American Express puts focus on financial plans

Mutual fund market share has fallen to 11th from 7th

October 29, 2002|By BLOOMBERG NEWS

NEW YORK - American Express Co.'s Kenneth Chenault says his sons used to tell strangers to switch to the company's credit cards. Now, the 10- and 12-year-old boys ask people if they have a financial plan, he says.

Chenault, 51, needs all the help he can get attracting customers to American Express Financial Advisors. The network of 11,000 brokers has generated 16 percent of net income since January last year, less than half its annual contribution the previous five years. The unit's share of the U.S mutual fund market has fallen to 11th this year from seventh in 1998, according to Financial Research Corp.

The chief executive appointed Jim Cracchiolo, who cut $1 billion in costs from American Express's credit-card and travel operation in a former job, to overhaul the Minneapolis business. Cracchiolo has hired portfolio managers from Fidelity Investments, started 14 new funds and tapped outside firms such as Gabelli Asset Management Inc. to try to lift below-average returns.

"We haven't seen evidence of the turnaround there yet," said R. Lynn Yturri, who helps manage $149 billion in assets, including American Express shares, at Banc One Investment Advisors in Scottsdale, Ariz. "They've been coming up short."

Chenault needs to bolster financial planning profits as corporate-card and travel clients pare spending and the economy shows scant signs of picking up, some investors say. American Express stock is down 36 percent since he took over in January last year, damaged in part by the Sept. 11 terrorist attacks last year that curtailed air travel and forced 3,000 employees from the company's headquarters for nine months.

American Express said third-quarter profit was $687 million, or 52 cents a share, beating the 51 cents a share analysts expected in a poll by Thomson First Call. Profit was more than double the corresponding quarter last year as credit-card customers spent more.

Sales in the financial planning operation rose 22 percent to $14 billion as sales of annuities more than doubled to $2.66 billion. Still, the unit's track record, including a $1 billion write-off for the company's own investments in junk bonds last year, hurts efforts to add new money to the $191.6 billion in assets managed for 2.5 million clients, some investors say.

The average return for the 18 American Express stock funds with three-year track records lags behind 55 percent of all equity funds, according to Bloomberg data. Bond investments fared worse - with the average return for 15 bond funds lagging behind 88 percent of peers.

Chenault said the division, which also sells insurance and retirement planning, needs time to reverse course.

"The key thing is investment performance," he said in an interview. "We need to demonstrate that year in and year out."

He's put his trust in Cracchiolo, a 44-year-old Brooklyn native who most recently more than doubled American Express loans outside the United States as president of the international card and travel unit from 1998 to 2000.

Cracchiolo brings "a sense of urgency" to his task, Chenault said.

Under David Hubers, a Minnesotan who ran American Express Financial Advisors for seven years before retiring in 2000, the division posted annual earnings growth of at least 10 percent as the Standard & Poor's 500 index averaged an annual 16 percent return.

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