- American Express Co. (Amex) has reported strong financial performance for the past five years. Notably, the company did not post any quarterly losses during the credit crisis and its recent earnings were strong.
- As a result, we are raising our long-term issuer credit ratings on Amex's core operating subsidiaries to 'A-' from 'BBB+' and affirming our 'A-2' short-term issuer credit ratings on the companies.
- At the same time, we are affirming our 'BBB+/A-2' issuer credit ratings on Amex, the nonoperating holding company.
- The stable outlook reflects our view that the group's strong performance will continue in the near and intermediate future.
On June 6, 2012, Standard & Poor's Ratings Service raised its long-term issuer credit ratings on American Express Co.'s (Amex's) core operating subsidiaries, which include American Express Travel Related Services and its rated subsidiaries, to 'A-' from 'BBB+' and affirmed its 'A-2' short-term issuer credit ratings on the subsidiaries. At the same time, Standard & Poor's affirmed its 'BBB+/A-2' issuer credit ratings on Amex, the nonoperating holding company. The outlook on the long-term ratings is stable.
The rating actions reflect Amex's strong financial performance during the credit crisis through current periods. Notably, the company did not post any quarterly losses during the credit crisis and its recent earnings were strong. Except a 13% decline in 2009 as a result of broad-based declines in consumer and business spending, Amex's revenue growth has been steady, despite the very challenging operating conditions of the last several years, including recent revenue pressures from new regulations. Amex's strong fee income component makes its financial performance more resilient to asset quality issues. The company achieved revenue growth while improving asset quality performance to historically strong levels. Amex's prime customer focus results in asset quality metrics that generally are stronger than more traditional credit card lenders'. Since becoming a bank holding company, Amex has improved its funding profile by adding direct-to-consumer deposit funding to its mix. Retail deposits now account for about 38% of total funding. We consider direct-to-consumer deposits as weaker than traditional branch originated deposits, which typically are associated with stronger customer relationships, in our view. However, we also view direct-to-consumer deposits as a stronger form of funding than more traditional wholesale funding. We expect Amex to maintain at least this level of deposits in its funding profile going forward. The affirmation of the ratings on Amex reflects our view that there is a greater degree of structural subordination, given that the banks comprise about 47% of consolidated assets. As a result, based on our criteria, we now rate the nonoperating holding company one notch below the group.
The stable outlook reflects our view of Amex's positive customer spending trends, the improvement in its asset quality, and the strong profitability performance. We also consider the fragile state of the U.S. economic recovery and our expectation for a slow and extended recovery period, as well as the uncertainty around increased regulatory burdens. We expect that Amex will continue to invest to increase its franchise's growth and help mitigate revenue pressures resulting from the implementation of regulations, as well as to continue its tradition of focusing on higher quality customers. However, we also expect that the company's asset quality will weaken modestly since measures are at or near historically strong levels. We could revise our outlook to positive if Amex's earnings performance and capital retention increase our risk-adjusted capital ratio, which is currently at 7.6%, to approximately 10%. On the other hand, we could revise the outlook to negative if performance issues pressure capital or indicate long-term weakening of profitability. The possibility for future adverse regulatory, legislative, or legal actions remains a risk that could also negatively affect the ratings.
Related Criteria And Research
- Group Rating Methodology And Assumptions, Nov. 9, 2011
- Bank Capital Methodology And Assumptions, Dec. 6, 2010
- Use Of CreditWatch And Outlooks, Sept. 14, 2009
- Analytical Approach To Assessing Nonoperating Holding Companies, March 17, 2009
- Rating Finance Companies, March 18, 2004
Ratings Affirmed American Express Co. Counterparty Credit Rating BBB+/Stable/A-2 Senior Unsecured BBB+ Preferred Stock BBB- Commercial Paper A-2 American Express Credit Corp. Commercial Paper A-2 Upgraded To From American Express Overseas Finance Co. N.V. American Express Travel Related Services Co. Inc. Counterparty Credit Rating A-/Stable/-- BBB+/Stable/-- American Express Bank FSB American Express Centurion Bank American Express Credit Corp. American Express Overseas Credit Corp. Ltd. American Express Travel Related Services Co. Inc. Senior Unsecured A- BBB+ Subordinated BBB+ BBB American Express Canada Credit Corp. Senior Unsecured A- BBB+ Upgraded; Ratings Affirmed To From American Express Bank FSB American Express Overseas Credit Corp. Ltd. American Express Credit Corp. American Express Centurion Bank Counterparty Credit Rating A-/Stable/A-2 BBB+/Stable/A-2 American Express Centurion Bank Certificate Of Deposit Local Currency A-/A-2 BBB+/A-2
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
|Primary Credit Analyst:||John K Bartko, New York (1) 212-438-7368;|
|Secondary Contact:||Kenneth Frey Jr, CFA, New York (1) 212-438-4415;|
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