Along with adjusted net income of $1.2 billion, American Express delivered a surprise in its fourth quarter earnings report today: the elimination of 5,400 jobs as part of a global reorganization of its business units, with over $400 million in severance and its business travel unit taking a big hit.
The company has endured more than a decade of downsizing under CEO Ken Chenault: 7,700 jobs in 2001; 6,500 jobs in 2002; 7,000 jobs (10% of its workforce) in 2008; 4,000 jobs in 2009. This round of cuts, as Wall Street Journal reports, represents “its biggest retrenchment in a decade,” and will shed 8.5% of its workforce.
“Against the backdrop of an uneven economic recovery, these restructuring initiatives are designed to make American Express more nimble, more efficient and more effective in using our resources to drive growth,” said Chenault. “For the next two years, our aim is to hold annual operating expense increases to less than 3 percent. The overall restructuring program will put us in a better position as we seek to deliver strong results for shareholders and to maintain marketing and promotion investments at about 9 percent of revenues.”
- A $400 million restructuring charge ($287 million after-tax) designed to contain future operating expenses, adapt parts of the business as more customers transact online or through mobile channels, and provide the resources for additional growth initiatives in the U.S. and internationally.
- A $342 million expense ($212 million after-tax) reflecting enhancements to the process that estimates future redemptions of Membership Rewards points by U.S. cardmembers.
- Approximately $153 million ($95 million after-tax) of cardmember reimbursements for various types of transactions dating back several years. This amount deals with fees, interest and bonus rewards as well as an incremental expense related to the consent orders entered into with regulators last October.
The restructuring charge mentioned above will consist largely of severance payments related to the elimination of an estimated 5,400 jobs. Those reductions will be partly offset by jobs the company expects to add during the year. Overall staffing levels by year end 2013 are expected to be 4 to 6 percent less than the current total of 63,500.
Elements of the restructuring program include:
- Reengineering the business model in Global Business Travel to reduce its cost structure and invest in capabilities that better align it with the shift of customer volumes to online channels and automated servicing tools;
- Continuing the reconfiguration of cardmember servicing and collections as we drive efficiency through our global scale and as more customers use online and mobile channels instead of paper and telephone;
- Reducing the size of our staff groups while continuing to maintain the right focus and resources on risk and control activities;
- Ensuring that we have the right organizational structure across our client management and sales functions to best serve our customers; and
- Consolidating similar functions and eliminating duplicate efforts wherever possible in order to drive efficiency.
The job reductions will take place across seniority levels, businesses and staff groups. The largest reductions will come in the travel businesses, which operate in an industry that is being fundamentally reinvented as a result of the digital revolution. Overall, reductions will be spread proportionally between the U.S. and international markets and will primarily involve positions that do not directly generate revenue.
Changes within the customer service organization are designed to help us continue to deliver award-winning service and operate at maximum efficiency as more customers and merchants do business with us through online and mobile alternatives.
Cardmember spending was 8 percent higher than fourth quarter 2011, “despite a brief dip in late October/early November reflecting the impact of Hurricane Sandy on consumers and businesses in the northeastern United States.”
“We’ve delivered strong results since coming out of the recession and have been consistently gaining share in a very competitive U.S. industry,” said Ken Chenault, chairman and CEO. “In addition to strengthening our ties to merchants and cardmembers, we have launched products for new customer segments, expanded into new geographies internationally, and extended our presence well beyond the traditional American Express footprint.
“All of this has been taking place at a time when technology is transforming the world of commerce, regulatory changes are reshaping the financial industry, and customer loyalty has become more important than ever. Maintaining our momentum in this environment will require us to evolve our business, embrace new technologies, become more efficient and generate resources to invest in the many growth opportunities we’ve identified.”
“Regardless of the environment, success is also going to be defined by doing what’s right for our customers. We never want to make mistakes, but we are fully committed to correcting them and providing compensation when appropriate. At a time when public confidence in financial institutions is at a low point, we want to make sure that we live up to the reputation we’ve earned over many years for delivering superior value and service to our customers. The material costs for reimbursement that we are able to identify have been recognized, but we are going to continue to work closely with regulators and strengthen our controls as part of our personal commitment to protecting the integrity of the American Express brand.”
“Against the backdrop of an uneven economic recovery, these restructuring initiatives are designed to make American Express more nimble, more efficient and more effective in using our resources to drive growth,” said Mr. Chenault. “For the next two years, our aim is to hold annual operating expense increases to less than 3 percent. The overall restructuring program will put us in a better position as we seek to deliver strong results for shareholders and to maintain marketing and promotion investments at about 9 percent of revenues.”