of a more assertive advertising campaign, including the goal of linking American Express with its Serve product. This is something the card company hasn’t been doing until now. Amping up its marketing effort is smart move, especially considering prepaid cards are one of the fastest growing sectors in the financial industry. Not only that, but a few more of the big credit card companies have unveiled their own versions of a prepaid card. It’s likely American Express didn’t want to miss out and certainly not because they’d not been marketing their product.
Meanwhile, those in the know say Citigroup Inc expects its new CEO Mike Corbat, to promote executives from within the company versus bringing on new people. It’s expected as many four senior positions will be filled before the end of the year. Yesterday was interesting for the bank, which saw the unexpected resignation of both Vikram Pandit and the bank’s COO John Havens. Corbat has been with Citigroup for more than three decades.
As a short term solution, Corbat made changes in the executive suit on Wednesday. He asked North America CEO Bill Mills to take on the role of a temporary CEO in the Middle East, Europe and Africa. He has said the next several weeks will include a lot of structural reviews as well as reshuffling, though he’s not saying much else.
Already people are saying Corbat’s management style and decision making process is significantly different than how Pandit was known to do. There are already rumors that the current CEO of EMEA unit, Jim Cowles is being considered, but at this point speculation about Cowles or anyone else is just that: speculation.
So what happened behind closed doors that resulted in a quick exit for Havens and Pandit? No one knows for sure, but there’s no doubt there was a conflict between those two and the bank’s board. Those on the inside say many who are loyal to both or either Pandit or Havens will likely be heading for the exit. Now, though, top priority is filling those vacancies in order to maintain its public image and eliminate uncertainties about the departures.
There’s no denying Corbat has his work cut out for him. Results are expected within one hundred days, which is about right in this industry. Still, the economy is still taking a toll and, of course, there are new regulations to contend with. It should be noted, however, that if Mitt Romney wins the upcoming presidential election, not only Citi’s bank branches, but every other bank in the country might find themselves freed from what they say is a burden. That burden, of course, is the massive amount of new laws that were spawned as a result of the Dodd Frank law.
In a memo sent to Citigroup employees that were working under Pandit or Havens, Corbat instructed them to now report to him. In another memo and conference call, Corbat reiterated his priority of budgets and strategy. He also stressed his commitment to making solid decisions and getting it right the first time in terms of filling the two vacancies. Analysts agree that the time is now to build his formidable team, “He has one shot and one shot only”.