Life is good when you've got a moat wider than the Amazon river. While the turmoil in the credit market inflicted pain on Citigroup
American Express' wealthy customers, despite the subprime collapse, continue to spend money hand over fist. In its proprietary U.S. card business, consumer spending grew 12%, small-business spending grew 15%, and corporate-services spending grew 9%.
The global network services (GNS) unit continues to go gangbusters. Until 2004, MasterCard
The continued rise of emerging markets also gave AmEx some tailwinds. Internationally, billed business grew by 10%, worldwide cards in force grew 11%, and spending per proprietary basic card grew 8%.
However, American Express also faced some headwinds in the quarter. Like Capital One
In addition, similar to how Southwest's plane fuel hedges eventually wore off, about $11 billion of AmEx's interest-rate hedges expired. As a result, the cost of these funds increased from 3.2% to 5.4%, and that increase raised interest expense $59 million for the quarter.
What's more, despite its strong competitive advantages, AmEx isn't totally immune to the credit environment. The increase in credit spreads caused by the credit troubles increased AmEx's cost of funds. In a nutshell, this decreases the amount of money AmEx makes when it securitizes its credit card receivables, and it limited securitization income growth to 2%.
Nevertheless, the quarter really allowed AmEx to flex its muscle while its competitors struggled mightily. Fools, take note: This wide-moat stock trades at a mere 14.5 times forward earnings estimates. Perhaps now's the time to load up on AmEx.
Discover Financial is an Inside Value pick. Bank of America is an Income Investor recommendation. Bank of America is a former Inside Value pick. Try any one of our investing services free for 30 days.
Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates hearing your comments, concerns, and complaints. The Motley Fool has a disclosure policy.