American Express sees lower-than-expected defaults

NEW YORK (Reuters) - American Express Co said on Wednesday that U.S. credit card defaults grew less-than-expected in the second quarter and could be lower-than-estimated in the second half, after a surprising drop in June for the first time in a year.

American Express joined JPMorgan Chase & Co -- the largest issuer of Visa branded credit cards -- and Discover Financial Services among companies reporting lower defaults in June, in a sign that American consumers' credit positions are not deteriorating as rapidly as feared.

The largest U.S. credit card company by sales volume said its net charge-off rate -- the percentage of debt it does not expect to be repaid -- fell to 9.9 percent in June from 10.0 percent in May, according to a regulatory filing.

Assuming those figures, American Express estimated its charge-off rate grew to 10 percent in the second quarter from 8.5 percent in the first quarter, but below the 10.5 to 11.0 percent estimated by American Express.

American Express said that if delinquency and bankruptcy trends continue to be below previously expected levels, "the company believes it is highly likely that its US credit cards net write-off rate for each of the third and fourth quarters of 2009 will be better than previously forecasted".

The firm had forecast that chargeoffs could rise to up to 11.5 percent by the end of 2009.

American Express' delinquency rate -- a sign of future loan losses -- fell to 4.4 percent in June from 4.7 percent in May.

The company said it expected "to use a significant portion of the benefits from better-than-forecasted credit performance on selective investments and other business initiatives during the third and fourth quarters of the year."

American Express was the fastest growing credit card company during the credit boom of 2003-07, but the company paid a heavy price when the bubble burst last year.

Mounting credit losses sent its earnings spiraling lower. Since then, American Express has been slashing lending, trimming costs, and divesting to shore up its balance sheet.

It is the only credit card company that did not cut its dividend and the only one that remains profitable, according to quarterly reports.

American Express shares rose 9.53 percent at $26.78 in afternoon trading on the New York Stock Exchange. The stock is up 44 percent in 2009.

(Reporting by Juan Lagorio, editing by Derek Caney and Gunna Dickson)