Analysts cautious on AmEx

Standard & Poors gives credit card giant a negative outlook, a day after company reports 24% drop in profits. Slowdown in consumer spending will hurt the company.

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By Tami Luhby, senior writer

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NEW YORK ( -- The nation's economic woes are weighing heavily on credit card giant American Express, prompting analysts to take a dark view of the company.

Standard & Poor's Tuesday placed the company on CreditWatch negative, saying that it "expects to see a further weakening of AmEx's asset quality and profitability." The rating agency will review how well AmEx (AXP, Fortune 500) is coping with the current credit crunch and its outlook for credit losses and profitability relative to its current rating. It could downgrade the company within 90 days.

Shares of AmEx were little changed in after-hours trading.

S&P's report comes a day after AmEx reported a 24% drop in quarterly profits. Though it beat expectations, executives said they anticipate the global economy to continue weakening well into 2009 and they hinted at layoffs. Write-offs of bad loans continued to increase, and the company said it set aside "significant additions" to cover loan losses.

Moody's Investors Service downgraded the company Monday on concerns that AmEx may not be able to weather this potentially severe consumer-led economic downturn as well as previous recessions. While all financial institutions are suffering these days, AmEx is even more hamstrung since it is one of the few stand-alone credit companies.

"Broad economic weakness in the U.S., heavy consumer debt burdens and home price erosion have also combined to dampen AmEx's card-member spending growth in the U.S.," the Moody's report said.

Analysts also raised concerns about the company's access to funding. The financial panic sweeping the globe has prompted investors to shy away from buying short-term debt issued by firms such as AmEx.

The company, however, stressed in its earnings report that it can fund its business for at least a year and that it has access to various programs set up by the federal government to support businesses during these difficult times.

"We expect to be in a position to capitalize on growth opportunities once the environment improves," Chief Executive Kenneth Chenault said in a conference call Monday.

Still, with experts unsure how deep or how long the recession will last, some analysts are concerned about the credit card issuer's prospects.

"Longer term, AmEx may need to consider a merger if stability doesn't return to the markets," wrote Kathleen Shanley, analyst at GimmieCredit. To top of page

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