May 12, 2009 / 11:31 AM / 9 years ago

UPDATE 1-RBC starts American Express with underperform

May 12 (Reuters) - RBC Capital Markets began coverage of American Express Co (AXP.N) with an “underperform” rating, saying credit challenges would likely weigh on the credit card company’s earnings in the year ahead.

“Unemployment and card delinquencies are highly correlated, so given our expectations that economic conditions will remain relatively weak, higher losses are likely ahead,” analyst Jason Arnold wrote in a research note dated May 11.

The analyst sees lower cardmember spending pressuring the company’s fee revenue.

Arnold, who set a price target of $18 on the stock, said recent implementation of strict credit policies and higher rates may also result in higher attrition rates of cardmembers.

“Shares currently reflect optimism for a near-term recovery to historical levels of returns, which we view as unlikely to be achievable for now,” the analyst said.

The company’s shares, which have soared 81 percent over the past one month, closed at $26.04 Monday on the New York Stock Exchange. (Reporting by Ashutosh Joshi in Bangalore; Editing by Deepak Kannan)

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