American Express Co may have to set aside a significant amount of money to cover more losses in the next few quarters as U.S. credit card defaults are expected to remain high, analysts at J.P. Morgan Securities said, as they reinitiated the stock with an underweight rating.

Analysts Andrew Wessel and Daniel Kim projected a 45 percent increase in loss-reserve expense for the company in 2009 versus a year ago, and a nearly 6 percent decline in billed business due mainly to a fall in consumer discretionary spending.

JP Morgan analysts expect U.S. consumers to cut down on discretionary spending and build savings until unemployment levels stabilize and the housing market collapse begins to abate.

Given this macro view and our 10 percent unemployment outlook, we believe AmEx will face ongoing declines in billed business and significant increases in charge-offs well into 2010, the analysts wrote in a note to clients.

They have a price target of $10.50 on the stock. AmEx, the largest U.S. charge card operator by sales volume, said last week that its net charge-off rate -- debts the company believes will never be repaid -- rose to 8.70 percent in February from 8.30 percent in January.

Our model forecasts peak charge-offs of 11 percent on a managed basis in second quarter of 2010, the analysts said, adding that they saw further downside risk to their current charge-off estimates.

The analysts, however, believe AmEx is well-capitalized when compared with peers, and said the company may not need additional equity.

JP Morgan analysts also expect AmEx to remain profitable through the cycle, but said a prolonged recession will restrict material earnings growth until 2011. Shares of the company, which caters to wealthier consumers that are viewed as more credit worthy, closed at $13.90 Tuesday on the New York Stock Exchange.

(Reporting by Tenzin Pema in Bangalore; Editing by Anil D'Silva)