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Amex’s Global Commercial Services Rising on Initiatives

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Global Commercial Services

American Express’s (or Amex) (AXP) Global Commercial Services offers global corporate payment services to large and mid-sized companies. These services include expense management and travel services through its Global Corporate Payments and Global Business Travel businesses.

The segment’s total revenues, net of interest expenses, remained flat at $2.5 billion in 2Q16. It formed 30% of the company’s total revenues. The company saw flat net interest income and card member spending. Net income for the division rose 5% to $576 million compared to $550 million in 2Q15 on a one-time profit on sale adjustment.

Provisions for losses in the quarter totaled $139 million, a 2% rise from $136 million a year ago. They were primarily driven by higher merchant financing loan balances and delinquencies, partially offset by lower write-offs in the card member receivables portfolio.

American Express achieved operating profit margins of 74% in the last fiscal year. Here’s how some of American Express’s peers in the payment processing industry fared with their operating margins in the last fiscal year:

  • MasterCard (MA): 54%
  • Visa (V): 60%
  • Discover Financial Services (DFS): 43.6%

Together, these companies account for 2.3% of the Technology Select Sector SPDR ETF (XLK).

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Expenses decline

Total expenses for American Express’s Global Commercial Services division stood at $1.4 billion in 2Q16 compared to $1.5 billion in 2Q15. The expenses reflected a portion of the gain from the loan portfolio sale, which was reported as an expense reduction. That benefit was offset in part by a portion of the restructuring charge mentioned earlier and higher levels of investment spending on growth initiatives.

American Express also offers corporate cards and corporate meeting cards. They’re issued to individuals through a corporate account established by their employers. The Global Commercial Services division also offers a suite of business-to-business payment solutions. For example, the corporate purchasing card is an account established by companies to pay for everyday and big-ticket business expenses.

In the next part of our series, we’ll look at American Express’s Global Network and Merchant Services in 2Q16.

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