American Express is about to face a crisis?

Not so long ago American Express has won a suit against MasterCard and Visa. It seemed that the received money will be enough to overcome all the difficulties but it seems that not everything is going smoothly with AmEx.

In April, American Express Co. told investors that its financial results were deteriorating because cardholders weren't spending.

Now, some aren't paying, either.

The economic slowdown is causing headaches for all financial institutions that issue credit cards, but the rising rate of delinquencies and charge-offs is particularly worrisome for AmEx, which prides itself on being the favored card of the affluent.

The root of AmEx's problem can be found in the company's lending portfolio, which grew significantly in the past few years, when credit quality was exceedingly strong and the rate of nonpayers tumbled to historic lows. Known for its traditional charge cards that require customers to pay their balances in full each month, AmEx has spent much of the past few years peddling credit cards that allow customers to carry a balance. AmEx's lending portfolio, which reflects the balances on those credit cards, stood at $75.2 billion in the first quarter, up 19% from the year-earlier period.

That may be OK in good times, when customers pay a minimum balance each month and issuers collect interest on the unpaid balances. But the strategy is being tested now that the economy has turned, and issuers are forced to write off loans if customers can't pay at all.

Some AmEx investors sounded an alarm about the strategy last summer, when the company reported a 21% increase in loan growth in the second quarter of 2007. Those shareholders expressed concern that the growth rate would come back to bite the company in the form of higher delinquencies and charge-offs if the economy weakened. Just one month later, capital markets began to crumble, and the credit crunch is now taking aim at consumer lending.

Some 3.05% of AmEx cardholders were more than 30 days late on their payments in May, up from 2.39% in the year-earlier period, according to Keefe, Bruyette & Woods. AmEx charged off 4.64% of the company's loans in May, up from 3.73% a year ago. The data track loans that have been securitized by AmEx, which represent about 40% of its total outstanding loans and are considered an accurate reflection of payment trends.

The problem for AmEx is that these trends might accelerate quickly because many credit-card customers haven't had their cards for very long. That means AmEx doesn't know how they will behave when times are tough. AmEx has issued a slew of new credit cards in recent years, including ones aimed at twenty-somethings who rode the wave of economic prosperity but may now find themselves in a more tenuous financial position.

That is far different from the situation at Discover Financial Services, for example. Some 80% of Discover's cardholders have been customers more than five years, giving the company's management some degree of comfort about payment trends in coming months.

AmEx is now hustling to rein in growth. But for investors who have seen the company's stock price tumble by one-third in the past year, the damage is already done.