(The following statement was released by the rating agency) NEW YORK, April 18 (Fitch) Fitch Ratings has completed a peer review of three rated consumer finance companies and their related entities. Based on this review, Fitch has affirmed the long-term Issuer Default Ratings (IDR) of American Express Company (AXP) at ‘A+', Discover Financial Services (Discover) at ‘BBB’, and SLM Corporation (SLM) at ‘BBB-'. A full list of ratings is provided at the end of this release. The Rating Outlook for all issuers is Stable. KEY RATING DRIVERS The rating affirmations reflect the solid market positions of each issuer in their respective product categories and the continuation of strong consumer credit trends, which has supported solid earnings performance and internal capital generation. AXP and Discover continue to maintain peer-superior capital ratios and strong liquidity profiles, with each retaining sufficient cash and liquid securities to cover funding maturities over the next 12 months. Loss metrics on their credit card portfolios lead the industry, as do portfolio expansion and purchase volume growth, which are expected to continue to support solid earnings performance over the near term. While Fitch believes growth in provision expense will be a headwind in 2013, Fitch also believes loss metrics will remain well below historical norms, and the low cost funding environment will serve as a partial offset to higher credit costs. AXP’s superior rating continues to reflect its spend-centric business model, which allowed the company to remain profitable and build capital throughout the recent credit crisis. In 2012, interchange revenue accounted for approximately 56% of net revenue, while other large credit card firms are much more heavily reliant on net interest spread for income. AXP has an attractive customer base, with the highest average spend-per-card in the industry, which Fitch believes will continue to support billed business growth and earnings. Credit trends in the private student loan space continue to move in a positive direction, as tighter underwriting criteria, including higher co-signer rates on undergraduate loans and increased school certifications, have and will continue to benefit loan vintages entering repayment. Fitch expects further stabilization of private student loan credit metrics in 2013, which should yield further reductions in provision expense for SLM. Discover’s organic student loan portfolio is still relatively new, and, therefore, Fitch believes loss metrics will rise modestly as the portfolio seasons. SLM has demonstrated improved earnings consistency in recent years, despite the run-off of its federally guaranteed student loan business, given stronger credit trends on the private education loan side, reduced funding costs, and greater operational efficiencies. Fitch believes the supply-demand imbalance in the private student loan industry will benefit players of scale, of which SLM is the largest, as portfolio growth can be achieved without loosening underwriting criteria. While legislative risk remains a headline risk, as it pertains to the dischargeability of private loans in bankruptcy, Fitch believes the impact of a potential change in legislation is becoming less significant, as portfolio co-signer rates rise. Separately, SLM recently completed the sale of a residual interest in an ABS FFELP transaction, which was relatively modest in size. Fitch does not view the sale as a change in operating strategy, but as an accelerated realization of cash proceeds expected from the amortization of the transaction. Cash flows from servicing the assets will remain intact, as servicing has been retained. Should residual sales happen on a larger scale, Fitch would expect a portion of cash proceeds generated from the sale to be used to repay unsecured debt, as a meaningful portion of the unsecured debt remaining is being used to support the legacy FFELP business. The use of significant cash proceeds for higher dividend distributions and/or share repurchases would be viewed negatively from a creditor’s perspective and could result in a ratings downgrade. Given strong earnings performance across the consumer sector, aggregate dividends and share repurchases were significant in the space in 2012, amounting to payouts of 98% of earnings for AXP, 60% of earnings for Discover, and 107% of core earnings for SLM. Still, Fitch believes risk-adjusted capitalization levels remained solid for each. AXP’s ability to generate capital internally, in particular, is superior given its spend centric business model and focus on fee revenue. Given current capital positions, Fitch expects AXP and Discover will retain relatively high payout rates in 2013. The Stable Rating Outlook for AXP and Discover reflects Fitch’s expectation that both will continue to generate consistent earnings, exhibit peer-superior asset quality, and maintain solid liquidity and strong risk-adjusted capitalization. The Stable Rating Outlook for SLM reflects Fitch’s expectations for consistent operating performance in consumer lending and business services, sustained operating efficiencies, stability in credit metrics for the private education loan portfolio, growing capitalization, with the amortization of the FFELP portfolio, and the continued ability to repay maturing debt obligations with operating cash flow and liquidity on hand. RATING SENSITIVIES - AXP and Discover For AXP and Discover, negative rating action could be driven by an inability to maintain competitive positions and earnings prospects in an increasingly digitized payment landscape. While each is focused on strategic acquisitions and/or alliances to expand online and mobile capabilities, competition from technology companies and social networks, with access to significant consumer data, is expected to intensify. Still, a meaningful shift in consumer payment behavior is expected to take some time to develop. Negative rating momentum for each could also be driven by a decline in earnings performance, resulting from a decrease in market share, declines in merchant acceptance, significant credit deterioration or an inability to contain costs, a weakening liquidity profile, significant reductions in capitalization, and legislative and/or regulatory changes that alter the earnings prospects of the credit card business. Fitch believes positive rating momentum is relatively limited for AXP given its already strong rating and its concentration in payments and consumer products. For Discover, however, positive rating momentum could develop from increased revenue diversity, proven competitive positioning and credit performance in non-card loan categories over time, and enhanced funding flexibility. To date, positive momentum has been constrained by the continued introduction of new product categories, where underwriting capabilities are largely untested. Further seasoning of these new product portfolios will allow Fitch to assess whether underlying performance alters the risk profile of the firm. RATING SENSITIVIES - SLM For SLM, negative rating momentum could result from free cash flow generation below Fitch’s expectations, which impairs the company’s ability to meet its debt service obligations. As discussed, should FFELP residual sales happen on a larger scale, Fitch would expect an appropriate portion of cash proceeds to be used to repay unsecured debt. The use of significant cash proceeds for higher shareholder distributions, which Fitch believes impairs the company’s ability to meet unsecured debt maturities, could result in a ratings downgrade. Negative rating action could also result from deterioration in asset quality metrics to crisis levels, legislative change which removes the private sector from the servicing and collection of government guaranteed student loans, and/or an inability to arrange economically attractive term funding for private education loans over time. While Fitch believes the impact of the private student loan dischargeability issue is declining, the ability for a borrower to discharge their private student loan without a demonstrated payment history, would not be viewed favorably. Furthermore, an inability for SLM to regain its market share in the servicing of government loans through the ED contract, could pressure the ratings. While not a meaningful portion of revenue or income at present, third-party servicing income is expected to grow in importance as the owned portfolio runs off. Given the company’s scalable servicing platform and default performance, Fitch expects SLM to achieve and maintain a meaningful share of the contract.