American Express Co , reported better-than-expected earnings on Thursday as it slashed costs and said it intended to repay government bailout funds as soon as regulators allow, sending its shares up 6 percent.

The company said it expects another round of cost cutting in the second quarter, which follows efforts in October to slash costs by $1.8 billion through eliminating 7,000 jobs and lowering marketing and advertising expenses.

We do think there's additional flexibility in our business model, Chief Financial Officer Dan Henry said in a conference call with analysts. He declined to give further details.

In February, the company took the unusual step of offering $300 to U.S. card holders to pay off their balances and close their accounts, in an effort to reduce its credit risk.

Those efforts may have contributed to the 16 percent decline in spending volume on its cards. American Express long catered mainly to wealthy consumers, but earlier this decade it began reaching out to a wider range of clients, resulting in rising loan losses.

In the first quarter, net income available to common shareholders fell to $361 million, or 31 cents per share, compared with $985 million, or 85 cents per diluted share, in the same quarter last year.

Excluding an after-tax gain of $136 million from legal settlements with Visa Inc and MasterCard Inc , the company posted earnings of 20 cents per share, beating analysts' average forecast of 14 cents, according to Reuters Estimates.

Revenue fell 18 percent to $5.9 billion, hurt by lower interest fees and travel commissions.

However, expenses fell a steeper 22 percent to $3.6 billion, as the company cut marketing and promotions by 42 percent, rewards by 18 percent, and salaries and employee benefits by 15 percent.

It was a surprise. People are excited about the costs cuts, said Ken Crawford, senior portfolio manager at Argent Capital Management.

American Express shares rose 6.3 percent to $22.30 in after-hours trading after closing at $20.97, up 7.93 percent on the New York Stock Exchange. The company's stock has risen 12 percent in 2009.

PAY BACK TARP

American Express, founded in 1850, became a bank in November as bond markets closed down and lenders outside the banking system began looking to fund themselves with deposits. Being a bank also helped American Express win access to $3.4 billion of capital from the government's Troubled Asset Relief Program.

Stronger financial institutions that were pressed to take TARP money last year, or that chose to, are now looking to pay it back because of the strings tied to the funds, including pay limitations for senior executives.

Goldman Sachs Group Inc issued $5 billion of shares last week to help repay its $10 billion of TARP money. JPMorgan Chase & Co said last week it has the resources to repay the government immediately. It is not clear under what conditions regulators will approve the paybacks.

American Express, a component of the Dow Jones industrial average <.DJI>, said it hopes to repay the funds if regulators allow and after stress tests to see whether it needs additional capital. The results of the stress tests on the 19 largest banks are expected on May 4.

We believe it's in the best interest of American Express and good public policy to return TARP, Henry said.

The company said it has $25 billion of excess cash and marketable securities. American Express said in March it may sell its stake in Industrial and Commercial Bank of China, <1398.HK> which at the time could have raised more than $600 million of capital.

The firm said its Tier 1 capital ratio grew to 14.8 percent, a higher level than its main rivals, from 9.7 percent in the previous quarter.

In American Express' U.S. card service business, charge-offs -- the annualized rate at which the company wrote off bad loans during the quarter -- rose to 8.5 percent from 7 percent in the previous quarter.

The charge-off rate is likely to rise by anywhere from 2 to 2.5 percentage points in the second quarter, and another half a percentage point in the third quarter, the company said.

Their credit quality is still a little bit worrying, said Crawford, the portfolio manager.

Spending volume on its cards globally fell 16 percent to $139.2 billion from the same quarter last year, but the company's outstanding cards rose 4 percent to 91.6 million.

Henry said spending was decreasing in April at the same pace as in the first quarter.

(Reporting by Juan Lagorio, additional reporting by Dan Wilchins; Editing Bernard Orr and Tim Dobbyn)

Investment Goldman sachs American Express