American Express may see credit costs rising in 2009: analyst

(Reuters) - American Express Co (AXP.N) may witness credit costs rising through 2009, Merrill Lynch analyst Kenneth Bruce said, adding that the credit card lender's near-term earnings may fall, after meeting with company President AL Kelly.

"Domestic and global consumers are quickly ratcheting back spending across all products and segments, suggesting a more severe downturn is now threatening AXP's top-line, in our view," he wrote in a note dated Nov 6.

Bruce noted that credit performance was also weakening, though it appeared that there were greater challenges in even the most affluent consumer segments.

American Express may take more charges in the fourth-quarter, as its 6.5 percent reserve level appears low compared to the brokerage's forecast for 7.5 percent in credit card losses, Bruce said.

In October, the fourth-largest U.S. credit card lender cut its workforce by 10 percent that resulted in a pre-tax charge of $370 million to $440 million in the fourth quarter.

"It appears that AXP is trying to lower expectations, given the recent spending trends. We would not be surprised to see flat or even negative year-over-year total billed business growth comps for Q4 '08," Bruce said.

American Express's premium customer base and diverse geographic footprint are not enough to prevent a severe cyclical downturn, said Bruce, who has an "underperform" rating and a target of $23 on the stock.

Shares of the company were down 7 cents at $24.85 in mid-day trade on the New York Stock exchange.

(Reporting by Anand Basu in Bangalore; Editing by Dinesh Nair)