American Express Co. (AXP) reported a slight improvement in its July credit-card defaults. Some of the credit metrics showed an improvement over the previous month.
Net loss rate has fallen to 8.92% in July, versus 10.18% in the previous month. Net charge-offs (gross amount of loans charged off as bad debt) have also shrank to 9.2% in July versus 9.9% in June. The rate of delinquencies (failure to pay mortgage dues) slipped to 4.2% last month from 4.4% in June.
Despite the modest improvement, American Express’ rate of losses on credit-card loans is still significantly higher than the 5.3% rate it experienced in the second quarter of last year. Credit-card losses have become the norm among lenders as consumers struggle to pay their debt amid rising unemployment and decline in personal wealth.

Though there’s no way to know exactly why the pace of growth is slowing, it appears that programs aimed at helping distressed homeowners from both the government and mortgage lenders are beginning to help.

In addition, consumers are being more cautious with their expenditures. Nevertheless, it is going to take about a year before the credit card default reverses completely.

Other lenders who also faced a fall in credit card default rates were the Bank of America (BAC), Discover (DFS), JP Morgan (JPM) and Citigroup (C).
American Express holds a leading position in the high-growth card payment and lending arenas. The company has the ability to achieve strong organic growth despite sluggish growth in the industry. During 2008, approximately 66.0% of its revenues were derived from U.S. Card Services and International Card Services.
The acquisition of General Electric Co.’s (GE) commercial card and corporate purchasing business unit in March last year further expanded the leadership of American Express in the commercial card marketplace.

For the last few quarters, the company has been experiencing slowing cardmember spending, lower loan volumes and higher delinquencies as increasing stress in the global financial markets eroded consumer and business confidence levels.
Though the credit metrics have slightly improved, we feel that the markets will not stabilize before 2010. We recommend a Neutral rating on the shares for now.

Read the full analyst report on “AXP”
Read the full analyst report on “BAC”
Read the full analyst report on “DFS”
Read the full analyst report on “JPM”
Read the full analyst report on “C”
Read the full analyst report on “GE”
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