⚠ The Reserve More Than Doubled OnceModerate threat

American Express (AXP) — threat to the moat

In 2020 American Express halved its earnings to reserve for losses that mostly never came, and the book is far larger now.

The last time the economy turned, American Express's credit costs showed how quickly a good book can look bad. At the end of 2020 its reserve for credit losses was 7.3% of loans, against 2.7% at the end of 20191. Net income fell from $6,759 million in 20192 to $3,135 million in 20203, and return on equity from 29.6% to 14.2%45.

Net income ($M)6,75920193,13520208,0602021American Express Forms 10-K FY2019, FY2020 and FY2023
The reserve build halved earnings; the release restored them.

Much of that proved unnecessary. In 2021 Amex released $1,419 million of reserves6, and net income rose to $8,060 million7. The actual write-off rate in 2020 was only 2.4%8.

That history cuts in Amex's favour on credit losses and against it on reported earnings. The losses never came, but the accounting rules require a lender to build reserves for losses it expects, and in a downturn the expectation arrives before the evidence.

The loan book is much larger now. At $151,832 million at the end of 20259, a move in the reserve rate of the size seen in 2020 would be a far larger number in dollars than it was then.

The book is also more varied than it was. At the end of June 2026 card balances were $218,054 million, of which $56,172 million were small-business and $16,908 million corporate10; business balances behave differently from consumer ones in a downturn, and the 2020 reserve build covered both.

A repeat is not a question of whether the book is sound but of when the next downturn comes. The first sign would be the provision line: $1,084 million in the second quarter of 202611. Two quarters of provisions above $2 billion would say Amex expected the losses to rise, and earnings would fall before any cardholder defaulted.

References
  1. ReportedAt the end of 2020 its reserve for credit losses was 7.3% of loans, against 2.7% at the end of 2019.
    American Express Form 10-K for fiscal 2021 - billed business 2019-2021, average discount rate, net write-off rates, the 2021 reserve release and Delta shares. — FY2021 · publ. February 2022 · source ↗
  2. ReportedNet income fell from $6,759 million in 2019 to $3,135 million in 2020, and return on equity from 29.6% to 14.2%.
    American Express Form 10-K for fiscal 2019 - five-year selected financial data (2015-2019), the Delta renewal through 2029 and the three former segments. — FY2019 · publ. February 2020 · source ↗
  3. ReportedNet income fell from $6,759 million in 2019 to $3,135 million in 2020, and return on equity from 29.6% to 14.2%.
    American Express Form 10-K for fiscal 2020 - the pandemic year: revenue, net income, ROE and Delta and cobrand shares. — FY2020 · publ. February 2021 · source ↗
  4. ReportedNet income fell from $6,759 million in 2019 to $3,135 million in 2020, and return on equity from 29.6% to 14.2%.
    American Express Form 10-K for fiscal 2019 - five-year selected financial data (2015-2019), the Delta renewal through 2029 and the three former segments. — FY2019 · publ. February 2020 · source ↗
  5. ReportedNet income fell from $6,759 million in 2019 to $3,135 million in 2020, and return on equity from 29.6% to 14.2%.
    American Express Form 10-K for fiscal 2020 - the pandemic year: revenue, net income, ROE and Delta and cobrand shares. — FY2020 · publ. February 2021 · source ↗
  6. ReportedIn 2021 Amex released $1,419 million of reserves, and net income rose to $8,060 million.
    American Express Form 10-K for fiscal 2021 - billed business 2019-2021, average discount rate, net write-off rates, the 2021 reserve release and Delta shares. — FY2021 · publ. February 2022 · source ↗
  7. ReportedIn 2021 Amex released $1,419 million of reserves, and net income rose to $8,060 million.
    American Express Form 10-K for fiscal 2023 - income statements for 2021-2023 on the current presentation, segment results for 2022, discount revenue as a share of billed business. — FY2023 · publ. February 2024 · source ↗
  8. ReportedThe actual write-off rate in 2020 was only 2.4%.
    American Express Form 10-K for fiscal 2021 - billed business 2019-2021, average discount rate, net write-off rates, the 2021 reserve release and Delta shares. — FY2021 · publ. February 2022 · source ↗
  9. ReportedAt $151,832 million at the end of 2025, a move in the reserve rate of the size seen in 2020 would be a far larger number in dollars than it was then.
    American Express fourth-quarter 2025 statistical supplement, Form 8-K exhibit 99.2 - card metrics, billed business by segment, balance sheet and the definition of variable customer engagement costs. — Q4 2025 · publ. 30 January 2026 · source ↗
  10. ReportedAt the end of June 2026 card balances were $218,054 million, of which $56,172 million were small-business and $16,908 million corporate; business balances behave differently from consumer ones in a downturn, and the 2020 reserve build covered both.
    American Express second-quarter 2026 statistical supplement, Form 8-K exhibit 99.2 - segment results, card metrics, capital and credit - consolidated results, card metrics, capital and credit. — Q2 2026 · publ. 24 July 2026 · source ↗
  11. ReportedThe first sign would be the provision line: $1,084 million in the second quarter of 2026.
    American Express second-quarter 2026 statistical supplement, Form 8-K exhibit 99.2 - segment results, card metrics, capital and credit - consolidated results, card metrics, capital and credit. — Q2 2026 · publ. 24 July 2026 · source ↗
Sources
Generated September 28, 2026