American Express' Units Get Ratings Upgrade from Moody's

American Express Company's AXP subsidiaries – American Express Bank, FSB and American Express Centurion Bank's long-term deposit ratings, were recently upgraded to Aa2 from Aa3 by Moody's Investors Service – a credit rating business of Moody's Corporation MCO. Further, Moody's confirmed these banks' senior unsecured debt and issuer ratings at A2. The credit ratings agency confirmed American Express Centurion Bank's Prime-1 short-term bank note program as well. There have been no alterations to the other ratings for American Express Company and these banks. The  banks' a2 baseline credit assessment BCA also remains unchanged. The outlook for all of these ratings remains stable.

 

Moody's has evaluated the ratings of American Express Company's affiliates based on its new bank rating methodology – advanced Loss Given Failure LGF framework. This new methodology places a lot of importance on funding structure and hence, the anticipated funding structure of American Express' subsidiaries led to the rating upgrade. The credit rating agency is optimistic about American Express' bank units achieving and maintaining a liability structure in line with its current rating under Moody's advanced LGF framework.

 

American Express' bank subsidiaries' have higher level of unsecured long-term debt, which lowers the loss given failure for its bank-level deposits and senior debt. This supports Moody's advanced LGF framework, thereby allowing for a higher rank upgrade than the company's peers. Moreover, American Express' deposits are three notches above its BCA, while its senior bank debt and bank issuer ratings match its BCA. This is above the usual criteria set for the U.S. regional banks – deposits should be rated two notches higher than the BCA and one notch below the BCA for senior debt and issuer ratings. This further supports the company's rating upgrade.

 

However, the company could witness a downgrade if there is deterioration in its standalone creditworthiness. This can only happen if the company faces significant lower liquidity and a decline in its financial position.

 

Currently, American Express carries a Zacks Rank #3 (Hold). Better-ranked stocks from the financial miscellaneous services sector include Euronet Worldwide, Inc. EEFT and Blackhawk Network Holdings, Inc. HAWK.While Euronet Worldwide sports a Zacks Rank #1 (Strong Buy), Blackhawk Network Holdings holds a Zacks Rank #2 (Buy).

 

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