Nov. 12 (Bloomberg) -- American Express Co. advanced in German trading after the Wall Street Journal said the credit-card company most dependent on capital markets for fundraising is seeking about $3.5 billion of government aid.

The request to be included in the Troubled Asset Relief Program may have been made before American Express converted into a bank-holding company two days ago, the Journal reported earlier today, citing unidentified sources. The New York-based company is eligible for about $3.8 billion from TARP, KBW Inc. analyst Sanjay Sakhrani said yesterday in a note to clients. An American Express spokesman in London declined to comment.

With the global economy slowing and credit-card defaults rising, ``the only prudent thing to do is assume a protracted worst-case funding scenario,'' said Meredith Whitney, a New York- based analyst at Oppenheimer & Co., who has a market perform rating on American Express. The decision to become a bank was a defensive maneuver designed to help the company build a larger deposit base, she said.

American Express rose 40 cents to $22.80 in German trading today, after dropping 6.6 percent on the New York Stock Exchange. The company has lost 57 percent of market value this year as more consumers fell behind on payments and doubt was raised about its own access to credit. The firm had to reassure investors last month that it had enough cash to last for a year, and tapped the Federal Reserve's commercial paper program designed to help corporations shut out of short-term debt markets.

Commercial Paper

Profit at American Express has been squeezed as consumer defaults force it to set aside more reserves and the market for bonds backed by credit-card debt seized up. Customers failed to repay loans in the third quarter at almost twice the rate of a year earlier and credit-card lenders couldn't sell any asset- backed debt last month for the first time in 15 years.

American Express, led by Chief Executive Officer Kenneth I. Chenault, needs $4 billion from the commercial paper market and $7 billion from debt with long-term maturities during the next 6 months, Whitney estimated in her note to clients yesterday. The long-term debt requirement for the next 12 months will be $20 billion, she said.

Friedman Billings Ramsey & Co. estimated last month that American Express derived just 14 percent of its funding from deposits. American Express has two bank units: American Express Centurion Bank, which operated as an industrial loan company under Federal Deposit Insurance Corp. supervision, and American Express Bank, which was regulated by the Office of Thrift Supervision. Each has assets of about $25 billion and deposits of about $7.2 billion, the Fed said. Centurion is being converted to a bank, according to the Fed order.

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

Last Updated: November 12, 2008 04:18 EST