American Express, the credit card and travel company said that it would be again slash jobs, this time around 4,000 or 6 per cent of its workforce in a bid to cut costs.
The lingering recession in the US has led to a rise in defaults in Amex's credit-card business.
The New York-based company said yesterday that a new companywide reengineering initiative is expected to produce cost benefits of approximately $800 million during the remainder of 2009.
In October, Amex, the largest credit card company in the US in terms of purchases, had cut around 10 per cent of its global workforce in a bid to save almost $1.8 billion during 2009. (See: Amex to cut 7,000 jobs amidst rising defaults)
With defaults continuing unabated as unemployment soars to record levels, American Express's new reengineering plan includes a reduction of staffing levels, scaled back investment spending, and further cutbacks in operating costs.
The fourth largest US credit card issuer said that it would take a restructuring charge of approximately $180 to $250 million pre-tax in the second quarter. The charge is primarily associated with severance and other costs related to the elimination of approximately 4,000 jobs or about 6 per cent of the company's current worldwide workforce.
The reductions will be spread across business units, markets and staff groups. American Express said that the total benefit from these staffing decisions is expected to be approximately $175 million.
''While we have remained solidly profitable at a time when some parts of the card industry were incurring substantial losses, we continue to be very cautious about the economic outlook and are therefore moving forward with additional reengineering efforts to help further reduce our operating costs,'' said Kenneth I. Chenault, chairman and chief executive officer.
''We believe these efforts will put us in a better position to remain profitable and free up some additional resources that will be reinvested in the business to make sure we can take competitive advantage of opportunities as the economy begins to rebound,'' he added.
The company, which had become a commercial bank in November in order to access federal funds, (See: AmEx to become a commercial bank, get access to federal funds) said that it will reduce investment spending on marketing and business development where it will save around $500 million.
However, the company says it also plans to make substantial investments in select growth opportunities, business building initiatives and customer service support.
In an unusual recovery move to induce delinquents to pay up reflects the worsening conditions in the credit-card market, American Express in February, had offered select customers $300 to clear their balances and buzz off. (See: AmEx lures card-holders with $300 to give up their cards)
American Express has been hit hard by the collapse of the housing market and economic slowdown, which in turn forced companies laying off thousands of workers all over the US.
Operating in a single line of business, AmEx depended on bundling its credit card loans into securities and selling them to investors, but in the wake of the housing crisis investors shunned these securities thereby drying up the credit card loan securities market completely.
With rising defaults, the company's first-quarter profit in the credit-card business declined 58 per cent to $443 million and incurred a $25 million loss, compared with net income of $523 million a year ago.