American Express (NYSE:AXP) just reported second quarter results, and for the most part they were everywhere investors don't want to be. Specifically, for the quarter ended June 30, the company reported earnings of $653 million, or 56 cents per share, versus $1.06 billion, or 88 cents per share in the same quarter last year. Making matters worse, the credit mega-company's results came in far below Wall Street's expected number of 83 cents per share. Oops.

The Rich get... Poorer?
Looking into the quarter, it's clear the company is padding itself for continued difficult times ahead, as noted in the $374 million addition to credit reserves. This is typically a safety net for write-offs (read: deadbeats) in coming quarters.

What's amazing about the second quarter earnings is that the results actually showed a slight shift in the definition of the "bad borrower". Typically, wealthy consumers have been thought of as lower risk borrowers, and those with higher incomes were often are given higher credit lines, which is exactly where American Express is now feeling some additional pain. With the company's wealthier clients now taking longer to pay bills (with some actually defaulting altogether), while also spending less at the same time, American Express will undoubtedly miss previous annual earnings growth targets of 4-6% for the year. (If credit card bills are cutting into your finances, read Take Control Of Your Credit Cards.)

Honesty - What a Novel Concept
On Monday's earnings conference call, executives were substantially frank, painting a clear picture of what to expect in the quarters to come. To paraphrase Dan Henry, the company's CFO, This economy stinks, and frankly the remainder of the year, and the credit business, could get even worse.

Here's where the story could change slightly, however. On Wall Street, when times are rough, sometimes it's better to just take a hit right on the chin, than to hope for a bailout in future quarters. That's exactly the stance that American Express has taken, as seen in the company's no-nonsense approach to investors on the conference call. American Express further reiterated this stance by bracing investors for lower annual guidance, while also adding to credit reserves all at the same time.

At the end of the day, what the company has done is under promise, with the goal of outperforming in the third and fourth quarter. With the picture the company has now painted, any signs of improvement will likely have Wall Street jumping for joy toward the end of the year. (For related reading, see Can Earnings Guidance Accurately Predict The Future?)

Business Risk Remains
When we consider the overall credit/banking conditions across the board, it's important to understand that there's still a ton of downside risk remaining. Even Bank of America (NYSE:BAC), which just beat second quarter expectations of 53 cents a share, by reporting 72 cents per share is having trouble convincing everyone that skies have cleared. Morgan Stanley (NYSE:MS) analyst Betsy Graseck questioned the fortitude of Bank of America's ability to stave off the credit crunch, given that the company's fixed-income trading saved the day. Her point was that if the company's trading efforts fail, earnings may also fail in the coming quarters. Pretty much any company even remotely related to the word "credit" is shaky right now.

Parting Thoughts
There is one last point to consider. We learned from American Express' results that wealthy Americans are having a tough time paying their bills right now, which leads one to wonder if high-end retailers like Tiffany & Co. (NYSE:TIF) are also feeling some of the same effects. It seems like common sense that if more wealthy credit customers are having trouble paying their cards down, perhaps they aren't loading up on jewelry either. Regardless, time will tell when Tiffanys' reports earnings on August 28. Hopefully I'm wrong.

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