Bank holding co status to aid American Express' funding: Whitney

(Reuters) - Getting approval to work as a bank holding company will afford American Express Co (AXP.N) a more stable funding mix, Oppenheimer analyst Meredith Whitney said.

"Whether institutions like it or not, the only prudent thing to do is assume a protracted worst-case funding scenario," said Whitney, who believes this was the strategy that influenced the company's decision to transform.

American Express said on Monday it won approval to become a bank holding company, in a step that could cut its borrowing costs and give it more access to government money.

Whitney also said the transformation to a bank holding company would give American Express more optionality on its funding mix.

American Express, the fourth-largest U.S. credit card issuer, offered more credit to more customers even as the housing crisis began last year, and is paying the price as delinquencies rise.

Adding to its difficulties, its main sources of funding have grown more expensive as secured and unsecured bond markets have shut down. Analyst Whitney, however, said her primary concern about American Express was consumer credit losses, and not funding.

"Our concerns for American Express and other consumer lending-related stocks continue to be worse-than-expected credit losses," she said in a note to clients.

Whitney maintained her "perform" rating on the stock.

The funding pressures are adding to the credit pressures that the company is already facing. The default rate among its credit-card clients in the United States almost doubled in the third quarter, from a year earlier.

Shares of the company closed at $23.98 Monday on the New York Stock Exchange.

(Reporting by Anurag Kotoky in Bangalore; Editing by Amitha Rajan)