July 22 (Bloomberg) -- American Express Co., the biggest U.S. credit card company by purchases, fell the most in six months in New York trading after earnings missed analysts' estimates and the lender withdrew its 2008 forecast.

Chief Executive Officer Kenneth Chenault said yesterday in a conference call that the business climate was ``much weaker'' than earlier this year and American Express was hurt in the second quarter by rising U.S. unemployment and falling house prices. The New York-based company fell $2.91, or 7.1 percent, to $37.99 at 4:15 p.m. in New York Stock Exchange composite trading, after slumping as much as 12 percent.

``Rapid growth of lending balances over recent years'' in regions of the U.S. with the worst real estate declines caused greater-than-expected losses, Scott Valentin, analyst at Friedman Billings Ramsey & Co., said in a research note today. ``At no point in history have consumers incurred as much debt relative to wealth.'' He rates American Express ``underperform.''

The U.S. economic slowdown worsened in June, affecting even American Express's wealthier cardholders with high credit scores, Chenault, 57, said in the call. Late and uncollectible loans were higher than expectations in the quarter and will rise as the year progresses, Chenault said. The U.S. lost 62,000 jobs in June, the sixth straight period of shrinking payrolls.

The lender's profit from continuing operations dropped 37 percent to $655 million, or 56 cents a share, in the quarter ended June 30, falling short of the 82 cent average estimate of 17 analysts surveyed by Bloomberg.

Recommendation Lowered

Oppenheimer & Co. analyst Meredith Whitney and Calyon Securities' Craig Maurer downgraded American Express from the equivalent of ``buy'' to ``hold'' today. Maurer said ``most troubling'' was a 2 percent drop in consumer spending in June.

The company is ``no longer tracking'' to a prior forecast for 4 percent to 6 percent earnings per share growth for this year, Chenault said yesterday in a statement. The company won't meet longer-term targets until the economy improves, he said.

Second-quarter profit at the U.S. credit card unit plunged 96 percent to $21 million, as provisions for losses more than doubled to $1.5 billion. Uncollectible debt in the division rose to 5.3 percent of loans from 2.9 percent a year earlier.

``We are seeing very affluent people who have had historically very, very strong spending history with us cutting back,'' Chenault said.

American Express, Capital One Financial Corp. and Discover Financial Services lost more than 33 percent of market value in the past year as consumers struggled to repay debt of all types.

Delinquencies

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, New York-based Moody's said in a report published in February.

Delinquent credit-card accounts rose more than 1 percentage point from a year earlier to 3.99 percent in May, according to data compiled by Bloomberg.

Some of American Express's 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 suit against MasterCard for $1.8 billion. Visa and bank partners settled in November for $2.25 billion.

American Express 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. placed second and third, respectively.

Billionaire Warren Buffett's Berkshire Hathaway Inc. is American Express's largest shareholder with 151.6 million shares, equal to a 13 percent stake at the end of March, according to regulatory filings compiled by Bloomberg.

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

Last Updated: July 22, 2008 16:28 EDT