AmEx to Post Charge to Cover Losses on Cards

American Express Co. revealed big troubles in its Optima card business Wednesday, announcing that the the company will take a $265-million after-tax charge against third-quarter earnings to restructure its huge charge card subsidiary and cover losses from Optima customers who haven’t paid their bills.

The company said the charge will cause a third-quarter net loss for the Travel Related Services unit of $50 million to $75 million. The unit includes the well-known American Express card as well as Optima, travelers’ checks and travel businesses. But because of strong performance by other American Express units, including brokerage Shearson Lehman Bros., the company overall is expected to report a modest profit for the quarter ended Sept. 30. In the 1990 third quarter, the company reported a $344-million profit.

American Express also said it will slim down the Travel Related Services business. The firm is expected to substantially cut back on issuance of Optima cards and sharply reduce activities of its Merchandise Services Group, which mainly sells mail-order items to American Express customers.

Of the $265-million charge, $155 million is to boost reserves for credit losses, almost exclusively on the Optima card. The rest will cover restructuring of Travel Related Services. The firm is closing a credit card processing center in New York City and eliminating about 1,700 positions nationwide by year-end.