Fitch Affirms Ratings on AmEx (AXP); Sees Operating Performance Improving in FY14

Fitch Ratings has affirmed American Express Company's (NYSE: AXP) long-term Issuer Default Rating (IDR) at 'A+' and short-term IDR at 'F1'. The Rating Outlook is Stable. A full list of ratings is detailed at the end of this release.

The ratings affirmation reflects AXP's strong franchise, spend-centric business model, leading market position in the payments industry, strong credit performance, consistent profitability, diverse funding base, ample liquidity, and strong risk-adjusted capitalization. Ratings are constrained by limited revenue diversity and heightened legislative scrutiny of consumer products.

KEY RATING DRIVERS

Fitch expects operating performance to continue to improve in 2014 supported by growth in consumer and business spending, an expanding Card Member base, and expense discipline. Fitch also expects the company to continue to invest in the franchise including strategic initiatives to expand key businesses (e.g. OPEN, Merchant Services, Serve, Bluebird) and develop new products and services. That said, some headwinds remain including a challenging economic backdrop, particularly in the U.S. and Europe, increased regulatory oversight, and intense competition from both traditional and alternative payment providers.

Credit performance is expected to remain strong in 2014 although charge-offs and delinquencies will likely start to increase from historically low levels. Fitch expects provision expenses to increase in 2014 driven by portfolio growth, lower reserve releases, and some modest deterioration in credit metrics. Net charge-offs on the lending portfolio improved 30 basis points (bps) to 1.8% in 2013 and were below other top credit card issuers. Reserve coverage remains strong at 1.9% of loans and 169% of loans past due at Dec. 31, 2013.

Capital ratios remained strong in 2013. The Tier I common ratio grew 60 bps to 12.5% in 2013 and the TCE/TA ratio improved 50 bps to 10.4% in 2013. Both metrics compare favorably to peer banks. Fitch expects capital ratios to remain stable as earnings generation is offset by asset growth and return of capital to shareholders (e.g. dividends, stock repurchases).

AXP's liquidity profile remains a rating strength, with approximately $13 billion (excluding CP and operating cash) of readily available cash and marketable securities at Dec. 31, 2013 to fund $12.5 billion of long-term debt and CD maturities over the next 12 months. The parent company has $1.3 billion of unsecured debt maturities in 2014, which compares to cash and equivalents and investment securities of $6.2 billion at year-end 2013 which Fitch believes is more than adequate to cover dividend and interest payments for the year.

RATING SENSITIVITIES

Limited Upside in Ratings: Fitch believes positive rating momentum is relatively limited, given the company's strong ratings currently, concentrated exposure to consumers and focus on payment services.

Deteriorating Operating Performance: Negative rating action could be driven by a decline in earnings performance, resulting from a decrease in market share or an inability to contain costs, a weakening liquidity profile, significant reductions in capitalization, and/or potential new and more onerous rules and regulations. Negative rating momentum could also be driven by an inability of AXP to maintain its competitive position and earnings prospects in an increasingly digitized payment landscape.

Fitch has taken the following rating actions:

American Express Company
-- Long-term IDR affirmed at 'A+';
-- Short-term IDR affirmed at 'F1';
-- Short-term debt affirmed at 'F1';
-- Senior debt affirmed at 'A+';
-- Hybrid capital instrument affirmed at 'BBB';
-- Viability Rating affirmed at 'a+';
-- Support affirmed at '5'; and
-- Support Floor affirmed at 'NF'.

American Express Credit Corp.
-- Long-term IDR affirmed at 'A+';
-- Short-term IDR affirmed at 'F1';
-- Short-term debt affirmed at 'F1'; and
-- Senior debt affirmed at 'A+'.

American Express Centurion Bank
-- Long-term IDR affirmed at 'A+';
-- Short-term IDR affirmed at 'F1';
-- Senior debt affirmed at 'A+';
-- Long-term deposits affirmed at 'AA-'.
-- Short-term deposits affirmed at 'F1+';
-- Viability Rating affirmed at 'a+';
-- Support affirmed at '5'; and
-- Support Floor affirmed at 'NF'.

American Express Bank, FSB
-- Long-term IDR affirmed at 'A+';
-- Short-term IDR affirmed at 'F1';
-- Senior debt affirmed at 'A+';
-- Long-term deposits affirmed at 'AA-'.
-- Short-term deposits affirmed at 'F1+';
-- Viability Rating affirmed at 'a+';
-- Support affirmed at '5'; and
-- Support Floor affirmed at 'NF'.

American Express Travel Related Services Company, Inc.
-- Long-term IDR affirmed at 'A+'; and
-- Short-term IDR affirmed at 'F1'.

American Express Canada Credit Corp.
-- Long-term IDR affirmed at 'A+';
-- Short-term IDR affirmed at 'F1'; and
-- Senior debt affirmed at 'A+'.

The Rating Outlook is Stable.

You May Also Be Interested In

• Tesla touts acceleration of new models, but Q1 results fall short of estimates
• Chubb Corp. (CB) Tops Q1 EPS by 10c
• Stride Inc. (LRN) Tops Q3 EPS by 17c, provides guidance