AmEx Credit Rating Downgraded on Weaker Revenue

NEW YORK -- Moody's Investors Service Friday downgraded its ratings on American Express Co after the credit card company posted sharply lower first-quarter earnings as it struggled with bad loans.

Moody's cut its senior long-term debt on American Express by one notch to A3, the seventh-highest investment grade, from A2. The short-term rating was lowered to Prime-2 from Prime-1.

Moody's said the outlook for the long-term ratings of American Express is negative, indicating another rating cut is likely over the next 12 to 18 months.

The downgrades reflect the erosion of the company's asset quality and weaker revenue trends stemming from the severe U.S. recession, Moody's said in a statement.

The credit card company also has relatively high credit exposure in the states most heavily affected by the housing slump, particularly California and Florida, Moody's said.

The pervasive weakness of the U.S. economy and sharp rise in unemployment will continue to weigh on asset quality, increasing the need for additional loss provisions throughout 2009 and quite possibly well into 2010, Moody's said.

Spreads tightened on American Express's notes after it reported earnings, which though lower than the year-ago period, were better than expected.

The company's 7.3 percent notes due in 2013 tightened by 24 basis points on Friday to 555 basis points over Treasuries, according to MarketAxess.

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