American Express Co (NYSE:AXP) shares were lower in premarket trade following the credit card company's announcement that it plans to suspend its share buyback programme in the first half to rebuild capital after its fourth quarter took a hit from the tax reform in the US.
The company posted its first quarterly loss since 1992 after taking a charge of about US$2.6bn from the tax reform.
Common equity Tier 1 ratio falls
However, the company assured investor that quarterly dividends will remain at current levels.
In the fourth quarter, the company’s common equity Tier 1 ratio fell to 9.0% in 2017 from 12.3% a year ago. The ratio however remains well above regulatory minimums.
American Express said it posted a loss of US$1.22bn or US$1.41 a share in the fourth quarter, a sharp drop from the profits of US$800mln or 88 US cents a share recorded a year ago.
If the tax charge was excluded, the company would have turned in a profit of US$1.58 per share.
The figures were a disappointment to the market, which had pencilled in an adjusted per-share profit of US$1.54 on revenue of US$8.71bn.
Card spending and loans boosted revenue, net of interest expense to US$8.84bn, up 10%.
Provisions for loan losses rose 33% in the quarter to US$833mln, which the company said was partly due to the increase in loan balances that it has been writing off as a loss.
New tax reform will benefit Amex
Jeffrey Campbell, the company’s finance director, said that despite the tax charge, the new law will benefit American Express.
“Given the lower tax rate, we expect that over time we will more than make up for any reductions in the buyback in 2018 and generate more earnings and return more capital than we would have without tax reform," he said.
The tax law also helped the company make “an incremental contribution” of a little more than US$100mln to its employee profit sharing programme, which mostly goes directly to employees' retirement accounts.
American Express now plans to invest up to US$200mln more in customer-facing growth initiatives in 2018 than it had initially targeted.
In premarket trade, its shares dipped 3.09% at US$97.65.