More evidence that July was a brutal month for American consumers: American Express’ (AXP) July credit statistics:
- Total delinquencies increased 21 basis points month-over-month and 94 basis points year-over-year to 3.42% (the highest rate for July since 2001)
- The default rate increased 12 basis points month-over-month and 203 basis points year over year to 5.63% (the highest rate in July since 2003)
- Portfolio yield increased 76 bps mum but was down 488 bps YOY to 14.40% (the lowest July yield since 2004)
- The payment rate equaled 24.63%, up 56 bps mum and down 99 bps YOY
FBR sees worse days ahead, as the market realises that American Express is not actually much better off than other financial services companies:
…our belief that a challenging macro environment will lead to higher-than-expected credit costs over the next 6-9 month period and cause the shares to decline from current levels, as investors may realise AXP is more credit sensitive than anticipated.
The relatively recent rapid growth in receivables at the top of the credit cycle combined with a slight overweight exposure to Florida and California markets should continue to narrow the credit performance gap relative to its peers. We believe the continued narrowing of this gap will diminish the valuation gap AXP enjoys relative to other financial services companies.
FBR’s macro outlook is no more encouraging. FBR’s Chief Economist and strategist Steve East:
- two consecutive quarters of negative GDP growth – in 4Q08 and 1Q09
- the unemployment rate will reach 6% by 4Q08 and will reach 6.7% by 4Q09
- negative real PCE in 4Q08 and 1Q09
- unemployment set to peak in 4Q09
FBR reiterates UNDERPERFORM on American Express (AXP), target $32.
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