NEW YORK – In a stark acknowledgment of the tough times ahead in the credit card industry, American Express Co. said Thursday that it plans to cut 7,000 jobs, or about 10 percent of its worldwide work force, in an effort to slash costs by $1.8 billion in 2009.
The New York-based credit card issuer — which has reported four straight quarters of profit declines as an increasing number of consumers struggle to pay off debt — said it is also suspending management-level salary increases next year and instituting a hiring freeze.
The job cuts will be across various business units, but will primarily focus on management positions, the company said.
Additionally, American Express said it plans to scale back investments in technology and marketing and business development, and streamline costs associated with some rewards programs. The company also expects to cut expenses for consulting and other professional services, travel and entertainment and general overhead.
As a result, American Express plans to take a restructuring charge of between $240 million and $290 million in the fourth quarter.
The company has been gearing up for a big restructuring for some time, first announcing in July that it planned to reduce overall costs and staffing levels, and take a related charge during the second half of the year.
"We've been engaged for the past few months in an intensive, companywide review of priorities and staffing levels," said Kenneth I. Chenault, chairman and chief executive, in a statement. "The re-engineering program we announced today will help us to manage through one of the most challenging economic environments we've seen in many decades. It will also put us in position to ramp up investment spending as economic conditions improve so that we can take advantage of the substantial opportunities that will be available to us over the medium to long term."
Last week, American Express reported a 24 percent decline in third-quarter profit. The report echoed recent results from JPMorgan Chase & Co., Citigroup Inc. and Capital One Financial Corp. showing that the credit card environment is worsening as cardholders have trouble paying off debt and pull back their spending.
Even a company like American Express, which prides itself on catering to a more well-heeled clientele, is not immune.
The company's customers tend to be more affluent than those of other card companies, but they are more heavily concentrated in California and Florida, where the slumping housing market is taking a toll. American Express also has a higher percentage of small-business customers, and small businesses tend to miss payments more than individuals, executives have said.
"Cardmember spending is likely to remain soft," Chenault said in a statement last week. "Loan growth will be restrained, in part because of the steps we are taking to reduce credit risks, and credit indicators are likely to reflect the continued downturn in the economy and throughout the housing sector."
American Express has been able to finance its operations amid the tight credit markets, but the efforts have been tougher and more costly.
Shares rose 85 cents, or 3.4 percent, to close at $26.06. Shares have traded between $20.50 and $61.55 in the past 12 months.