The Impact of Falling Net Write-Off Rates on American Express's Credit Card Performance and Investor Outlook

In the realm of financial services, few companies have navigated economic turbulence as deftly as American Express. As global markets grapple with inflationary pressures, rising interest rates, and the specter of recession, the credit card giant's performance offers a compelling case study. Central to this narrative is the evolution of its net write-off rates—a critical metric for assessing credit risk and long-term valuation potential.

Historical Context: 2020 Pandemic vs. 2025 Resilience

During the 2020 pandemic, American Express's U.S. consumer card net write-off rate stood at 1.1% in the first half of 2021, a stark contrast to the industry average of 2.5%. This outlier performance was fueled by government stimulus, a high-income customer base, and robust risk management. Fast forward to 2025, and the company's net write-off rates for U.S. consumer and small business cards hover around 2.1% and 2.6%, respectively, with no significant deterioration despite a slowing economy.

The stability of these rates underscores American Express's ability to maintain credit quality even as broader economic conditions sour. For context, the average net write-off rate for major credit card issuers typically ranges between 3% and 5% during economic downturns. American Express's consistent underperformance relative to peers suggests a structural advantage rooted in its business model.

Credit Risk Resilience: A Structural Edge

American Express's credit risk resilience stems from three pillars:
1. Affluent Customer Base: The company's cardholders, particularly those with Platinum and Centurion cards, are disproportionately high-income earners. With average household incomes exceeding $400,000 per month, these customers are less vulnerable to short-term economic shocks.
2. AI-Driven Risk Management: The “Gen X” fraud detection model, which processes 8 billion transactions annually, has evolved into a predictive tool for identifying credit risk. By analyzing spending patterns, transaction velocity, and behavioral data in real time, the system mitigates defaults before they materialize.
3. Closed-Loop Data Ecosystem: American Express's vertically integrated network provides granular insights into customer behavior, enabling hyper-personalized risk assessments. This data advantage allows the company to adjust credit limits, interest rates, and rewards dynamically, further insulating its portfolio from systemic risks.

Investor Implications: Valuation in a Slowdown

For investors, the interplay between falling net write-off rates and valuation metrics is pivotal. American Express's return on equity (ROE) has remained above 15% since 2020, a testament to its efficient capital deployment and low credit losses. In a slowing economy, where peers may see ROE contract due to higher provisions for bad debt, American Express's stable write-off rates position it as a defensive play.

Moreover, the company's price-to-book (P/B) ratio—a key metric for financial institutions—has held steady at 1.8x, reflecting confidence in its asset quality. This is in stark contrast to banks with higher credit risk exposure, whose P/B ratios have contracted to 1.2x in 2025. The disparity highlights American Express's premium valuation, justified by its ability to sustain earnings even in adverse conditions.

Long-Term Outlook: A “Good” Rating in a “Bad” Environment

Analysts have upgraded American Express to a “GOOD” financial health rating, citing its $122.7 billion in U.S. consumer and small business loans as a testament to its scalable, high-margin business. The company's strategic focus on younger demographics—Gen Z and Millennials—further bolsters its long-term outlook. These cohorts, responsible for 60% of new account acquisitions, have shown a 16% surge in transaction volumes in 2024, indicating sustained demand for premium cards.

However, risks persist. The gradual phasing out of government stimulus and rising interest rates could pressure small business cardholders, whose write-off rates are already higher than consumer segments. Investors should monitor the delinquency rate for small business cards, which stood at 1.5% in 2025, and compare it to broader economic indicators like the U.S. unemployment rate.

Investment Thesis

American Express's falling net write-off rates in a slowing economy are not a statistical anomaly but a reflection of its structural advantages. For long-term investors, the company represents a rare combination of defensive characteristics and growth potential. Its AI-driven risk management, affluent customer base, and data-centric approach create a moat that is difficult for competitors to replicate.

While the stock's current valuation (trading at 22x forward earnings) may appear elevated, the company's ability to maintain margins and earnings growth in a downturn justifies a premium. Investors should consider adding to positions during market corrections, particularly if macroeconomic data signals a deepening slowdown.

In conclusion, American Express's credit card performance in 2025 reaffirms its status as a bellwether for financial resilience. As the economy navigates uncharted territory, the company's ability to turn risk into reward offers a compelling case for inclusion in a diversified portfolio.