New York, May 05, 2020 -- Moody's Investors Service (Moody's) has affirmed all of the ratings of
American Express Company (Amex) and the rated subsidiaries, American
Express Travel Related Services Co., Inc. (TRS) and
American Express Credit Corporation (Credit Corp). Amex is rated
A3 for senior long-term unsecured debt. All of these subsidiaries
have A2 issuer ratings.
Moody's has also affirmed the a2 standalone baseline credit assessment
(BCA) of Amex's bank subsidiary, American Express National Bank
(AENB) as well as the bank's Aa3 long-term deposit ratings and
A3 issuer rating. The A1(cr)/Prime-1(cr) Counterparty Risk
Assessments and the A2/Prime-1 Counterparty Risk Ratings of AENB
were also affirmed.
The outlooks on Amex and its subsidiaries were changed to negative from
stable, reflecting Moody's assessment that the US economy will contract
in 2020 as a result of the coronavirus outbreak, which will likely
have a direct negative impact on Amex's and other US banks'
asset quality and profitability. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the substantial
implications for public health and safety.
Affirmations:
..Issuer: American Express Company
....LT Issuer Rating, Affirmed A3,
Negative from Stable
....Senior Unsecured Shelf, Affirmed
(P)A3
....Subordinate Shelf, Affirmed (P)A3
....Pref. Shelf Non-cumulative,
Affirmed (P)Baa2
....Pref. Stock Non-cumulative,
Affirmed Baa2 (hyb)
....Subordinate Regular Bond/Debenture,
Affirmed A3
....Senior Unsecured Conv./Exch.
Bond/Debenture, Affirmed A3, Negative from Stable
....Senior Unsecured Regular Bond/Debenture,
Affirmed A3, Negative from Stable
..Issuer: American Express National Bank
.... Adjusted Baseline Credit Assessment,
Affirmed a2
.... Baseline Credit Assessment, Affirmed
a2
....LT Counterparty Risk Assessment,
Affirmed A1(cr)
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....LT Counterparty Risk Rating (Foreign Currency),
Affirmed A2
....LT Counterparty Risk Rating (Local Currency),
Affirmed A2
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....LT Issuer Rating, Affirmed A3,
Negative from Stable
....LT Bank Deposits, Affirmed Aa3,
Negative from Stable
....ST Bank Deposits, Affirmed P-1
....Other Short Term, Affirmed (P)P-2
....Senior Unsecured Bank Note Program,
Affirmed (P)A3
....ST Bank Note Program, Affirmed (P)P-2
....ST Bank Note Program, Affirmed P-2
..Issuer: American Express Credit Corporation
....LT Issuer Rating, Affirmed A2,
Negative from Stable
....Backed Commercial Paper, Affirmed
P-1
....Subordinate Medium-Term Note Program,
Affirmed (P)A3
....Senior Unsecured Medium-Term Note
Program (Local Currency), Affirmed (P)A2
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)A2
....Other Short Term (Local Currency),
Affirmed (P)P-1
....Other Short Term (Foreign Currency),
Affirmed (P)P-1
....Senior Unsecured Shelf, Affirmed
(P)A2
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed A2, Negative from Stable
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed A2, Negative from Stable
..Issuer: American Express Travel Related Svcs Co.,
Inc
....LT Issuer Rating, Affirmed A2,
Negative from Stable
Outlook Actions:
..Issuer: American Express Company
....Outlook, Changed To Negative From
Stable
..Issuer: American Express National Bank
....Outlook, Changed To Negative From
Stable
..Issuer: American Express Credit Corporation
....Outlook, Changed To Negative From
Stable
..Issuer: American Express Travel Related Svcs Co.,
Inc
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
The affirmation of AENB's a2 BCA reflects Moody's assessment
of the company's key fundamental strengths, which include Amex's
strong profitability supported by its leading credit card franchise,
global payments network, high proportion of non-spread income
in its revenue base benefitting earnings diversification, and solid
capitalization, protecting the bank against unexpected losses.
The BCA also reflects the company's below average funding profile compared
to similarly-rated banks globally, as a result of its high
reliance on confidence and performance-sensitive capital markets
and brokered deposit funding.
Amex's ratings are underpinned by its strong and stable profitability
supported by its strong sustainable franchise and "best in class" asset
quality compared to credit card peers. The key pillars of the franchise
are its strong brand in charge cards and credit cards, global payment
network and the high proportion of non-interest income in its revenue
base which accounted for around 80% of revenues in 2019.
The company is highly sensitive to consumer and corporate spending patterns,
in particular spending by affluent consumers and small businesses as well
as larger businesses for travel and entertainment expenses.
In Moody's view, the company faces a number of challenges including
a very competitive US credit card market, increasing charge-offs
from historic lows. The provision of financial services through
digital ecosystems controlled by large global technology firms poses an
additional threat for incumbent financial services companies, such
as Amex. However, in Moody's view, the company
continues to demonstrate its resilience and ability to adapt to the evolving
competitive landscape.
The change in outlook to negative from stable was driven by the material
decline in card member spending along with Moody's expectation that credit
and charge card delinquencies and charge-offs will rise rapidly
as a result of the rapidly deteriorating economic environment, including
rapidly increasing level of unemployment in the US as a result of the
coronavirus pandemic lockdown. These factors will pressure the
bank's profitability and weaken its capitalization, reducing
its ability to absorb unexpected losses.
The spike in unemployment above the 10% level reached in the 2007-08
global financial crisis is a clear credit negative, but the severity
of deterioration in credit card performance will depend on how long unemployment
remains so elevated. If unemployment falls to below 8% by
early next year and continues to improve, Moody's expects
charge-offs will likely peak in 2021 at around 4.5%
to 5.5% from today's 2019 average of around 2.25%.
Amex's solid profitability as measured by net income to average
assets, was 3.4% in 2019 reflecting its very high
net interest margin. The strong profitability far exceeded the
1.2% median for US regional bank peers, and will help
Amex weather the current downturn. Similarly, when profitability
declined materially during the 2007-08 financial crisis,
Amex's performance was stronger than that of peers with Amex never
reporting a loss.
Due to the rapidly deteriorating economic environment, Amex reported
net income of $367 million for Q1 2020 versus $1.7
billion in Q4 2019 due in large part to a large increase in loss provisions
to $2.6 billion up from $1.0 billion in Q4
2019. Common Equity Tier 1 ratio was 11.7% as of
31 March 2020 versus 10.7% as of year-end 2019.
Moody's regards the coronavirus pandemic as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Please see Moody's Environmental risks and Social risks
heatmaps for further information. Today's rating actions reflect
the impact on Amex of the breadth and severity of the shock, and
the potential deterioration in credit quality, profitability and
capital it has triggered.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The negative outlook indicates that rating upgrades are unlikely over
the next 12-18 months, given the deteriorating economic environment
and its uncertain duration. The outlook could return to stable
if the risks associated with the coronavirus pandemic outbreak abate,
leading to an improvement in operating conditions that Moody's expects
would allow the firm within the next two-to-three years
to return to pre-coronavirus crisis profitability, asset
quality and capital levels.
The bank subsidiary's a2 BCA could be downgraded if capitalization
weakens materially, such as tangible common equity falling below
and expected to remain below 9.5%. In addition,
the BCA could be downgraded in the event that asset performance is weaker
than Moody's currently expects, given the current economic
environment, or if liquid resources decline materially, making
the firm vulnerable to market shocks. In addition, the bank
subsidiary's a2 BCA could be downgraded in the event that the company's
franchise is weakened such that within the next two-to-three
years, Moody's does not expect the company's exceptionally
strong net income to average assets to exceed 3.0%.
A lower BCA would likely lead to ratings downgrades.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Warren Kornfeld
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
