July 21 (Bloomberg) -- American Express Co., the biggest U.S. credit-card company by purchases, may say profit declined for a third straight quarter as borrowers squeezed by rising prices and unemployment defaulted on more loans.

The New York-based lender will probably report today that second-quarter earnings excluding discontinued units fell 9 percent to $968.4 million from a year earlier, according to 10 analysts surveyed by Bloomberg.

American Express, Capital One Financial Corp. and Discover Financial Services shares have slumped by more than a third in the past year as consumers fail to repay debts amid the slowing U.S. economy. American Express Chief Executive Officer Kenneth Chenault said last month that defaults in June had worsened beyond his expectations. The U.S. lost 62,000 jobs that month, the sixth straight period of shrinking payrolls.

``When people lose their jobs, it's very hard for them to pay their bills,'' Sanjay Sakhrani, an analyst at KBW Inc. in New York who rates American Express ``market perform,'' said in an interview. ``You've seen another leg down with the economy, and the company may recalibrate their guidance.''

The lender fell $1.29, or 3.1 percent to $40.90 in New York Stock Exchange composite trading at 4:04 p.m. American Express has declined 37 percent in the past year.

Profit fell 6 percent to $991 million in the first quarter from the same period a year earlier, and 9.9 percent to $831 million in the fourth quarter of 2007 as the company added more to loss reserves.

More Defaults Coming

Moody's Investors Service has a negative outlook on credit- card lenders, and said defaults ``will most certainly'' rise this year. Stressed consumers are tapping plastic as access to home- equity loans falls off, New York-based Moody's said in a February report.

Delinquent credit-card accounts rose more than a full percentage point from a year earlier to 3.99 percent in May, according to Bloomberg data.

Rising defaults hurt second-quarter profit at Capital One, where earnings fell 40 percent to $452.9 million. The McLean, Virginia-based company said it expected as much as $7 billion in soured loans in the next year. Discover, based in Riverwoods, Illinois, said last month that profit from continuing operations in the quarter ended May 31 fell 19 percent to $202 million.

Consumer prices surged 1.1 percent in June on higher food and fuel prices, more than analysts had expected, the Labor Department said this month. The cost of living rose 5 percent in the year leading to June, the biggest increase since 1991.

Outside the U.S.

American Express may say that rising overseas income limited the overall decline in profit. The lender said non-U.S. earnings rose 30 percent to $133 million in the first quarter while profit in the U.S. card business fell 19 percent to $523 million.

Some of American Express's rising loan losses will be cushioned by about $4 billion in settlement payments from Visa Inc. and MasterCard Inc. American Express said last month it settled an antitrust lawsuit against MasterCard for $1.8 billion. Visa and bank partners settled in November for $2.25 billion.

American Express sued the two largest credit-card networks in November 2004 after the U.S. Supreme Court ruled they violated antitrust laws by preventing banks from offering rivals' cards. Citigroup Inc. and Bank of America Corp., the two biggest U.S. banks by assets, later agreed to offer American Express services.

American Express was ranked first by the total value of purchases and cash advances to U.S. cardholders in the first half of 2007, according to the Carpinteria, California-based Nilson Report, a trade publication. JPMorgan Chase & Co. and Bank of America Corp. are ranked second- and third-largest.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: July 21, 2008 16:11 EDT