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Analysts at JPMorgan Chase & Co. resumed coverage of American Express Co. on Wednesday, rating its stock "underweight" and predicting the issuer's profits would take a long time to rebound, reports American Banker, a CardLine sister publication. In a note to clients, analysts led by Andrew Wessel predict a 45% year-over-year increase in loan-loss reserves this year. The pace of AmEx's charge-off rates will remain high, and weakened discretionary spending will drive down spending volumes on its cards, the note states. Assuming "unemployment crests at 10%" by the end of this year and that billed business falls 5.9% this year, AmEx's managed charge-offs should peak at 11% in the second quarter of 2010, Wessel wrote. AmEx will remain "profitable through the cycle, but a prolonged recession will restrict material earnings growth until 2011, leading us to predict shares will lag broader financials in a recovery," Wessel wrote. Wessel set a $10.50 price target for the end of the year for the stock and predicted earnings per share of 50 cents this year and $1 next year. AmEx was "one of the best capitalized companies in the credit card business" at the end of last year and "has a substantial liquidity cushion to help it weather further economic deterioration this year and next," he wrote. AmEx is continuing to explore ways to raise capital.

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