AXP American Express Company

By Robin Sidel 

American Express Co. has the capital to keep lending in a severe economic downturn, the Federal Reserve calculated Thursday in the first stage of its annual stress tests.

At the low point of a hypothetical recession, AmEx's common equity Tier 1 ratio, which is a measure of high-quality capital as a share of risk-weighted assets, was 11.4%, exceeding the 4.5% level the Fed views as a minimum, the central bank estimated.

AmEx's Tier 1 leverage ratio, which measures high-quality capital as a share of all assets, was 10.9%, exceeding a 4% minimum.

The stress tests simulate a world-wide recession. The results were under the Fed's "severely adverse" scenario of financial stress, which this year includes a 10% U.S. unemployment rate, significant losses in corporate and commercial real estate lending portfolios, and negative rates on short-term U.S. Treasury securities.

The results will factor into the Fed's decision next week about whether to approve the bank's plan for rewarding shareholders with dividends or potential share buybacks. Banks whose capital ratios dropped close to minimum levels may choose to scale back their dividend or buyback plans before the Fed announces its final decision Wednesday. That day the banks can choose to announce whether they are raising their dividends or buying back more shares, important for enhancing shareholder returns.

New York-based AmEx has been dealing with some strategic difficulties over the past year, including the loss of its longtime co-brand card with Costco Wholesale Corp., but Wall Street has widely considered the company to be well-capitalized.

Write to Robin Sidel at robin.sidel@wsj.com

(END) Dow Jones Newswires

June 23, 2016 16:45 ET (20:45 GMT)

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