At the same time, DBRS Morningstar confirmed the ratings of
KEY RATING CONSIDERATIONS
The Negative trend reflects our view that headwinds related to the uncertainty of the duration of the economic contraction caused by the Coronavirus Disease (COVID-19) coupled with the continued spread of the virus that could impede the emerging global economic recovery will likely continue to adversely impact the Company's spend-centric business model. As a result of the pandemic, we expect the Company's earnings generation to remain pressured over the near-to-medium-term reflecting lackluster and uneven card spending volume until economies can fully reopen. Further, Amex's travel and entertainment related spending, that accounted for 29% of the proprietary billed business volume in 2019, has been the most impacted by the pandemic and will likely remain a headwind. On the other hand, the decline in variable expenses associated with customer engagement (rewards, Card Member services) due to lower card spending volume and Amex's planned
The ratings consider the Company's strong franchise and defendable position in the global payments ecosystem, its resilient earnings generation capacity, strong risk management capabilities, solid funding profile with an improving deposit mix and sound capitalization. The ratings also contemplate the global economic uncertainty, the highly competitive nature of the card issuing industry and the increasingly restrictive regulatory regimes for the payments business globally.
RATING DRIVERS
Given the Negative trend, an upgrade of the ratings is unlikely. Nevertheless, if the Company's earnings generation remains resilient while maintaining sound balance sheet fundamentals, the trend of the ratings would revert to Stable. Conversely, sustained weak earnings and/or a deterioration in credit performance that impact balance sheet fundamentals would result in a ratings downgrade. Any perceived franchise deterioration via a sustained erosion of the Company's competitive positioning would also lead to a downgrade of the ratings.
RATING RATIONALE
Amex's franchise strength is supported by its globally recognized brand and leading market position in the global payments industry. The Company's franchise is also strengthened by the competitive advantage provided by its closed-loop network that enables Amex to integrate all aspects of the payments ecosystem and capture the inherent benefits in regard to pricing flexibility, differentiation and adaptability to customers' needs, scalability as well as dynamic underwriting. The high satisfaction and loyalty of Amex's customers also underpin its franchise strength as evidenced by the Company's consistently high rankings in various credit card customer satisfaction studies.
Historically, Amex has demonstrated a robust earnings generations capacity driven by a diversified revenue mix along with a scalable and flexible expense base that enable the Company to remain profitable even under stressed conditions. While the Company's results were solid for 2019, results for 1H20 were significantly impacted by the pandemic as a result of lower card spending volume and increased loan loss provisions due to reserve build for potential credit losses. In 2019, Amex generated
Amex has a strong credit risk profile, underscored by its disciplined approach to risk management and credit underwriting that is augmented by enhanced risk data analytics. Indicative of these risk management capabilities is the Company's consistent best-in-class credit risk performance and substantially lower fraud loss rates relative to peers. Indeed, Amex's worldwide Card Member loan net write-off rate of 2.6% in 1H20 was well below the peer average of 3.7%. Nonetheless, credit performance is expected to deteriorate in the coming quarters given high unemployment levels and the expiration of certain government stimulus measures. To reserve for expected future losses, Amex's forward looking Card Member loan loss reserves to total loans was a sizable 8.0% at
The Company has a solid funding profile underpinned by a diversified funding base including unsecured and asset-backed debt and a growing deposit franchise. Deposits have become a major part of Amex's funding mix, accounting for 63% of total funding. Retail direct deposits have grown to 72% of its
We view Amex's capitalization as sound, supported by strong and consistent earnings generation ability and appropriate capital management. The Company's capital position remained strong with Common Equity Tier 1 Capital ratio of 13.6% at
ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
The Grid Summary Grades for
Notes:
All figures are in
The principal methodology is the Global Methodology for
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The primary sources of information used for this rating include Company Documents and
This rating was not initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com
Tel. +1 212 806-3277
Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
07-Aug-20 Long-Term Issuer Rating Trend Change A (high) Neg US
07-Aug-20 Short-Term Issuer Rating Trend Change R-1 (middle) Neg US
07-Aug-20 Long-Term Senior Debt Trend Change A (high) Neg US
07-Aug-20 Short-Term Instruments Trend Change R-1 (middle) Neg US
07-Aug-20 Subordinated Notes Trend Change A Neg US
07-Aug-20 Noncumulative Preferred Shares Trend Change BBB (high) Neg US
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
07-Aug-20 Long-Term Issuer Rating Trend Change AA (low) Neg US
07-Aug-20 Short-Term Issuer Rating Confirmed R-1 (middle) Stb US
07-Aug-20 Long-Term Senior Debt Trend Change AA (low) Neg US
07-Aug-20 Short-Term Instruments Confirmed R-1 (middle) Stb US
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
07-Aug-20 Long-Term Issuer Rating Trend Change AA (low) Neg US
07-Aug-20 Short-Term Issuer Rating Confirmed R-1 (middle) Stb US
07-Aug-20 Long-Term Deposits Trend Change AA (low) Neg US
07-Aug-20 Long-Term Senior Debt Trend Change AA (low) Neg US
07-Aug-20 Short-Term Instruments Confirmed R-1 (middle) Stb US
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
07-Aug-20 Long-Term Issuer Rating Trend Change AA (low) Neg US
07-Aug-20 Short-Term Issuer Rating Confirmed R-1 (middle) Stb US
07-Aug-20 Short-Term Instruments Confirmed R-1 (middle) Stb US
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