Credit-card market has changed greatly since he took over;
Squeri to be next CEO
By AnnaMaria Andriotis
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 19, 2017).
Kenneth Chenault, the head of American Express Co. and one of
the country's most prominent African-American corporate leaders,
will step down as chairman and chief executive Feb. 1, capping a
16-year run at the iconic card company as it grapples with a new
wave of competition.
The 66-year-old executive will be succeeded as CEO by Stephen
Squeri, a three-decade AmEx veteran who previously ran its division
in charge of corporate cards. As vice chairman since 2015, Mr.
Squeri, 58, had spent more time meeting with shareholders, leading
many to believe he was on the shortlist to be the next chief
executive.
Shares slipped 0.5% to $91.60 in after-hours trading Wednesday
despite the company reporting stronger-than-expected earnings and
revenue for the third quarter and raising its profit guidance for
the year.
Mr. Chenault's departure comes after a tumultuous period in
which he fought to revive AmEx's fortunes following the loss of a
key partnership with Costco Wholesale Corp. and as the company's
pre-eminent product, the Platinum card, came under attack from J.P.
Morgan Chase & Co.'s Sapphire Reserve card.
The Long Island, N.Y., native had a stellar run for most of his
time atop the New York-based company. But AmEx's recent travails
have cast a shadow over his tenure -- something he fought to escape
before stepping aside.
Despite a booming credit-card market that recently surpassed $1
trillion in balances, AmEx has ceded market share and some
shareholders have questioned where long-term growth will come from.
Many senior executives have left the company, and Mr. Chenault
suffered a personal loss with the unexpected death in 2015 of his
would-be successor, AmEx President Ed Gilligan.
The company's main focus in recent years has been ramping up
lending to consumers and small businesses while also searching for
new ways to appeal to millennials, many of whom crave different
kinds of rewards and are more comfortable moving money with their
phones than a credit card.
Still, AmEx's stock has rebounded of late as the company
addressed some of shareholders' biggest concerns. In the past year,
shares have rallied more than 50%, compared with a 28% rise in the
Dow Jones Industrial Average. In recent months, shareholders say
Mr. Chenault has appeared more upbeat and confident in his meetings
with them.
In early June, the company said it won the rights to become the
exclusive issuer of the Hilton Worldwide Holdings Inc. credit cards
starting in 2018, beating out Citigroup Inc.
"We're completing a two-year turnaround ahead of plan and
getting ready to start a new chapter," Mr. Chenault said on a
conference call with analysts Wednesday. He added that the process
of finding a new CEO had been under way for about five years and
included candidates from inside and outside the company. He called
Mr. Squeri "an excellent strategist and a strong leader."
One key constituent consulted by the company was Warren Buffett,
whose Berkshire Hathaway Inc. is the largest AmEx shareholder with
a 17% stake. A shareholder in the company for 53 years, Mr. Buffett
said Wednesday that he had spoken to both Mr. Chenault and Mr.
Squeri and in an interview added that the company had "made a
terrific choice."
"We talked a lot about this change over the last few months, and
I'm 100% on board," Mr. Buffett said.
In an interview, Mr. Squeri said there would be some
organizational changes at the company in the next three months as
Mr. Chenault prepares to retire.
Few would argue that the credit-card market has changed
dramatically since Mr. Chenault took over in 2001. Two of the most
significant changes: increasing competition from banks and more
emphasis on rewards for consumers.
Since the end of 2001, AmEx shares have beaten the market,
rising 195%, compared with a 131% rise in the Dow and a 23% bump
for the S&P 500 financial-stock index, according to FactSet. In
the last three years, however, gains have been tougher to come by,
with AmEx shares rallying only 12%, compared with a 41% rise in the
Dow and a 45% move in S&P 500 financial stocks.
AmEx has traditionally focused on card holders who pay their
bills in full each month, but that means the company doesn't
typically generate the interest revenue needed to offer as much in
points and other quantifiable rewards that some big banks have been
doling out in recent years.
Some former executives have said Mr. Chenault kept the company
on the sidelines while rewards cards boomed, focusing instead on
projects like prepaid cards popular with less affluent
customers.
"We've been in this lending business for a long time," Mr.
Chenault said in an interview. "We were able to come out of crisis
faster and stronger than anyone else."
Mr. Chenault in recent months has been telling shareholders and
analysts about other cards that started out hot and then fizzled
out. In fact, his view was vindicated somewhat this year when J.P.
Morgan scaled back its Sapphire Reserve offering by lowering its
initial sign-up bonus amid concerns that the card's initial terms
might not make enough money for J.P. Morgan.
"Everybody doubted us and we're delivering," said Mr. Chenault
at an investor meeting in July, according to a person who attended
the meeting.
Mr. Buffett, who has long been a fan of Mr. Chenault's, said the
company was right to part with Costco, even though it was a
short-term hit to the company. "Every bank in the world would kill
for their credit experience," he said, adding that "millennials are
as enthused" about the company's cards "as old guys like me."
Unlike some retiring CEOs, Mr. Chenault is also leaving as
chairman. The retiring CEO currently serves on the boards of
Procter & Gamble Co. and International Business Machines
Corp.
The company on Wednesday said it now expects to make profit of
$5.80 to $5.90 a share for the year, up from its earlier view of
$5.60 to $5.80 a share.
Joann S. Lublin and Maria Armental contributed to this
article.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com
(END) Dow Jones Newswires
October 19, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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