<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Moody's downgrades Amex as credit crisis hits home
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: Moody's Investors Service has cut its ratings on American Express, citing the credit card issuer's exposure to consumers in areas hit hard by the falls in US housing prices.
American Express on Monday reported a 23 per cent drop in third-quarter income from continuing operations as it set aside more money to cover credit losses, but nevertheless beat analysts estimates.
The company generates much of its income from fees, as opposed to interest from revolving credit balances. However, its lending exposures have increased significantly over time, Moody's said in a statement on Monday.
'With this shift, eroding economic conditions across the United States will likely pose a greater burden on Amex's asset quality and profitability,' Moody's said.
'Broad economic weakness in the US, heavy consumer debt burdens, and home price erosion have also combined to dampen Amex's card-member spending growth in the US,' Moody's added.
It cut American Express' rating one notch to 'A2', the sixth highest investment grade, from 'A1' and gave it a negative outlook, indicating an additional downgrade is more likely over the next 12 to 18 months.
The downgrade also reflects the company's model of relying on market funding, which has caused strain on most financial institutions.
'The current credit crisis has highlighted the risk to firms that rely on wholesale funding, both in terms of funding availability and cost,' Moody's said.
According to a report by CNBC, analysts believe credit-card delinquencies are likely to become the next flashpoint in the current credit crisis, although the impact on the overall economy would not be as severe as that of the housing slump.
As the economy worsens and unemployment rises, more Americans are having trouble paying off their credit card balances.
That has pushed up losses for credit card issuers, forcing them to tighten standards, which puts a further squeeze on cash-strapped consumers.
With job losses growing, credit cards delinquencies could rise to 7 per cent by the first quarter of next year, which would be a 20-year high, says Mr Howard Shapiro, an industry analyst with Fox-Pitt Kelton.
And because consumers no longer have the equity in the house to fall back on, they are relying even more on credit cards to pay for living expenses. REUTERS
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: Moody's Investors Service has cut its ratings on American Express, citing the credit card issuer's exposure to consumers in areas hit hard by the falls in US housing prices.
American Express on Monday reported a 23 per cent drop in third-quarter income from continuing operations as it set aside more money to cover credit losses, but nevertheless beat analysts estimates.
The company generates much of its income from fees, as opposed to interest from revolving credit balances. However, its lending exposures have increased significantly over time, Moody's said in a statement on Monday.
'With this shift, eroding economic conditions across the United States will likely pose a greater burden on Amex's asset quality and profitability,' Moody's said.
'Broad economic weakness in the US, heavy consumer debt burdens, and home price erosion have also combined to dampen Amex's card-member spending growth in the US,' Moody's added.
It cut American Express' rating one notch to 'A2', the sixth highest investment grade, from 'A1' and gave it a negative outlook, indicating an additional downgrade is more likely over the next 12 to 18 months.
The downgrade also reflects the company's model of relying on market funding, which has caused strain on most financial institutions.
'The current credit crisis has highlighted the risk to firms that rely on wholesale funding, both in terms of funding availability and cost,' Moody's said.
According to a report by CNBC, analysts believe credit-card delinquencies are likely to become the next flashpoint in the current credit crisis, although the impact on the overall economy would not be as severe as that of the housing slump.
As the economy worsens and unemployment rises, more Americans are having trouble paying off their credit card balances.
That has pushed up losses for credit card issuers, forcing them to tighten standards, which puts a further squeeze on cash-strapped consumers.
With job losses growing, credit cards delinquencies could rise to 7 per cent by the first quarter of next year, which would be a 20-year high, says Mr Howard Shapiro, an industry analyst with Fox-Pitt Kelton.
And because consumers no longer have the equity in the house to fall back on, they are relying even more on credit cards to pay for living expenses. REUTERS
