Nov. 18 (Bloomberg) -- American Express Co. had its highest monthly increase in credit-card delinquencies on record in October as jobless claims rose, according to FBR Capital Markets.

Late payments rose 35 basis points to 4.4 percent last month, according to a report yesterday from FBR analysts led by Scott Valentin in Arlington, Virginia. The default rate increased 33 basis points to 6.96 percent, the highest since November 2005, the report said. The report didn't say what the previous record for delinquencies was. A basis point is 0.01 percentage point.

American Express has been battered by rising delinquencies and higher funding costs. The New York-based company became eligible for government funds when it won Federal Reserve approval to become a commercial bank on Nov. 11 as frozen credit markets choked off affordable financing.

Becoming a bank won't relieve American Express from having to borrow money in the bond market, the analysts said.

``We do not believe that American Express will be able to grow deposits to a significant enough level that meaningfully reduces its dependence on capital markets-related funding,'' the analysts wrote.

There were no sales of bonds backed by credit-card payments in October, the first time since 1993, when the asset-backed securities market was in its infancy. Yields on top-rated credit card bonds relative to benchmark interest rates reached a record high of 525 basis points more than the London interbank offered rate, or Libor, last week, according to Bank of America Corp. data.

Paulson Plan

U.S. Treasury Secretary Henry Paulson's plan to shift the focus of the Troubled Asset Relief Program to boosting investment in consumer debt did little to revive investor demand for debt tied to credit card and auto loan payments, the Bank of America data show.

The economic slowdown will cause losses on soured loans to be higher than expected as households struggle to pay bills, the FBR analysts said.

Jobless claims in the U.S. are at the highest level since 2001, the Labor Department said on Nov. 13. The total number of people on benefit rolls jumped to the highest level since 1983.

American Express has lost 61 percent of its market value this year amid concern that customer defaults would rise.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

Last Updated: November 18, 2008 12:26 EST