High funding costs have emerged as a "headwind" alongside increasing credit losses for American Express Co., according to a research note issued Thursday by Scott Valentin, an analyst at Friedman, Billings, Ramsey & Co. Inc.

"Credit deterioration, as well as general illiquidity in the debt capital markets has dramatically increased the cost of borrowing for non-depository institutions," he wrote. Amex is "adversely impacted due to its leverage and exposure to consumer credit."

He wrote that the New York card company completed a card securitization and an offering of corporate debt at "historically high costs" this month, and that it needs to roll over about a third of its funding over the next six quarters.

If current rates hold, higher funding costs would take 15 cents out of his projection for earnings per share of $2.92 for this year, and 70 cents from his projection of $3.19 for next year.

Mr. Valentin reiterated his "underperform" rating and $32 price target.

"Current market jitters should cause a significant amount of volatility" in Amex's funding costs "in both directions, but we are confident that the company will not be able to replace its existing low cost debt at similar costs."

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