American Express has unveiled a broad restructuring aimed at saving the financial services company more than $1.8 billion next year, with the bulk of the savings coming from cutting investment in technology and distribution.
Specifically, officials said Thursday, October 30, that the company would scale back its investments in technology, marketing, business development and its rewards program by roughly $1 billion next year, areas that appear to account for a portion of the company’s largest current expenses.
For the nine months ended September 30, American Express reported collective expenses of about $5.7 billion in its marketing, promotion, rewards and card-member services, according to its third-quarter filing. That’s up roughly 10 percent over the first nine months of 2007, and makes up about 40 percent of the company’s total $14.1 billion in expenses so far this year. Overall, total costs at American Express are up 8 percent this year over the first three quarters of 2007.
The cuts will “put us in a position to ramp up spending as economic conditions improve so that we can take advantage of the substantial opportunities that will be available to us over the medium to long term,” Kenneth Chenault, chairman and CEO, said in a statement.
American Express, which announced in July that it was prepping for this restructuring, will also cut its workforce by roughly 7,000 employees, or 10 percent, officials said Thursday. While they stated that the cuts would occur across various business units, positions that are “primarily focusing on management and other positions that do not interact directly with customers” will be most affected by the reductions. Likewise, management officials who are retained will have their salary increase suspended next year, and the company will also put a freeze on hiring plans for any available positions. In total, all of these moves aim to save American Express roughly $700 million next year.
American Express will also reduce its spending by $125 million on consulting and professional services, travel and entertainment, and general overhead. Professional-services expenses were $1.7 billion for the first nine months of the year, up 8 percent for the same period in 2007.