Personal Note: I've posted numerous articles of how we're exporting manufacturing jobs, however, hidden deep within the recesses of this article are OTHER kinds of jobs that are gone forever. My point is we'll NEVER recover 3.9% unemployment again and we'll always trend higher due to export of jobs.

July 19, 2001

MARKET PLACE American Express to Cut Jobs as Junk Bond Losses Mount By PATRICK McGEEHAN Get Stock Quotes Look Up Symbols Portfolio | Company Research U.S. Markets | Int. Markets Mutual Funds | Bank Rates Commodities & Currencies merican Express (news/quote) surprised investors yesterday by saying that it would eliminate as many as 5,000 jobs and take more than $1 billion in charges against its earnings by the end of this quarter.

The job cuts would be the biggest that American Express has taken in about a decade and would come on top of the 1,600 jobs American Express has already eliminated this year. They are part of a reorganization of the company's various financial services businesses and will help offset the heavy losses the company sustained from its aggressive investing in junk bonds.

In announcing the changes several days before the company is scheduled to report its second-quarter earnings, the chief executive, Kenneth I. Chenault, admitted that the company had misjudged the risks in its $3.5 billion portfolio of junk bonds. He repeatedly told analysts and investors yesterday that the company would take a more conservative approach to investing the money it takes in from selling insurance and investment products.

Mr. Chenault, who succeeded Harvey Golub as chief executive in January, said the costs of the changes it is making would reduce pretax earnings for the quarter that ended in June by $826 million. In addition, the cost of cutting about 5 percent of its jobs will reduce this quarter's pretax profit $310 million to $370 million, he said.

The losses are far larger than analysts had expected. They follow two earlier write-downs of the company's investment portfolio in the last year and some investors sounded angry about the latest disappointment. All told, the company has marked down the value of its junk bonds and some other bonds that it cannot resell by more than $1.1 billion, or about one- fourth of their original value.

Still, analysts said Mr. Chenault's standing did not seem to have been hurt by the series of negative announcements he has made in his first six months in charge. "It's fair to say that this management team enjoys the confidence of the marketplace," said Brad Ball, an analyst at Prudential Securities who has had a neutral rating on American Express stock all year.

But investors pushed the shares of American Express down $1.28, to $37.50 yesterday. So far this year the stock is down 32 percent, the worst performance of the 30 companies in the Dow Jones industrial average.

"This is Chenault putting his stamp on the company," Mr. Ball said, though he noted that Mr. Chenault had been a senior executive at the company for years and "has been the backbone of the 13 years of restructuring that they've been through."

Mr. Chenault sounded undaunted in a telephone interview. "I think I am weathering it very well," he said. "Clearly, these are challenging times." He said the company's board had been involved in and supportive of the decisions he has made.

Most of the jobs eliminated will come from four parts of the company's global operations: technology, human resources, the corporate travel business and the corporate lending operations overseas. Mr. Chenault declined to break down the cuts by division or geography.

About 60 percent of American Express employees work in the United States and although the company has headquarters in lower Manhattan, most of those workers are in other cities, including Minneapolis and Phoenix. To save money, the company is also moving some finance and processing jobs to India, where American Express already employs about 1,000 people.

Giving a bleak outlook for the economy, Mr. Chenault recanted earlier forecasts of earnings growth for this year. Now, he said, the company does not expect to earn any more in 2001 than it did last year.

"At the end of the first quarter, we said we expected earnings per share growth to be below 12 percent for the year," Mr. Chenault said. "We did, however, expect earnings to grow. Obviously in light of the charges discussed today, that forecast is no longer valid." He said the company now expected the current economic weakness to extend into next year.

Several other financial services firms, including Merrill Lynch (news/quote) and Charles Schwab, have cut thousands of jobs as the financial markets have remained weak this year. Mr. Chenault's outlook was at least as bleak as those voiced by other financial executives.

He said he saw no sign of a recovery in corporate spending and that the weakness had spread to foreign companies and multinationals. When corporations tighten their travel and entertainment spending, American Express, with its strong position in corporate charge cards, is one of the first to feel the pinch.

As a group, analysts had expected American Express to earn 53 cents a share in the second quarter, according to Thomson Financial/First Call.

Analysts were still digesting the latest bad news yesterday and some were waiting for the company's full earnings report, expected July 23, before revising their estimates of the company's future earnings. As is often the case on Wall Street, some analysts saw the big charges as a much-needed clearing of the decks.

"We'd argue that the actions they've taken today, while painful, could and should improve their capacity to rebuild earnings growth beyond the year 2002," Robert Hottenson, an analyst at Goldman, Sachs, said.

American Express has been on Goldman's recommended list, the firm's highest rating, since October, when it traded as high as $60 a share.

-- Guy Daley (guydaley1@netzero.net), July 19, 2001

Answers

The H1B visa law opened the door for this. These companies were basically able to bring in indentured high tech servents to replace U. A. citizens and Greeen Card resident programmers. When the H1B workers return to their country they are already trained, but still working at a low wage. Thanks to our corrupt politicians many of the skilled jobs of the new economy will no longer be in the U. S.

-- K (infosurf@yahoo.com), July 19, 2001.