American Express Sees Layoffs Yielding More Cash

American Express said today that it will lay off 10% of its workforce. By our analysis, American Express is not just buttressing itself from declining revenue, but it looking to cushion is profit margin, as well. Part of that effort includes an initiative to raise its prices.

To save $1.8 billion in 2009, Amex is cutting the following expenses:

* Consulting and other professional services;
* Travel and entertainment;
* General overhead;
* Technology spending;
* Marketing;
* Business development; and
* Streamlining costs associated with some rewards programs.

Essentially, that encompasses most of the company’s expense lines.

But interestingly, Kenneth I. Chenault, chairman and chief executive of American Express, said today that the cost cuts and layoffs, along with the higher prices, “will also put us in position to ramp-up investment spending as economic conditions improve … over the medium to long term.” To us, that means the restructuring program will yield a net-positive amount of cash for Amex. Put another way, the company is cutting jobs, expenses, and raising prices not just to protect itself from falling revenue, but to make more money and grab more marketshare.