<div id="subtitle">American Express, Capital One shares drop on concerns about regulation</div><div><p>Shares of American Express and Capital One Financial Corp. tumbled Friday after an analyst noted coming credit card regulations could strain profits for the companies in the year ahead.</p><p>American Express shares dropped $3.57, or 8.5 percent, to close at $38.59. Capital One shares sank $5.17, or 12.1 percent, to close at $37.53.</p><p>In a note to investors, FBR Capital Markets analyst Scott Valentin wrote that the card industry will shrink as issuers cope with elevated chargeoff levels, higher marketing costs and new regulations. He noted that Capital One could experience the biggest contraction, given its portfolio of subprime borrowers. American Express, which traditionally caters to more affluent customers, should be less affected, Valentin wrote.</p><p>Valentin cut his 2010 earnings estimate for American Express to $3.24 per share, from $3.35 per share and for Capital One to $2.25 per share from $2.50 per share. Both companies were affirmed at "market perform."</p><p>The Credit CARD Act, which goes into effect Feb. 22, will dramatically limit card issuers' ability to raise interest rates and impose penalty fees. For example, banks will not be able to raise rates on existing balances unless payments are more than 60 days late.</p><p>During a conference call Thursday, American Express Chief Financial Officer Dan Henry noted that the regulations could lower AmEx's yields on credit cards, which were at 9.7 percent in the latest quarter. Margins at Capital One are also expected to decline to about 15.5 percent, down from 16 percent, Valentin noted.</p><p>The drop-off in AmEx and Capital One shares Friday came despite improved fourth-quarter results from both companies. However, the gains came largely as a result of steep drops in provisions for loan losses.</p><p>At American Express, provisions for loan losses fell 47 percent to $748 million, from $1.4 billion a year ago. At Capital One, the figure sank to $843.7 million from $2.1 billion.</p><p>Quarterly revenue at American Express, meanwhile, edged lower to $6.49 billion from $6.51 billion last year. While card members' average balances rose, the gains were offset by higher costs elsewhere. Marketing costs rose 36 percent to $713 million in the quarter.</p><p>AmEx Chairman Kenneth Chenault said in a statement that while the economic outlook is improving, the company still faces the challenges of high unemployment rates and weaker household finances.</p><p>Fitch Ratings, meanwhile, issued a report Friday that said chargeoffs, or loans considered unrecoverable, could become more widespread in coming months as consumers continue to struggle with debt and unemployment.</p><p>The ratings agency doesn't expect the deterioration to be severe, however. Fitch predicts U.S. unemployment will peak at 10.4 percent in the second-quarter of 2010 and will remain above the 10 percent throughout the year.</p><img src="http://admatch-syndication.mochila.com/images/ad.gif?aid=67543956&bid=informcom" /></div><div id="copyright"><div>

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