Amex Earnings Top Estimates as Platinum Card Demand Surges

0:01Bloomberg Audio Studios Podcast Radio News. you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple car play and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube we had some earnings we had american express and some numbers out there and bringing together the or bringing to the forefront just this whole credit card business which is such a competitive business in terms of fees and the premium card It's a premium card space. Exactly. And kind of what services they provide you.

0:39I know people are really aggressive in kind of managing the points and really trying to take advantage of that. Ben Elliott, Bloomberg Intelligence Consumer Finance Analyst. Ben, talk to us about American Express, the numbers that they reported today. What did you see and what are some of the takeaways? So I think what really jumped out to me today is the their their new platinum card product, which made a bunch of headlines for raising the fee. It's like 900 bucks a year now. It's getting great traction amongst millennials and Gen Z. Amex says that they're getting two times as many applications and new card accounts after the refresh.

1:18So how that translates to Amex's earnings, you know, you see their expenses go up right away because people get all these new benefits, all these new credits that they have access to with the new card. But the fee sort of amortizes in over a year or two. But the growth engine is still there. People are still clamoring for this card. And the business is really sustaining an incredible level of growth. Okay, so they raised the fee to$895. And even more people applied for this card because there's a bunch of these new perks. Do these perks actually cost American Express a lot of money? I mean, we're talking about$400 a year of dining credits.

1:55There's also like free credits at Lululemon and Saks. and these are all things that people get really obsessed over on Reddit threads, Reddit boards. Yeah, so the costs are real, right? They call them variable customer expenses. Typically, they run about like 40 % of the revenue of the company. But that number is pretty flat, actually, despite the introduction of some of the new benefits. But so, you know, so their expenses are up about 10%, which is sort of in line with their long-term revenue growth target. But over time, you'll see that fee increase start to amortize into earnings. And that should more than offset the increase in costs.

2:33And how does the pickup in new customers compare to its biggest competitor, which is the Chase Sapphire card? And as well as Citigroup coming out with a new Strata card, its own elite card offering. How would you stack them up against one another? You know, it's interesting. Amex is always going to have a little bit of an advantage here because they capture all of the economics of a premium credit card because they're also the network. So they're in addition to earning the fee, they're also earning a swipe fee every time customers use that card. So the value proposition to Amex is always inherently higher than it would be to Chase or to Citi to increase sort of the benefits they provide to the card and to drive more customers there.

3:18I think what's really interesting is that millennials and Gen Z are driving this. I think it's like 65, 64, 65 percent of the new customers are millennials and Gen Zs. And it's interesting, the CEO is saying today on the earner's call that they're looking into how many of these people are coming from other premium cards or how many people are just coming to a premium card for the first time because they're so attracted to this new offering that Amex has out on the market. So it looks like there's appetite for this. It's probably driven by social media and sort of new forces in our society that are driving interest in premium credit cards.

3:54And it looks like it has legs. It looks like it has legs. And people don't just get one Amex Platinum card. That's the other thing, right, Ben? I mean, they often get the Amex Gold card and the Amex Green card. I'm on these Reddit threads. I've been spending a lot of time on them because I'm trying to decide which card I should keep or use. And what struck me is how some people have like 10 credit cards in their wallet. Yeah, they're very proud of how the platinum and the gold and some of their other cards work together. And people love to be in the Amex ecosystem. And they actually had a lot of strength in their high yield savings account growth this quarter as well, which kind of goes along with people sort of.

4:31Amex is able to meet all of their needs, right, from travel down through dining, down through sort of everyday spend on groceries. And that's kind of the ultimate goal is to pull people fully into the ecosystem, capture 100 percent of the economics of these super prime, super high income customers. Ben, I'm holding in my hand my money clip cash. I mean, he pulls it out right. I got the green card. I'm old school. What's the fee on that cash? Exactly. Hey, Ben, talk to us about just the credit quality. What are the card companies you follow? What are they saying these days about their consumer and credit quality?

5:06So Amex is incredible, right? They have almost no signs whatsoever of stress. There's a little bit of stress. Last quarter, airline spending was down. That's sort of like the top, top, top of the wallet kind of front of cabin spend was down. But by and large, the companies I follow, even sort of the less prime companies, the synchronies and breads of the world that are doing things like point of sale retail credit cards, even they are continuing to see an improvement in credit. And the interesting thing about credit card charge offs is you see people go delinquent first and then you can kind of look six months into the future when they'll charge off and delinquencies are still improving.

5:45So as far as we can tell, six months in the future, credit card charge-offs still look good. So what does this say for what Capital One is likely to report, which I believe is on the 21st of October? I would expect the read-across to be positive for Capital One as well. They're interested in this top-of-wallet competition with Chase and Amex, but they're sort of the perennial third player. So it'll be interesting to see if they lean more into that through their marketing spend and some of the other expenses. But ultimately, Chase's bread and butter, sorry, Capital One's bread and butter is kind of the less prime borrower.

6:24And that flows through in a much higher net interest margin versus Chase and Amex, which are more focused on fees and swipe revenue. Stay with us. More from Bloomberg Intelligence coming up after this.

6:40you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube the fundamentals underpinning this economy and the buoyant financial markets is this idea that the consumer is resilient but a new study shows that all is not well in car loans. Keith Naughton is Bloomberg News' auto reporter in Detroit, and he joins us now. And Keith, auto loans is really a good leading indicator of the economy because people will continue to pay their car loans because they need their car to get to work.

7:17So when they're not paying their car loans, that's a sign that something's not going well. What are we learning about car loans right now? Yeah, you know, the authors of this study say that consumers are actually in their most precarious position since the last recession. You're absolutely right, Scarlett. Normally, the car loan and the mortgage payment are the priorities, particularly the car loan, because you need to get your kids to school, get to work, all the things you need from a car. But what we're seeing is over the last 15 years, delinquencies, so 60 days past due and more, have gone up by more than 50 percent.

7:50So that has made car loans actually the riskiest consumer credit product out there, more so than mortgages, credit cards and personal loans. So, Keith, another data point that jumped out at me is the average auto loan balance has grown 57 percent since 2010, outpacing all other credit products. I mean, it's getting crazy out there. The average cost for an average new car is, I think, north of$50 ,000 now. I mean, what's the industry saying? Yeah, so that's also news of this week is that the average price of a car, of a new car, is topping$50 ,000 for the first time. This is all part of a shift that the industry has made to selling more high-priced, high-profit vehicles, especially sport utility vehicles and pickup trucks.

8:40You know, the industry, particularly the Detroit automakers, have sort of moved away from the bare-bones economy models. You might remember coming straight out of college. And now it's all about these very well-equipped, very well-appointed cars. You can spend over$100 ,000 for a Ford F-Series pickup truck. Keith, you've spent about 40 years tracking the auto industry, covering it in great detail. When you get a report like this, how do the automakers respond? How do they capitalize on this or how do they modify their offerings in response to this? Yeah, you know, there is a lot of talk and some movement lately toward coming out with affordable models again.

9:22They really had kind of disappeared from the market, cars under$30 ,000. In fact, one of the Kelley Blue Book people recently said the$20 ,000 car has basically become extinct. So there is some focus on that, including in the electric vehicle space, but we've yet to see that materialize in a big way, Scarlett. Well, what Matt Miller tells me, Keith, is that they're going to continue to make these cars because people are these high priced cars and which are very high margin because people are buying them. Yes, they are. What it does, though, is it shrinks the new car market to just kind of the wealthiest households.

10:01It really excludes mainstream consumers if everything is priced above$50 ,000. And, you know, that can cause trouble down the road if your market keeps shrinking. so how do you think this plays out in the second uh secondary car market the used car market then used car prices are also high you know they're close to thirty thousand dollars on average so a lot of those first-time car buyers or budget-minded car buyers are going to the used car market and they're finding you know the sort of three-year-old used car the classic goodbye is more expensive than it used to be and what's the this is the stat that gets me what's the average age of a car these days after on the roads?

10:47It's over 12 years, which is such a change from the days of our youth when a car would never last past 100 ,000 miles. Now cars are built to really go the distance. And so that's another factor in this affordability crisis. A lot of people aren't even going after the used cars. They're just sticking with the clunker that they have for as long as they can ride it. Stay with us. More from Bloomberg Intelligence coming up after this.

11:20You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's talk a little bit about higher education. It has been in the spotlight and not always in a good way. But for four historically black colleges this week, it's been a very good week because the Family Foundation of Arthur Blank, who owns the Atlanta Falcons and was the co-founder of Home Depot, gave a very generous gift to four of those schools. I want to bring in now Roz Brewer.

11:54She is the interim president of Spelman College in Atlanta. And Janet Lauren, Bloomberg News' higher education finance reporter. Janet, why don't you just set the scene for us here? Thanks for having me. So Arthur Plank, as you mentioned, is the owner of the Atlanta Falcons, his adopted hometown, and he decided to give a $50 million gift to four historically black colleges. And what I found pretty remarkable is that when all four colleges said what our needs are, it was exactly the same thing. It was grants to students to help them finish college, get over the line. And in some cases, it's just a couple of hundred dollars.

12:35It could be a couple of thousand dollars. But one of the most intractable problems in higher education is students completing college. And these types of grants literally help them get to the next semester and to finish and to realize the economic benefit of college rather than leaving and having loans, which is the worst outcome. All right. So Roz, can you walk us through how the schools came up with this idea to give students small grants to finish their degrees, what the conversation was like with Arthur Blank. Absolutely. I think if you know Arthur Blank and his family foundation, they are deeply committed to the Atlanta community, but he also has a great commitment to accessible education.

13:18And he's made that very clear to us over the years. This is actually the second grant that we've received at Spelman College from the Arthur Blank Family Foundation. The first one was a$10 million grant towards our Center for the Innovation and the Arts. He named the Innovation Lab after his family and himself. But this was really a combination of discussions around how we both believe the game changer of education through accessibility and affordability. And he stepped right in. This wasn't an easy grant, let me just say, because we wanted to make sure that this was mutual and that we would meet his expectations.

13:59Roz, talk to us about, you know, the typical student at Spelman. What's the financial burden on them these days? We hear and read and we all experience the spiraling cost of higher education. Talk to us about maybe a typical student at Spelman. Yes, a typical student at Spelman actually is what we call a Pell eligible student, usually coming from a family of roughly about$150 ,000 or less of income and has more than one child in the family. And so when you think about the cost of higher ed, tuition, room and board at an institution like Spelman College is roughly$56 ,000. And a young woman from Spelman could graduate with as much as$32 ,000 to$40 ,000 worth of student loans alone.

14:49And so when you think about that, that's sometimes a non-starter, especially if they're thinking of going on to graduate school. Janet, just put this into context for us, because President Trump in his second term has boosted funding for historically Black colleges and universities while taking aim at higher ed. Has he followed through on that funding? The details of that, I don't know. But typically, historically, black colleges do not have as high graduation rates as other colleges. And part of the reason are large populations of Pell-eligible students, lower-income students, where potentially just a couple of hundred dollars, a couple of thousand dollars can get them again to that next semester to graduate.

15:36Roz, just to kind of follow up a little bit on that President Trump and this administration have taken aim at some very high profile, large research universities, including Harvard and Columbia. As an educator yourself, how are you viewing this environment? Well, you know, it is a tough environment in higher ed right now because, you know, on the early onset of this administration, we saw deep cuts in research funding. And the one thing that I know for sure, you know, having a corporate background now combined with higher ed, is that research funds a lot of innovation and technology that happens at the corporate level, which becomes commercial opportunities.

16:17So I think, you know, more understanding of cutting off the lifeline of innovation in this country is something that should be explored. I will, you know, agree with Samantha that, you know, we don't know what these new funds are that are directed towards HBCUs, and we're interested to learn more. And of course, Roz, with your background leading Walgreens, leading Starbucks as COO, and of course, CEO of Sam's Club, what kind of best practices can you take from the corporate boardroom to the academic institutions that you're now running? To Spelman College, for instance, that would kind of dispel some of those concerns that people have about higher ed not knowing how to run their institutions efficiently.

17:01Yes. You know, one of the things I've committed to this board of trustees at Spelman College is that I will try to bring as much business to this institution as I possibly can. And that would be through a new financial or business model. You know, we live off of very few sources of revenue. But if we looked at our institutions through the lens of what we could monetize, things like our online learning programs that right now through the number of high school students that need certifications, could we provide those? So there are some avenues that we're researching right now in terms of how we look at monetizing the things we do on our campus.

17:39I would also say strong fiduciary responsibility. You know, we're proud of ourselves at Spelman that we actually balance our budget really for the last 20 to 25 years. But that takes discipline. And also, too, looking at unique partnerships. You know, I reflect on my corporate career and said, you know, when we wanted to venture into a new category, we oftentimes select the partner to go with. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app.

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