Updated from 11:30 a.m. EDT

Moody's Investors Service downgraded American Express' ( AXP) debt ratings following the card company's first-quarter earnings report, which beat estimates, but showed that credit quality is getting worse.

Moody's on Friday lowered its rating on the financial institution's senior long-term debt by one notch to A2 from A3. The short-term rating was lowered to Prime-2 from Prime-1. The agency reiterated its negative outlook for the company.

The ratings service also downgraded the long-term senior debt and deposit ratings of American Express Travel Related Services and its rated operating subsidiaries, including American Express Credit Corp., to A2 from A1. Moody's cut its rating on American Express bank subsidiaries to C-minus from B-minus.

"Today's rating actions reflect the erosion of Amex's asset quality and weaker revenue trends stemming from the severe U.S. economic recession and the firm's relatively high credit exposure in the states most heavily affected by home price declines, particularly California and Florida," Moody's said.

Changes to the credit card and consumer lending industry as a result of regulatory and legislative changes also pose "longer term challenges to the company's franchise," it said.

Standard & Poor's reaffirmed its ratings of A for AmEx's long-term debt and A-1 for its short-term debt. The company remains on CreditWatch negative, which should be resolved in the next 90 days, "following our reassessment of the deepening recession on the company's prospects," it says.

Shares ignored the downgrade and were rising 19.7% to $25.09.

Moody's said that while it had previously not included "any level of systemic support" to American Express and its subsidiaries in the event of a severe downturn, "we now incorporate the view that the probability of systemic support for U.S. banks, like Amex, with more than $100 billion in assets, has increased."

Late Thursday, the New York-based company said net income totaled $437 million in the first three months of the year vs. $991 million in the year-earlier period.

Net income attributable to common shareholders totaled $361 million vs. $985 million a year earlier. Earnings from continuing operations attributable to shareholders was 32 cents a share vs. 89 cents a share a year earlier.

Analysts had expected the company to make 12 cents a share. Revenue fell 18% to $5.9 billion (net of interest expense) as consumers and businesses reined in their spending habits during the weakened economy.

American Express took a $1.8 billion provision to offset the rising amount of bad loans amid the weakened consumer environment, primarily in its U.S. revolving card business, it said.

"While we did see some recent improvement in early delinquency rates, overall credit indicators reflected rising unemployment levels and the broad-scale weakness in the economy," chairman and CEO Ken Chenault said in a statement.

American Express' net loan write-offs in its U.S. business were 8.5% on a managed basis (8.2% for the overall firm), up from 6.7% in the fourth quarter and 4.3% in the year-earlier period.

The company expects managed write-offs in its U.S. lending business to rise between 200 and 250 basis points in the second quarter and an additional 50 basis points in the third quarter, before leveling off in the fourth quarter if unemployment reaches 9.7% in December.

"We continue to be very cautious about the economic outlook and plan to initiate additional reengineering efforts in the second quarter to help further reduce our operating costs," Chenault said. "Our goal is to remain in a position to generate profits in excess of our dividend and be able to take competitive advantage of opportunities as the economy begins to rebound."

Chenault also said the company plans to repay the government's TARP investment "if permitted by our supervisors" and "if supported by the results of the stress assessment."

President Barack Obama is pushing for tougher consumer credit card protections. Obama met with leaders of the major credit card issuers, including American Express, Bank of America ( BAC), Citigroup ( C), Wells Fargo ( WFC), JPMorgan Chase ( JPM) and Capital One ( COF), as well as executives from Visa ( V) and MasterCard ( MA), at the White House on Thursday.

More from Stocks

Why The FANG Stocks' Dominance May Not Be So Bad For The Market

Why The FANG Stocks' Dominance May Not Be So Bad For The Market

Danica Patrick's Final Race at 2018 Indianapolis 500: What She Thinks About Cars

Danica Patrick's Final Race at 2018 Indianapolis 500: What She Thinks About Cars

At End of May, Investors Signalling They May Stay Away

At End of May, Investors Signalling They May Stay Away

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever