SICK ECONOMY THREATENS AMERICAN EXPRESS

Despite being chatted up as a possible replacement for embattled Citigroup CEO Vikram Pandit, American Express CEO Kenneth Chenault finds himself charging through some hard times of his own.

Shares in the company behind the gold and platinum charge card are down nearly 61 percent this year, and are bracing for more pain amid expectations that the consumer and corporate credit business will get further whacked by a deteriorating economy.

Yesterday, AmEx was downgraded by financial firm Macquarie Research to “underperform” from “neutral,” citing growing concerns over consumers’ ability to make good on their credit-card payments as their home values sour.

Making matters worse yesterday was fresh data showing the economy shrank even more than expected over the summer, as consumers tightened their belts more than they have in three decades.

Credit-card companies’ ability to offload some of their exposure to consumer debt has been crippled in recent months because the asset securitization market – which enables companies like AmEx to sell receivables in order to finance new loans – has all but shut down.

What’s more, AmEx’s ability to fund itself using the short-term commercial-paper market has unraveled.

Earlier this month, Chenault applied and received bank-holding company status, enabling AmEx to access the Federal Reserve discount window that is open to commercial banks. The move also allows AmEx to compete for bank deposits.

But AmEx faces stiff competition for those deposits, warned Macquarie analyst John Williams, who noted that the firm will be going up against other troubled banks, like Citi, when vying for bank deposits.

Williams has slashed his share-price target to $15 from $21, and predicts AmEx will continue to face funding concerns.

Indeed, AmEx’s change in status should have boosted AmEx’s share price, but fears about its outlook have weighed on its shares.

AmEx’s shares increased less than one percent to close at $21.37.