American Express is unlike Mastercard or Visa that only process credit card transactions for banks. AXP actually provides the credit and takes the credit risk onto its own books.
With the economy poised on the edge of a serious recession you can expect delinquent credit card payments and credit cards defaults and losses to begin to mount at American Express. This will place earnings under pressure for many quarters to come.
While the optimists are still forecasting a quick recovery for the American economy I have my doubts. With housing still in a downtrend that is accelerating, with American airlines and the trucking industries being buried by increasing fuel costs, with the financial industry in a shambles, with the Dollar still under pressure, and with inflation coming on strong, the potential for the perfect nasty financial storm seems to me to be far greater than for a fast recovery.
In my opinion, the slow motion train wreck of the American economy is entering a new phrase, It is just reaching the point where pain will become more widespread and the pain will persist far longer than commonly expected at this time.
To think that AXP can escape serious operating problems given the above economic conditions is optimistic thinking indeed.
$39.19 (06/27/08)
