Earnings Duel: American Express vs. Capital One (AXP, COF)

American Express Company (NYSE: AXP) and Capital One Financial Corporation (NYSE: COF) have both reported earnings this afternoon.  We saw estimates rise in recent days as many lenders were discussing better credit metrics starting to be evident.  These numbers are mixed on the credit metrics but look amazing on some fronts.

American Express reported third quarter earnings of $642 million, or $0.54 EPS.  The earnings included a non-recurring benefit associated with the company’s accounting for a net investment in consolidated foreign subsidiaries of $180 million gross and $113 million after-tax, but that adjusted figure was $0.44 EPS. Revenues were down close to 15% at $6.016 billion.  Estimates from Thomson Reuters had already risen in the last few days to $0.38 EPS, above the $0.36 estimate of last week, and $5.92 billion in revenues.

AmEx’s provisions for losses totaled $1.2 billion, down 13 percent from $1.4 billion a year ago.  Its Tier-1 risk based capital ratio was 9.7% and its Tier-1 common risk based ratio was 9.7%.  AmEx’s average return on equity was 11.7% and its return on average common equity was 10.4%, which were down from 27.8% and 27.6%, respectively, from a year ago.  There is some caution and some optimism here:

• ”While third quarter revenues declined because cardmember spending and loan volumes were down from year-ago levels, overall billings have stabilized during the last few months and we saw indications that spending by corporate cardmembers is beginning to pick up…. During the quarter, we also expanded our deposit gathering activities, raising a net $4.1 billion as part of our funding strategy based on staying liquid at a time when the credit markets remain volatile.”

As a reminder, American Express shares had already risen over 50% since June 30 and are up a whopping 250% since the March 9 close.  Shares closed up 3.8% at $36.44 in regular trading today and shares are up at $37.40 in the after-hours.  Anything above $36.50 will actually mark a new 52-week high.

Capital One reported net income for the third quarter of 2009 of $425.6 million.  This comes to a whopping $0.94 EPS and income from operations of $1.03 EPS compared to estimates of $0.14 EPS.  Revenues were   versus $4.11 billion estimates.  The results were also compared to Q2 before taking into account the impact from the repayment of the government’s TARP preferred share investment.

The credit lender said its loss provision expense rose by $296.4 million due to an anticipated increase in charge-offs (as well as a modest allowance build of $31.7 million in the third quarter).  Its loan loss allowance was 5.05% vs. 4.84% in Q2.  Tangible equity was up 52 basis points from last quarter to 6.2% and Tier-1 Capital rose to 11.8%.  It too is taking some positive and some cautious comments:

• “We are successfully weathering the storm, but the storm is not over. Therefore, we will continue to take the decisive actions necessary to place our company in the best position to navigate the downturn and drive shareholder value over the cycle.”

Capital One is performing even better than AmEx in the after-hours session.  Shares closed up 4.6% at $38.33 in regular trading today, and its stock is up almost 7% at $41.00 in the after-hours session.  Capital One would have to go above $42.99 to trade at new 52-week highs.

These stocks were already up massively from their lows and from the June 30 date, but the gains are still impressive.

JON C. OGG