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."

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