Fitch Affirms American Express; Outlook Stable

Wed Apr 16, 2014 2:07pm EDT

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(The following statement was released by the rating agency) NEW YORK, April 16 (Fitch) Fitch Ratings has affirmed American Express Company's (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. Contact: Primary Analyst Brendan Sheehy Director +1-212-908-9138 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Meghan Neenan, CFA Director +1-212-908-9121 Committee Chairperson Christopher Wolfe Managing Director +1-212-908-0771 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (January 2014); --'Finance and Leasing Companies Criteria' (December 2012); --'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles' (March 2014); --'FinCo Deposit Sensitivity to Rising Rates' (January 2014); --'Nonbank Financial Institution Interest Rate Sensitivity' (January 2014); --'3Q13 U.S. Bank Capital Ratios' (December 2013); --'2014 Outlook: U.S. Finance and Leasing Companies' (November 2013); --'Fitch Fundamentals Index - U.S.' (October 2013). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Finance and Leasing Companies Criteria here U.S. Bank HoldCos & OpCos: Evolving Risk Profiles here FinCo Deposit Sensitivity to Rising Rates here Nonbank Financial Institution Interest Rate Sensitivity here 3Q13 U.S. Bank Capital Ratios here 2014 Outlook: U.S. Finance and Leasing Companies (Strong Fundamentals, But Sector Headwinds Persist) here Fitch Fundamentals Index here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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