By Erik Holm
Bloomberg News
Thursday, June 26, 2008

American Express, the biggest U.S. credit card company by purchases and cash advances, said customers are falling further behind on their debt, signaling that the economy is worsening.

"Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations," chief executive Kenneth Chenault said in a statement yesterday announcing that the company would receive as much as $1.8 billion in a settlement with competitor MasterCard.

American Express and rivals Capital One Financial and Discover Financial Services have fallen more than 30 percent in the past 12 months in New York trading as consumers absorb the housing slump, rising unemployment and higher food and fuel bills. New York-based American Express adopted a "cautious view" for the year in January after cardholder spending slowed and overdue payments rose in December.

"If you look at the employment situation, clearly that's deteriorated, and consumer confidence is down as well," said Sanjay Sakhrani, an analyst with KBW in New York who has a "market perform" rating on the stock. "Both play a key role in the credit card industry."

The legal accord is "an overhang that's eliminated," Sakhrani said. "The amount of the settlement is not ideal, but it's a manageable amount." MasterCard will pay as much as $1.8 billion in quarterly payments over three years to settle the complaint that it blocked banks from issuing American Express cards.

American Express sued competitors MasterCard and Visa in November 2004 after the U.S. Supreme Court ruled that they violated antitrust laws by preventing member banks from offering rival cards. Citigroup and Bank of America, the two biggest U.S. banks, later agreed to offer American Express services.

Visa settled in November for $2.25 billion.