UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 1-7657
American Express
Company
(Exact name of registrant as
specified in its charter)
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New York
(State or other jurisdiction
of
incorporation or organization)
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13-4922250
(I.R.S. Employer
Identification No.)
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World Financial Center
200 Vesey Street
New York, New York
(Address of principal
executive offices)
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10285
(Zip
Code)
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Registrants telephone number, including area code:
(212) 640-2000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Shares (par value $0.20 per Share)
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for shorter period that the registrant was
required to submit and post such
files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting
company
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
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No
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As of June 30, 2010, the aggregate market value of the
registrants voting shares held by non-affiliates of the
registrant was approximately $47.6 billion based on the
closing sale price as reported on the New York Stock Exchange.
As of February 22, 2011, there were
1,202,409,106 common shares of the registrant outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Parts I, II and IV: Portions of Registrants 2010
Annual Report to Shareholders.
Part III: Portions of Registrants Proxy Statement to
be filed with the Securities and Exchange Commission in
connection with the Annual Meeting of Shareholders to be held on
May 2, 2011.
TABLE OF
CONTENTS
Form 10-K
Item Number
i
PART I*
INTRODUCTION
Overview
American Express Company, together with its consolidated
subsidiaries (American Express, the
Company, we, us or
our), is a global service company that provides
customers with access to products, insights and experiences that
enrich lives and build business success. Our principal products
and services are charge and credit payment card products and
travel-related services offered to consumers and businesses
around the world. We were founded in 1850 as a joint stock
association. We were incorporated in 1965 as a New York
corporation. American Express Company and its principal
operating subsidiary, American Express Travel Related Services
Company, Inc. (TRS), are bank holding companies
under the Bank Holding Company Act of 1956 (the BHC
Act), subject to the supervision and examination by the
Board of Governors of the Federal Reserve System (the
Federal Reserve).
Our headquarters are located in New York, New York in lower
Manhattan. We also have offices in other locations in North
America, as well as throughout the world.
We are principally engaged in businesses comprising four
reportable operating segments: U.S. Card Services,
International Card Services, Global Commercial Services, and
Global Network & Merchant Services, all of which we
describe below. Corporate functions and auxiliary businesses,
including the Companys Enterprise Growth Group, publishing
business, as well as other company operations, are included in
Corporate & Other.
Securities
Exchange Act Reports and Additional Information
We maintain an Investor Relations Web site on the Internet at
http://ir.americanexpress.com.
We make available free of charge, on or through this Web site,
our annual, quarterly and current reports and any amendments to
those reports as soon as reasonably practicable following the
time they are electronically filed with or furnished to the
Securities and Exchange Commission (SEC). To access
these materials, just click on the SEC Filings link
under the caption Financial Information/Filings on
our Investor Relations homepage.
You can also access our Investor Relations Web site through our
main Web site at www.americanexpress.com by clicking on the
About American Express link, which is located at the
bottom of our homepage. Information contained on our Investor
Relations Web site and our main Web site is not incorporated by
reference into this report or any other report filed with or
furnished to the SEC.
2010
Highlights
Compared with 2009, we delivered:
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total revenues net of interest expense of $27.8 billion, up
13% from $24.5 billion
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income from continuing operations of $4.1 billion, up 90%
from $2.1 billion
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*Some of the statements in
this report constitute forward-looking statements. You can
identify forward-looking statements by words such as
believe, expect, anticipate,
optimistic, intend, plan,
aim, will, may,
should, could, would,
likely, estimate, predict,
potential, continue or other similar
expressions. We discuss certain factors that affect our business
and operations and that may cause our actual results to differ
materially from these forward-looking statements under
Item 1A. Risk Factors below. You are cautioned not
to place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made. We
undertake no obligation to update publicly or revise any
forward-looking statements.
1
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net income of $4.1 billion, up 90% from $2.1 billion
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diluted earnings per share based on net income of $3.35, up 118%
from $1.54
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return on average equity of 27.5%, compared with 14.6%.
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The Companys results for 2010 reflected strong spending
growth and improved credit performance. Throughout the year
cardmember spending volumes grew both in the United States and
internationally, and across all of the Companys
businesses. Cardmember spending levels in 2010 reached record
levels at the end of the year. Improving credit trends
contributed to the reduction in loan and receivable write-offs
and the reduction of loss reserve levels over the course of 2010
when compared to 2009. It is expected that the
year-over-year
benefits from improving credit trends will decrease over the
course of 2011. While the Company invested at historically high
levels in 2010, it intends to maintain the flexibility to scale
back on investments as business conditions change and the
benefits realized from improving credit trends lessen.
Despite improvement in parts of the economic environment,
challenges clearly remain for the Company, both in the United
States and in many other key regions. These challenges include
weak job creation, volatile consumer confidence, consumer
behavior, an uncertain housing market, and the regulatory and
legislative environment, including the uncertain impact of the
Credit Card Accountability Responsibility and Disclosure Act of
2009 (the CARD Act), of the recently enacted
Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank) and of the proceeding against the
Company recently brought by the Department of Justice
(DOJ) and certain state attorneys general alleging a
violation of the U.S. antitrust laws. In addition, as
previously discussed, the Company will stop receiving quarterly
litigation payments from MasterCard International, Inc.
(MasterCard) and Visa Inc. (Visa) at the
end of the second and fourth quarters of 2011, respectively, and
year-over-year
comparisons will be more difficult to maintain in light of the
strong 2010 results.
In 2011, the Company will be particularly focused on several
initiatives designed to help us accomplish our long-term growth
goals: providing greater value to merchants; adding more women,
minorities and younger adults to our customer base; accelerating
our growth outside the U.S.; making significant progress in the
Enterprise Growth Group; and increasing our share of online
spending across all products while transforming our
customers digital experience.
We also continue to seek more ways to turn existing capabilities
and relationships into new fee services. In the past eighteen
months, we launched or expanded several key initiatives,
including Business Insights, which provides analytics and
consulting services to help merchants attract more customers and
increase sales, and AcceptPay, which simplifies the invoicing
and payment process for small businesses. Overall, we set an
aggressive goal to generate $3 billion in annual fee-based
revenues for the Company by the end of 2014.
For a complete discussion of our 2010 financial results,
including financial information regarding each of our reportable
operating segments, see pages 20-120 of our 2010 Annual
Report to Shareholders, which are incorporated herein by
reference. For a discussion of our principal sources of revenue,
see pages 72-73 of the 2010 Annual Report to Shareholders.
Products
and Services
The Companys range of products and services includes:
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charge and credit card products
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expense management products and services
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consumer and business travel services
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stored value products such as Travelers Cheques and other
prepaid products
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network services
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merchant acquisition and processing,
point-of-sale,
servicing and settlement, and marketing and information products
and services for merchants; and
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fee services, including market and trend analyses and related
consulting services, fraud prevention services, and the design
of customized customer loyalty and rewards programs.
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The Companys products and services are sold globally to
diverse customer groups, including consumers, small businesses,
mid-sized companies and large corporations. These products and
services are sold through various channels, including direct
mail, on-line applications, targeted direct and third-party
sales forces, and direct response advertising.
The Companys products and services generate the following
types of revenue for the Company:
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Discount revenue, the Companys largest revenue source,
which represents fees charged to merchants when cardmembers use
their cards to purchase goods and services on the Companys
network;
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Net card fees, which represent revenue earned for annual charge
card memberships;
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Travel commissions and fees, which are earned by charging a
transaction or management fee for airline or other
travel-related transactions;
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Other commissions and fees, which are earned on foreign exchange
conversions and card-related fees and assessments;
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Other revenue, which represents insurance premiums earned from
cardmember travel and other insurance programs, revenues arising
from contracts with Global Network Services partners
(including royalties and signing fees), publishing revenues and
other miscellaneous revenue and fees; and
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Interest and fees on loans, which principally represents
interest income earned on outstanding balances, and card fees
related to the cardmember loans portfolio.
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Our general-purpose card network, card-issuing and
merchant-acquiring and processing businesses are global in
scope. We are a world leader in providing charge and credit
cards to consumers, small businesses and corporations. These
cards include cards issued by American Express as well as cards
issued by third-party banks and other institutions that are
accepted on the American Express network (collectively,
Cards). Our Cards permit our cardmembers
(Cardmembers) to charge purchases of goods and
services in most countries around the world at the millions of
merchants that accept Cards bearing our logo. At
December 31, 2010, we had total worldwide
Cards-in-force
of 91.0 million (including Cards issued by third parties).
In 2010, our worldwide billed business (spending on American
Express
®
Cards, including Cards issued by third parties) was
$713 billion.
The Company has also recently created an Enterprise Growth Group
to focus on generating alternative sources of revenue on a
global basis, both organically and through acquisitions, in
areas such as online and mobile payments and fee-based services.
For a discussion concerning our Enterprise Growth Group, please
see Corporate & Other below.
Our business as a whole has not experienced significant seasonal
fluctuations, although travel sales generally tend to be highest
in the second and fourth quarters. Travelers Cheque sales and
Travelers Cheques outstanding tend to be greatest each year in
the summer months, peaking in the third quarter. American
Express
®
Gift Card sales are highest in the months of November and
December; and Card billed business tends to be moderately higher
in the fourth quarter than in other quarters.
Spend-Centric
Model is Competitive Advantage
Despite the continuing challenges of the current economic
environment, we believe our spend-centric business
model (which focuses on generating revenues primarily by driving
spending on our Cards and secondarily by finance charges and
fees) continues to give us significant competitive advantages.
Average spending on our Cards, which is substantially higher on
a per-card basis for us versus our competitors, represents
greater value to merchants in the form of loyal customers and
higher sales. This enables us to earn premium discount rates and
thereby invest in greater value-added services for merchants and
Cardmembers. As a result of the higher revenues generated from
higher spending Cardmembers, we have the flexibility to invest
in more attractive rewards and other incentives to Cardmembers,
and targeted marketing and other
3
programs and investments for merchants, all of which in turn
create incentives for Cardmembers to spend more on their Cards.
The significant investments we make in rewards and other
compelling value propositions for Cardmembers drive Card usage
at merchants and encourage Cardmember loyalty. This business
model, along with our closed-loop network, in which we are both
the Card issuer and, in most instances, the merchant acquirer,
gives us a competitive advantage that we seek to leverage to
provide more value to Cardmembers, merchants and our
Card-issuing partners.
The
American Express Brand
Our brand and its attributestrust, security, integrity,
quality and customer serviceare key assets of the Company.
We continue to focus on our brand by educating employees about
these attributes and by incorporating them into our programs,
products and services. Our brand has consistently been rated one
of the most valuable brands in the world in published studies,
and we believe it provides us with a significant competitive
advantage.
We believe our brand and its attributes are critical to our
success, and we invest heavily in managing, marketing and
promoting it. In addition, we place significant importance on
trademarks, service marks and patents, and diligently protect
our intellectual property rights around the world.
GLOBAL
NETWORK & MERCHANT SERVICES
The Global Network & Merchant Services
(GNMS) segment operates a global general-purpose
charge and credit card network for both proprietary Cards and
Cards issued under the global network services business. It also
manages merchant services globally, which includes signing
merchants to accept Cards as well as processing and settling
Card transactions for those merchants. This segment also offers
merchants
point-of-sale,
servicing and settlement, fraud prevention services, and
marketing and information products and services.
Cards bearing our logo are issued by our principal operating
subsidiary, TRS, by the Companys U.S. bank
subsidiaries, American Express Centurion Bank (Centurion
Bank) and American Express Bank, FSB (AEBFSB),
and by other operating and bank subsidiaries outside the United
States. They are accepted at all merchant locations worldwide
that accept American Express-branded Cards. In addition,
depending on the product, Cards bearing our logo are generally
accepted at ATM locations worldwide that accept Cards. TRS and
its subsidiaries, including Centurion Bank and AEBFSB, issue the
majority of Cards on our network.
Our Global Network Services (GNS) business
establishes and maintains relationships with banks and other
institutions around the world that issue Cards and, in certain
countries, acquire local merchants on the American Express
network. GNS is key to our strategy of broadening the Cardmember
and merchant base for our network worldwide.
Our Global Merchant Services (GMS) business provides
us with access to rich transaction data through our closed-loop
network, which encompasses relationships with both the
Cardmember and the merchant. This capability helps us acquire
new merchants, deepen relationships with existing merchants,
process transactions, and provide targeted marketing, analytical
and other value-added services to merchants in our network. In
addition, it allows us to analyze trends and spending patterns
among various segments of our customer base.
Global
Network Services
We continue to pursue a strategy, through our GNS business, of
inviting U.S. and foreign banks and other institutions to
issue Cards and acquire merchants on the American Express
network. By leveraging our global infrastructure and the appeal
of the American Express brand, we broaden our Cardmember and
merchant base for our network worldwide. The GNS business has
established 129 card-issuing
and/or
merchant-acquiring arrangements with banks and other
institutions in 131 countries.
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In 2010, GNS signed four new partners to issue Cards
and/or
acquire merchants on the American Express network. Additionally,
GNS partners launched approximately 77 new products during 2010,
bringing the total number of American Express-branded GNS
partner products to approximately 1,000.
GNS focuses on partnering with qualified third-party banks and
other financial institutions that choose to issue Cards accepted
on our global network
and/or
acquire merchants on our network. Although we customize our
network arrangements to the particular country and each
partners requirements, as well as to our strategic plans
in that marketplace, all GNS arrangements are designed to help
issuers develop products for their highest-spending and most
affluent customers and to support the value of American Express
Card acceptance to merchants. We choose to partner with
institutions that share a core set of attributes compatible with
the American Express brand, such as commitment to high quality
standards and strong marketing expertise, and we require
adherence to our product, brand and service standards.**
As discussed below, while GNS has added significant partners in
2010, a core strategy of GNS is to build and invest in deeper
and more meaningful relationships with its existing partners.
With approximately 1,000 different Card products launched on our
network so far by our partners, GNS is an increasingly important
business that is strengthening our brand visibility around the
world, driving more transaction volume onto our merchant network
and increasing the number of merchants accepting the American
Express Card. GNS enables us to expand our networks global
presence generally without assuming additional Cardmember credit
risk or having to invest a large amount of resources, as our GNS
partners already have established attractive customer bases they
can target with American Express-branded products, and are
responsible for managing the credit risk associated with the
Cards they issue. Since 1999,
Cards-in-force
issued by GNS partners have grown at a compound annual growth
rate of 24%, and totaled over 29 million Cards at the end
of 2010. Outside the United States, 75% of new Cards issued in
2010 were Cards issued by GNS partners. Spending on GNS Cards
has grown at a compound annual rate of 25% since 1999.
Year-over-year
spending growth on these Cards in 2010 was 28%, with total
spending equal to $92 billion.
In assessing whether a given country should be proprietary, GNS,
or some combination thereof, we consider a wide range of
country-specific factors including the stability and
attractiveness of returns, the size of the affluent segment, the
strength of available marketing and credit data, the size of
co-brand opportunities and how best can we create strong
merchant value.
GNS
Arrangements
Although the structures and details of each of the GNS
arrangements vary, all of them generate revenues for us from the
Card transaction volumes they drive on the American Express
network. Gross revenues we receive per dollar spent on a Card
issued by a GNS partner are generally lower than those from our
proprietary Card-issuing business. However, because the GNS
partner is responsible for most of the operating costs and risk
of its Card-issuing business, our operating expenses and credit
losses are generally lower than those in our proprietary
Card-issuing business. The GNS business model generates an
attractive earnings stream and risk profile that requires a
lower level of capital support. The return on equity in our GNS
business can thus be significantly higher than that of our
proprietary Card-issuing business. In addition, since the
majority of GNS costs are fixed, the GNS business is highly
scalable. GNS partners benefit from their association with the
American Express brand and their ability to gain attractive
revenue streams and expand and differentiate their product
offerings with innovative marketing programs.
Our GNS arrangements fall into the following three main
categories: Independent Operator Arrangements, Network Card
License Arrangements and Joint Venture Arrangements.
** The use of the term
partner or partnering does not mean or
imply a formal legal partnership, and is not meant in any way to
alter the terms of American Express relationship with
third-party issuers and merchant acquirers.
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Independent
Operator Arrangements
The first type of GNS arrangement is known as an independent
operator (IO) arrangement. As of the end of 2010, we
had 64 of these arrangements around the world. We pursue these
arrangements to expand the presence of the American Express
network in countries in which we do not offer a proprietary
local currency Card. The partners local presence and
relationships help us enhance the impact of our brand in the
country, reach merchant coverage goals more quickly, and operate
at economic scale and cost levels that would be difficult for us
to achieve on our own. Subject to meeting our standards, IO bank
partners are licensed to issue local currency Cards in their
countries, including the classic Green, Gold and Platinum
American Express Cards. In addition, the majority of these
partners serve as the merchant acquirer and processor for local
merchants. American Express retains the relationship with
multinational merchants. Our IO partners own the customer
relationships and credit risk for the Cards they issue, and make
the decisions about which customers will be issued Cards. GNS
generates revenues in IO arrangements from Card licensing fees,
royalties on Cardmember billings, foreign exchange conversion
revenue, royalties on charge volume at merchants, share of
discount revenue and, in some partnerships, royalties on net
spread revenue or royalties on
cards-in-force.
Our IO partners are responsible for transaction authorization,
billing and pricing, Cardmember and merchant servicing, and
funding Card receivables for their Cards and payables for their
merchants.
We bear the credit risk arising from the IO partners
potential failure to meet its settlement obligations to us. We
mitigate this risk by partnering with institutions that we
believe are financially sound and will meet their obligations,
and by monitoring their financial health, their compliance with
the terms of their relationship with us and the political,
economic and regulatory environment in which they operate. In
addition, depending on an IO partners credit rating and
other indicators of financial health, we may require an IO
partner to post a letter of credit, bank guarantee or other
collateral to reduce this risk.
Examples of countries where we have entered into IO arrangements
include Brazil, Russia, China, Indonesia, Turkey, Ecuador,
Greece, South Korea, Pakistan, Croatia, Peru, Portugal and
Vietnam. Through our IO partnerships, we believe we can
accelerate growth in Cardmember spending,
Cards-in-force
and merchant acceptance in these countries.
Network
Card License Arrangements
The second type of GNS arrangement is known as a network card
license (NCL). At the end of 2010, we had 61 of
these arrangements in place worldwide. We pursue these
arrangements to increase our brand presence and gain share in
countries in which we have a proprietary Card-issuing
and/or
merchant acquiring business and, in a few cases, those in which
we have IO partners. In an NCL arrangement, we grant the
third-party financial institution a license to issue American
Express-branded Cards. The NCL issuer owns the customer
relationships for all Cards it issues, provides customer service
to its Cardmembers, authorizes transactions, manages billing and
credit, is responsible for marketing the Cards, and designs Card
product features (including rewards and other incentives for
Cardmembers), subject to meeting certain standards. We operate
the merchant network, route and process Card transactions from
the merchants
point-of-sale
through submission to the issuer, and settle with issuers. The
NCL is the type of arrangement we have implemented with banks in
the United States, United Kingdom, Australia and Japan.
GNS revenues in NCL arrangements are driven by a variety
of factors, including the level of Cardmember spending,
royalties, currency conversions and licensing fees paid by the
partner and fees charged to the Card issuer based on charge
volume, and our provision of value-added services such as
Cardmember insurance products and other Card features and
benefits for the issuers Cards. As indicated above, the
NCL issuer bears the credit risk for the issued Cards, as well
as the Card marketing and acquisition costs, Cardmember fraud
risks and costs of rewards and other loyalty initiatives. We
bear the risk arising from the NCL partners potential
failure to meet its settlement obligations to us. We mitigate
this risk by partnering with institutions that we believe are
financially sound and will meet their obligations, and by
monitoring their financial health, their compliance with the
terms of their relationship with us and the political, economic
and regulatory environment in which they operate. In addition,
depending on an NCL issuers credit rating and
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other indicators of financial health, we may require an NCL
issuer to post a letter of credit, bank guarantee or other
collateral to reduce this risk.
Examples of NCL arrangements include our relationships with Bank
of America in the United States, Lloyds TSB Bank in the United
Kingdom and Westpac Banking Corporation in Australia.
Joint
Venture Arrangements
The third type of GNS arrangement is a joint venture
(JV) arrangement. We have utilized this type of
arrangement in Switzerland and Belgium, as well as in other
countries. In these countries, we join with a third-party to
establish a separate business in which we have a significant
ownership stake. The JV typically signs new merchants to the
American Express network and issues local currency Cards that
carry our logo. In a JV arrangement, the JV is responsible for
the Cardmember credit risk and bears the operating and marketing
costs. Unlike the other two types of GNS arrangements, we share
management, risk, and profit and loss responsibility with our JV
partners. Income is generated by discount revenues, card fees
and net spread revenues. The economics of the JV are similar to
those of our proprietary Card-issuing business, which we discuss
under U.S. Card Services, and we receive a
portion of the JVs income depending on, among other
things, the level of our ownership interest. Our subsidiary,
AEOCC Ltd., purchases card receivables from certain of the GNS
JVs from time to time.
GNS
Business Highlights
Outside the United States we signed a number of agreements in
2010 to enhance our presence in countries where we already do
business and further expanded our global presence into new
geographic areas.
Some of the highlights of our GNS business outside the United
States in 2010 include:
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Announcement of a new card partnership with Sberbank, a leading
retail bank in Russia, for the issuance of American Express
branded-cards in Russia
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Expansion of our card-issuing partnership with China Merchants
Bank through the launch of American Express consumer Cards that
bear the Centurion image
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Announcement of the launch of the Pantai American
Express
®
Credit Card with Maybank in Malaysia, the first medical co-brand
credit card with a leading healthcare service provider in
Malaysia
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Renewal by Credit Saison of its signature product line in Japan
and introduction of four new Saison American Express Cards with
the Centurion image
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Launch of the Blue from American Express Card in Georgia, with
our partner, Bank of Georgia
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Launch of the Blue from American Express Card in Kazakhstan,
with our partner, Kazkommertsbank
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Launch of the American
Express
®
Gold Card in Armenia, with our partner, ACBA Credit Agricole.
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GNS continues to expand the airline co-brand products issued
through GNS relationships, launching 8 new airline co-brands in
2010 bringing the total to 52 airline co-brand products. Some of
the key airline co-brand launches outside the United States in
2010 include:
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Hana SK Skypass American
Express
®
Card and the Hana SK Skypass Corporate American
Express
®
Card with HanaSK Card Co., Ltd. in Korea
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Lotte Skypass from American Express with Lotte Bank in South
Korea
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Miles & More Brussels Airlines products with our
partner Alpha Card in Belgium
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AAdvantage from Bank of America Europe Card Services (MBNA) in
the United Kingdom
|
|
|
|
Aeroflot Card from American Express with our partner Russian
Standard Bank in Russia
|
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|
|
La Tarjeta Distancia American
Express
®
Platinum and Elite with Banco de Guayaquil in Ecuador.
|
7
Some of the highlights of our GNS business in the United States
in 2010 include:
|
|
|
|
|
Announcement of a new partnership for Macys and
Bloomingdales credit cards to be co-branded exclusively
with American Express and issued by Citibank
|
|
|
|
Announcement of a new partnership with Regions Bank in the
U.S. to launch the Regions
Reserve
sm
American
Express
®
Card, developed for Regions Banks Private Banking clients
and issued by Bank of America.
|
Global
Merchant Services
We operate a GMS business, which includes signing merchants to
accept Cards, accepting and processing Card transactions, and
settling with merchants that accept Cards for purchases made by
Cardmembers with Cards (Charges). We also provide
marketing information, and other programs and services to
merchants, leveraging the capabilities provided by our
investments in our closed-loop structure, as well as
point-of-sale
products, servicing, and fraud prevention services.
Our objective is for Cardmembers to be able to use the Card
wherever and however they desire, and to increase merchant
coverage in key geographic areas and in selected new industries
that have not traditionally accepted the Card. We add new
merchants to our network through a number of sales channels: a
proprietary sales force, third-party sales and service agents,
strategic alliances with banks and processors, the Internet,
telemarketing and inbound Want to Honor calls (i.e.,
where merchants desiring to accept the Card contact us
directly). As discussed in the Global Network
Services section, our IO partners and JVs also add new
local merchants to the American Express network.
During 2010, we continued expanding our integrated American
Express
OnePoint
®
solution for small- and medium-sized merchants in the United
States. Under this program, third-party service agents provide
payment processing services to merchants on our behalf for Card
transactions, while we retain the acceptance contract with
participating merchants, manage merchant pricing decisions and
negotiations, and receive the same transactional information we
always have received through our closed-loop network. This
program simplifies card processing for small- and medium-sized
merchants by providing them with a single source for statements,
settlement and customer service. We are now following a similar
strategy to our OnePoint solution in Spain through our
arrangement with La Caixa, one of Spains largest
acquirers.
GMS continues to significantly expand the number of merchants
that accept our Card products as well as the kinds of businesses
that accept the Card. Over the last several years, we have
focused our efforts on increasing the use of our Cards for
everyday spending. In 1990, 64% of our U.S. billings came
from the travel and entertainment sectors and 36% came from
retail and other sectors. That proportion has now been more than
reversed. In 2010, U.S. non-travel and entertainment
billings represented approximately 71.5% of the U.S. billed
business on American Express Cards. This shift resulted, in
part, from the growth, over time, in the types of merchants that
began to accept charge and credit cards in response to
consumers increased desire to use these cards for more of
their purchases, our focus on expanding Card acceptance to meet
Cardmembers needs, and increased competition from our
competitors for travel and entertainment sector spending.
During 2010, we continued our efforts to bring Card acceptance
to industries where cash or checks are the predominant form of
payment. For example, we have made headway in promoting Card
acceptance in industries such as pharmaceuticals, construction,
industrial supply, insurance and advertising. Card acceptance
agreements signed in 2010 in the United States include:
|
|
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|
|
Mercury Insurance Group, a leading insurance company
|
|
|
|
BDO USA, LLP, a leading professional services firm providing
assurance, tax, financial advisory and consulting services
|
|
|
|
Applied Medical, a global medical device company that develops,
manufactures and markets medical devices used in surgical
procedures.
|
8
Internationally, among others, Card acceptance agreements were
reached with:
|
|
|
|
|
Centro de Recaudaciones de Impuestos Municipales (CRIM), the tax
collections governmental agency in Puerto Rico & the
Caribbean
|
|
|
|
Municipio de Naucalpan in Mexico
|
|
|
|
AAMI, one of Australias largest and highest profile
general insurance companies
|
|
|
|
Ageas Insurance Solutions in the United Kingdom.
|
Additionally, we continued our drive to expand Card acceptance
for retail and everyday spending categories outside the United
States. For example, during 2010, we announced Card acceptance
agreements with:
|
|
|
|
|
Seven Eleven, now accepting the Card in Mexico
|
|
|
|
Best Buy, now accepting the Card in the United Kingdom
|
|
|
|
Kaisers Tengelmann AG, now an accepting supermarket
merchant in Germany.
|
Globally, acceptance of general-purpose charge and credit cards
continues to increase. As in prior years, during 2010, we
continued to grow merchant acceptance of Cards around the world
and to refine our approach to calculating merchant coverage in
accordance with changes in the marketplace. Management estimates
that, as of the end of 2010, our merchant network in the United
States accommodated more than 90% of our Cardmembers
general-purpose charge and credit card spending, and our
international merchant network as a whole accommodated
approximately 80% of our Cardmembers general-purpose
charge and credit card spending. These percentages are based on
comparing our Cardmembers spending on our network
currently with our estimate of what our Cardmembers would spend
on our network if all merchants that accept general-purpose
credit and charge cards accepted American Express Cards.
We earn discount revenue from fees charged to
merchants for accepting Cards as payment for goods or services
sold. The merchant discount is the fee charged to the merchant
for accepting Cards and is generally expressed as a percentage
of the amount charged on a Card. In some instances, an
additional flat transaction fee is assessed. The merchant
discount is generally deducted from the amount of the payment
that the merchant acquirer (in most cases, including
for all U.S. merchants, TRS or one of its subsidiaries)
pays to a merchant for Charges submitted. A merchant acquirer is
the entity that contracts for Card acceptance with the merchant,
accepts transactions from the merchant, pays the merchant for
these transactions and submits the transactions to the American
Express network, which submits the transactions to the
appropriate Card issuer. When a Cardmember presents the Card for
payment, the merchant creates a record of charge for the
transaction and submits it to the merchant acquirer for payment.
To the extent that TRS or one of its subsidiaries is the
merchant acquirer, the merchant discount is recorded by us as
discount revenue at the time the transaction is received by us
from the merchant.
Where we act as the merchant acquirer and the Card presented at
a merchant is issued by a third-party bank or financial
institution, such as in the case of our GNS partners, we will
make financial settlement to the merchant and receive the
discount revenue. In our role as the operator of the Card
network, we will also receive financial settlement from the Card
issuer, who receives an issuer rate (i.e., the individually
negotiated amount that Card issuers receive for transactions
charged on our network with Cards they issue, which is usually
expressed as a percentage of the charged amount). The difference
between the discount revenue (received by us in the form of the
merchant discount) and the issuer rate received by the Card
issuer generates a return to us. In cases where American Express
is the Card issuer and the merchant acquirer is a third-party
bank or financial institution (which can be the case in a
country in which the IO is the local merchant acquirer), we
receive an individually negotiated issuer rate in our settlement
with the merchant acquirer, which is recorded by us as discount
revenue. By contrast with networks such as Visa and MasterCard,
there is no collectively set interchange rate on the American
Express network.
9
The following diagrams depict the relationships among the
parties in a
point-of-sale
transaction effected on the American Express network where we
act as both the Card issuer and merchant acquirer (the
3-Party Model) and under an NCL arrangement where
third-party financial institutions act as Card issuers (the
NCL Model):
The merchant discount we charge reflects the value we deliver to
the merchant and generally represents a premium over the rates
charged for acceptance of many cards issued on other networks.
We deliver greater value to merchants in a variety of ways,
including through higher spending by our Cardmembers relative to
users of cards issued on competing card networks, our product
and network features and functionality, our marketing expertise
and programs, information services, fraud prevention services,
and other investments which enhance the merchant value
propositions associated with acceptance of the Card.
The merchant discount varies, among other factors, with the
industry in which the merchant does business, the
merchants Charge volume, the timing and method of payment
to the merchant, the method of submission of Charges and, in
certain instances, the geographic scope of the Card acceptance
agreement signed with us (local or global) and the Charge amount.
In prior years, we experienced some reduction in our global
weighted average merchant discount rate. The average discount
rate was 2.55 percent and 2.54 percent for 2010 and
2009, respectively. Over time, certain repricing initiatives,
changes in the mix of business and volume-related pricing
discounts and investments will likely result in some erosion of
the average discount rate.
While most merchants that accept our Cards understand our
merchant discount pricing in relation to the value provided, we
do encounter a relatively small number of merchants that accept
our Cards, but tell their customers that they prefer to accept
another type of payment or otherwise seek to suppress use of the
Card. Subject to local legal requirements (such as, by way of
example, Dodd-Frank), we respond to this issue vigorously to
ensure that our Cardmembers are able to use their Card where and
when they want to and to protect the American Express brand. We
have made progress limiting Card suppression by focusing on
acquiring merchants where Cardmembers want to use the Card;
continuing to enhance the value we provide to merchants through
programs such as DailyWish and American Express Selects, which
enable merchants of
10
any size to gain valuable exposure and additional sales by
providing exclusive offers and experiences to American Express
Cardmembers; developing and providing new and innovative
business insights, marketing programs and fraud prevention tools
using information available through our closed-loop network;
providing better and earlier communication of our value
proposition; and, when appropriate, exercising our right to
terminate Card acceptance agreements with merchants who seek to
suppress the use of our Card products. We have a client
management organization which is dedicated to growing our
merchant customers business and finding ways to enhance
effectiveness of our relationship with these key business
partners. Most importantly, we recognize that it is the
merchants choice whether or not to accept American Express
cards and that all merchants have numerous options given the
intense competition from new and traditional forms of payment.
Therefore, we dedicate substantial resources to delivering
superior and differentiated value to attract and retain our
merchant customers.
The laws of a number of states in the U.S. and certain
countries outside the U.S. prohibit surcharging credit card
purchases. American Express Card acceptance agreements
with merchants generally do not prohibit surcharging so long as
it is permitted by law and a merchant does not discriminate
against the Card by surcharging higher amounts on purchases with
the Card than on purchases with other cards, or by imposing a
surcharge only on Card purchases, but not on purchases made with
other cards. American Express also does not prohibit merchants
from offering discounts to customers who pay with cash, check or
Automated Clearing House (i.e., inter-bank transfers or
ACH). In addition, American Express does not
prohibit U.S. merchants from offering discounts or in-kind
incentives to customers who pay with particular forms of payment
in accordance with the provisions of Dodd-Frank, which was
enacted in July 2010. For information concerning the proceeding
against us recently brought by the DOJ and certain state
attorneys general alleging violation of the U.S. antitrust
laws with regard to certain provisions of our merchant
agreements that are designed to protect our Cardmembers and our
brand against discrimination at the point of sale, please see
Corporate Matters within Legal
Proceedings beginning on page 91.
GMS is focused on understanding and addressing factors that
influence merchant satisfaction, including developing and
executing innovative programs that increase Card usage at
merchants, using technology resources, enhancing operational
efficiencies and merchants ease of doing business with us,
providing a suite of online servicing tools, making our United
States operating procedures easily available to merchants on our
Web site, applying our closed-loop capabilities and deep
marketing expertise, and strengthening our relationships with
merchants through an expanding roster of services that helps
them meet their business goals.
We also offer our merchant customers a full range of
point-of-sale
solutions, including integrated
point-of-sale
terminals, software, online solutions, and direct links that
allow merchants to accept American Express Cards (as well as
credit and debit cards issued on other networks and checks).
Virtually all proprietary
point-of-sale
solutions support direct processing (i.e., direct connectivity)
to American Express, which can lower a merchants cost of
Card acceptance and enhance payment efficiency.
In November 2010, we acquired Accertify Inc., a leading provider
of solutions that help merchants combat fraudulent online and
other card-not-present transactions. Launched in 2007, Accertify
provides a hosted software application that offers an extra
level of security for transactions over any of the major payment
networks, including American Express, Visa, MasterCard, Discover
and PayPal, or any other alternative payment method. Accertify
also offers merchants the option to outsource their
end-to-end
fraud management process. With the acquisition of Accertify,
American Express is able to broaden its fraud prevention
services to merchants for transactions that take place on all
networks. Accertifys capabilities are incremental and
complementary to American Express fraud solutions already
offered to merchants for transactions on the American Express
network.
In November 2010, we also announced the launch of American
Express
SafeKey
sm
,
an online fraud prevention solution, which licenses Visas
3-D
Secure
Protocol, a technology embraced by the payments industry as a
global standard for payment authentication.
We continue to focus our commitment to driving global
interoperability in payment card specifications, making it
easier for merchants to accept our Cards, for Cardmembers to
have a more seamless experience at
11
the point of sale, and for issuers who have more than one
network relationship to have a standard across their card
products.
We are an owner-member of EMVCo, the standards body that
manages, maintains, and enhances specifications for chip-based
payment cards and acceptance devices, including
point-of-sale
terminals. Our participation in this company helps to drive
secure and interoperable payments globally for transactions made
with chip cards by aligning and progressing the EMV
specifications. Further, as EMVCos scope expands to
include emerging payment technologies such as contactless cards
and mobile phones, our participation will facilitate our
products and specifications being universally compatible and
ready for merchant acceptance.
We continue to focus our efforts in areas that make use and
acceptance of the Card more convenient for merchants and
Cardmembers. For instance, American Express offers a contactless
payment feature embedded in certain cards, to provide a fast,
easy-to-use alternative to cash, check, debit or other payment
forms, particularly for making everyday purchases at merchants
where speed and convenience is important. In the U.S., top
quick-service restaurants, movie theaters, drug and convenience
stores and major retail chains readily accept American Express
contactless payments. Similarly, Automatic Bill Payment focuses
on providing convenience by allowing merchants to bill
Cardmembers on a regular basis for recurring charges approved by
the Cardmember such as insurance premiums, newspaper
subscriptions, health club memberships, commutation costs and
telecommunication services. Additionally, to provide extra
convenience and speed at the point of sale, low value
transactions (under $25 in the U.S.) do not require a signature.
Wherever we manage both the acquiring relationship with
merchants and the Card-issuing side of the business, there is a
closed-loop, which distinguishes our network from
the bankcard networks, in that we have access to information at
both ends of the Card transaction. We maintain direct
relationships with both our Cardmembers and our merchants, and
we handle all key aspects of those relationships.
Our relationships allow us to analyze information on Cardmember
spending. This enables us to provide targeted marketing and
other information services for merchants and special offers and
services to Cardmembers through a variety of channels. Recently,
we created a business within GMS called American
Express
®
Business Insights, which offers products and services derived
from our strong business model and closed loop network. Business
Insights combines aggregated, non-personally identifiable data
and trend analysis to provide specialized business planning and
marketing expertise to our customers. At the same time, we
protect the confidentiality of information on Cardmember
spending, and comply with our privacy and firewall policies and
applicable legal requirements.
We work closely with our Card-issuing and merchant-acquiring
bank partners to maintain key elements of this closed-loop,
which permits them to customize marketing efforts, deliver
greater value to their Cardmembers and help us to direct
increased business to merchants who accept the Card.
As the merchant acquirer, we have certain exposures that arise
if a billing dispute between a Cardmember and a merchant is
settled in favor of the Cardmember. Drivers of this liability
are returns in the normal course of business, disputes over
fraudulent charges, the quality or non-delivery of goods and
services and billing errors. Typically, we offset the amount due
to the Cardmember against payments for the merchants
current or future Charge submissions. We can realize losses when
a merchants offsetting Charge submissions cease, such as
when the merchant decides to no longer accept the Card,
commences a bankruptcy proceeding or goes out of business. We
actively monitor our merchant base to assess the risk of this
exposure. When appropriate, we will take action to reduce the
net exposure to a given merchant by holding cash reserves funded
through Charge payable holdbacks from a merchant, lengthening
the time between when the merchant submits a Charge for payment
and when we pay the merchant requiring the merchant to secure a
letter of credit or a parent company guarantee, or implementing
other appropriate risk management tools. We also establish
reserves on our balance sheet for these contingencies in
accordance with relevant accounting rules.
With the increase in electronic transmission of payment card
transaction data over merchants
point-of-sale
systems, American Express and other card networks recognized the
necessity for merchants and merchant processors to secure this
data against accidental or intentional compromise using a
standard protocol that applies to all card types. We and
Discover Financial Services, JCB Co., Ltd., MasterCard Worldwide
and
12
Visa formed PCI Security Standards Council, LLC (PCI
SSC), an independent standards-setting organization. PCI
SSCs role is to manage the Payment Card Industry
(PCI) Data Security Standard, and more recently the
PCI PIN Entry Device (PED) Security Requirements and
the Payment Application Data Security Standard, which focus on
improving payment card account security throughout the
transaction process. By establishing PCI SSC, we and the other
founders have developed common standards that are more
accessible and efficient for participants in the payment card
industry. All our merchants and service providers that store,
process and transmit payment card data are required to comply
with the PCI Data Security Standard. PCI SSC is dedicated to
driving greater education, awareness and adoption of these
security standards to ensure that all stakeholders involved in
the payment process conduct their business responsibly.
In some markets outside the United States, particularly in Asia,
third-party processors and some bankcard acquirers offer
merchants the capability of converting credit card transactions
from the local currency to the currency of the cardholders
residence (i.e., the cardholders billing currency) at the
point-of-sale,
and submitting the transaction in the cardholders billing
currency, thus bypassing the traditional foreign currency
conversion process of the card network. This practice is known
as dynamic currency conversion. If a merchant
utilizes a dynamic currency conversion process, the merchant and
processor share any fee assessed or spread earned for converting
the transaction at the
point-of-sale,
thus reducing or eliminating revenue for card issuers and card
networks relating to the conversion of foreign charges to the
cardholders billing currency. This practice is still not
widespread, and it remains uncertain whether its use will expand
over time. Our policy generally requires merchants to submit
Charges and be paid in the currency of the country in which the
transaction occurs, and we convert the transaction to the
Cardmembers billing currency.
Global
Network & Merchant Services
Competition
Our global card network, including our Global Merchant Services
and Global Network Services businesses, competes in the global
payments industry with other card networks, including, among
others, Visa, MasterCard, Diners Club International (which was
acquired by Discover Financial Services), and Discover
(primarily in the United States). We are the third largest
general-purpose charge and credit card network based on charge
volume, behind Visa and MasterCard, which we believe are larger
than we are in most countries. In addition, apart from such
network services, a range of companies globally, including
merchant acquirers and processors, carry out some activities
similar to those performed by our GMS and GNS businesses. No
single entity participates on a global basis in the full range
of activities that are encompassed by our closed-loop business
model.
The principal competitive factors that affect the network and
merchant service businesses include:
|
|
|
|
|
the number of
Cards-in-force
and amount of spending on these Cards
|
|
|
|
the quantity and quality of the establishments where the Cards
can be used
|
|
|
|
the economic attractiveness to card issuers and merchants of
participating in the network
|
|
|
|
the success of marketing and promotional campaigns
|
|
|
|
reputation and brand recognition
|
|
|
|
innovation and investment in systems, technology, product and
service offerings, particularly in on-line commerce
|
|
|
|
the quality of customer service
|
|
|
|
the security of Cardmember and merchant information
|
|
|
|
the impact of existing litigation, legislation and government
regulation
|
|
|
|
the cost of Card acceptance relative to the value provided.
|
Another aspect of network competition is the recent emergence
and rapid growth of alternative payment mechanisms and systems,
which include aggregators (such as PayPal), wireless payment
technologies
13
(including using mobile telephone networks to carry out
transactions), prepaid systems and systems linked to payment
cards, and bank transfer models.
New technologies, together with the portability provided by
smartphones and tablets and evolving consumer behavior with
social networking, are rapidly changing the way people interact
with each other and transact business all around the world. In
this connection, traditional and non-traditional competitors
such as mobile telecommunications companies are working to
deliver digital and mobile payment services for both consumers
and merchants. While we estimate that we have the largest share
of online spending of any major card issuer and more global
online billings volume than PayPal, the competition remains
fierce for capturing online spend in the ever-increasing digital
world.
To the extent alternative payment mechanisms and systems, such
as aggregators, continue to successfully expand, discount
revenues and our ability to access transaction data through our
closed-loop network, and potentially other revenues could be
negatively impacted. In the United States, alternative payment
vehicles that seek to redirect customers to payment systems
based on ACH continue to emerge and grow, and existing debit
networks also continue to expand both on- and off-line and are
making efforts to develop online PIN functionality, which could
further reduce the relative use of charge and credit cards
online. For a discussion concerning our involvement in the
emerging payments area, please see Enterprise Growth
beginning on page 34 below.
Some of our competitors have attempted to replicate our
closed-loop functionality, such as Visa, with its Visa Incentive
Network. Although it remains to be seen how effective Visa will
be, efforts by Visa and other card networks and payment
providers to replicate the closed-loop speak to its continued
value and to the intensely competitive environment in which we
operate.
Global
Network & Merchant Services
Regulation
Local regulations governing the issuance of charge and credit
cards have not been a significant factor impacting GNS
arrangements with banks and qualifying financial institutions,
because such banks and institutions generally are already
authorized to issue general-purpose cards and, in the case of
our IO arrangements, to operate merchant-acquiring businesses.
Accordingly, our GNS partners have generally not had difficulty
obtaining appropriate government authorization in the countries
in which we have chosen to enter into GNS arrangements. As a
service provider to regulated U.S. banks, our GNS business
is subject to review by certain federal bank regulators,
including the Federal Reserve, the Federal Deposit Insurance
Corporation (FDIC), the Office of the Comptroller of
the Currency (OCC) and the Office of Thrift
Supervision (OTS).
As the operator of a general-purpose card network, we are also
subject to certain provisions of the Currency and Foreign
Transactions Reporting Act and the accompanying regulations
issued by the U.S. Department of the Treasury (collectively
referred to as the Bank Secrecy Act), as amended by
the USA PATRIOT Act of 2001 (the Patriot Act). We
conduct due diligence on our GNS partners to ensure that they
have implemented and maintain sufficient anti-money laundering
(AML) controls to prevent our network from being
used for money laundering or terrorist financing purposes. As a
result of American Express Company and TRS each being bank
holding companies, our business is also subject to further
regulation and regulatory oversight by the Federal Reserve. For
additional information about our regulatory status, please see
Supervision and Regulation General
beginning on page 38 below.
In recent years, regulators in several countries outside the
United States have focused on the fees involved in the operation
of card networks, including interchange fees paid to card
issuers and the fees merchants are charged to accept cards.
Regulators in the United Kingdom, Canada, New Zealand, Poland,
Italy, Switzerland, Hungary, the European Union, Australia,
Brazil, Mexico and Venezuela, among others, have conducted
investigations that are either ongoing, concluded, or on appeal.
The interchange fee, which is the collectively set fee paid by
the bankcard merchant acquirer to the card issuing bank in
four party payment networks, like Visa and
MasterCard, is generally the largest component of the merchant
service charge payable by merchants for bankcard debit and
credit card acceptance in these
14
systems. By contrast, the American Express network does not have
interchange fees. Although the regulators focus has
primarily been on Visa and MasterCard as the dominant card
networks and their operations on a multilateral basis, antitrust
actions and government regulation relating to merchant pricing
could ultimately affect all networks. Lower interchange
and/or
merchant discount revenue may lead card issuers to look for
other sources of revenue from consumers such as higher annual
card fees or interest charges, as well as to reduce costs by
scaling back or eliminating rewards programs.
In the United States, Congress continued to focus on the
interchange issue during 2010. Congress passed Dodd-Frank, which
the President signed into law in July 2010. Dodd-Frank gives the
Federal Reserve the authority to establish rules regarding
interchange fees charged by payment card issuers for
transactions in which a person uses a debit or general-use
prepaid card, and to enforce a new statutory requirement that
such fees be reasonable and proportional to the actual cost of a
transaction to the issuer, with specific allowances for the
costs of fraud prevention, as well as to prohibit exclusive
network routing restrictions for electronic debit transactions.
American Express does not offer a debit card linked to a deposit
account, but does issue various types of prepaid cards.
Reloadable general-use prepaid cards, but not those marketed or
labeled as gift cards or gift certificates, are exempt from the
interchange fee limitations. In contrast to the interchange fee
limitations, all prepaid cards would be subject to the exclusive
network routing restrictions for electronic debit transactions.
In December 2010, the Federal Reserve issued a Notice of
Proposed Rulemaking requesting comments to implement the
interchange fee limitations and exclusive network routing
restrictions. The Federal Reserve has proposed two options for
the interchange limitations and describes two interpretations of
the statutory language on the exclusive network routing
restrictions. Comments on the proposal were due by
February 22, 2011. The Federal Reserve must issue final
rules on the interchange limitations by April 2011, and those
rules take effect on July 21, 2011. The Federal Reserve
must issue final rules on the exclusive network routing
restrictions by July 21, 2011. The statute does not specify
when those rules must take effect. The proposed rules issued by
the Federal Reserve have garnered attention from members of
Congress, and the relevant congressional committees have held
hearings to review the proposal. It is difficult to assess at
this time the extent to which the final regulations, once
issued, could adversely impact our revenues and profitability.
Additionally, Dodd-Frank prohibits payment card networks from
restricting merchants from offering discounts or incentives to
encourage customers to pay with particular forms of payment such
as cash, check, credit or debit card, provided that such offers
do not discriminate on the basis of the network or issuer.
Further, to the extent required by federal law or applicable
state law, the discount or incentive must be offered to all
prospective buyers and must be clearly and conspicuously
disclosed. Dodd-Frank also permits U.S. merchants to
establish minimum purchase amounts of no more than $10 for
credit card purchases, provided that the merchants do not
discriminate between networks or issuers. Federal government
agencies and institutions of higher learning are also permitted
to establish maximum amounts for credit card purchases provided
they do not discriminate between networks or issuers. As a
result of these new laws, customers may be incentivized by
merchants to move away from the use of charge and credit card
products to other forms of payment, such as debit, which could
adversely affect our revenues and profitability. During the last
four years, a number of bills were proposed in individual state
legislatures seeking to impose caps on credit card interchange
fees or to prohibit credit card companies from charging a
merchant discount on the sales tax portion of credit card
purchases. Other proposals were aimed at increasing the
transparency of card network rules for merchants. In addition, a
number of bills were proposed to establish merchant liability
for the costs of a data security breach of a merchants
system or require merchants to adopt technical safeguards to
protect sensitive cardholder payment information. In 2010,
Vermont enacted legislation that permits merchants to set a
minimum dollar value of no more than $10 for acceptance of any
form of payment; permits merchants to provide discounts or other
benefits based on the form of payment (i.e., card, cash, check,
debit card, stored-value card, charge card or credit card); and
permits merchants to accept the cards of a payment system at one
or more of its locations but not at others. This legislation may
serve as a model for other states. In the event that additional
legislative or regulatory activity to limit interchange or
merchant fees continues or increases, or state data security
legislation is adopted, our revenues and profitability could be
adversely affected.
15
In certain countries where antitrust actions or regulations have
led our competitors to lower their fees, we have made
adjustments to our pricing to merchants to reflect local
competitive trends. For example, reductions in bankcard
interchange mandated by the Reserve Bank of Australia in 2003
resulted in lower merchant discount rates for Visa and
MasterCard acceptance. As a result of changes in the
marketplace, we reduced our own merchant discount rates in
Australia over time, although we have been able to increase
billed business and the number of merchants accepting our Cards.
In addition, under legislation enacted in Argentina, a merchant
acquirer is required to charge the same merchant discount rate
to all merchants in the same industry category, and merchant
discount rates for credit cards cannot exceed 3%. The Central
Bank of Venezuela has issued regulations regarding the maximum
level of merchant discount rates by industry category. In
December 2007, the European Commission ruled that
MasterCards multilateral interchange fees
(MIF) for cross-border payment card transactions
violate EC Treaty rules on restrictive business practices. The
Commissions decision applies to cross-border consumer
credit, charge and debit card transactions within the EU and to
domestic transactions to which MasterCard has chosen to apply
the cross-border MIF. The ruling does not prevent MasterCard and
its member banks from adopting an alternative MIF arrangement
that can be proven to comply with EU Competition rules. Although
the Commissions investigation included commercial cards,
it has reserved judgment for the time being on the legality of
MasterCards cross-border MIF for commercial card
transactions. MasterCard lodged an appeal against the
Commissions findings, which is pending. An interim
settlement, pending the appeal, was agreed to in 2009 between
the Commission and MasterCard, capping MIF at 30 basis
points for consumer card transactions and 20 basis points
for debit card transactions.
In 2002, the Commission granted an exemption to Visa regarding
its MIFs for cross-border consumer card transactions within
Europe. This exemption expired on December 31, 2007 and in
March 2008 the Commission opened formal antitrust proceedings
against Visa Europe Limited in relation to Visas MIFs for
such transactions. The Commission indicated that the MasterCard
decision should provide Visa with guidance for the way
ahead, although it stated that every MIF must be
examined on its own merits. In 2010, the Commission
accepted Visa Europes pledge to cut its cross-border debit
card MIF to 20 basis points for four years. The
Commissions investigation into Visa Europes credit
and deferred debit card MIF for cross-border transactions
remains ongoing.
Developments at the EU level may affect how the competition
authorities in the Member States of the EU view domestic
interchange and the progress of ongoing investigations. In 2007,
for example, consistent with the Commissions findings of
that year in its case against MasterCard, the competition
regulator in Poland found insufficient basis for Visa and
MasterCard interchange fees and ordered the associations and
their members to stop their current interchange setting
practices. However, the banks appealed that decision, and in
November 2008 the decision was overturned. The Polish
Competition Authority has appealed that ruling. More recently,
the Office of Fair Trading in the United Kingdom indicated that
it was delaying further consideration of its cases against
MasterCard and Visa pending the outcome of the appeal of the
European Commissions decision against MasterCard.
In 2010, national parliaments in Hungary and France enacted
legislation to cap interchange fees or point of sale service
charges without government sponsorship for these measures.
Although in both cases the legislation has been either repealed
or struck down on procedural grounds, it is possible there may
be further attempts to enact regulation of merchant fees or
interchange with direct or indirect impacts on American Express.
In August 2009, Visa and MasterCard settled an anti-trust case
with the New Zealand regulatory authorities regarding whether
the setting of interchange rates constituted price fixing and
whether other scheme rules lessened competition. The settlement
results in changes to the Visa and MasterCard scheme rules,
which will set maximum interchange rates and also allow
bilateral setting of lower interchange rates between issuers and
acquirers, as well as remove the schemes no surcharging
rules. On April 17, 2010, each of the schemes released
their maximum interchange rates. It is difficult to assess at
this time the extent to which the changes to interchange could
adversely impact our revenues and profitability in New Zealand.
Regulators have also considered network rules that prohibit
merchants from surcharging card purchases. In Australia, we have
seen selective, but increasing, merchant surcharging on our
Cards in certain industries
16
and, in some cases, on a basis that is greater than that applied
to cards issued on the bankcard networks. The member states of
the European Economic Area have now implemented a relatively new
legislative framework for electronic payment services, including
cards, called the European Directive 2007/64/EC on payment
services. This directive, commonly referred to as the Payment
Services Directive, prescribes common rules for licensing and
supervision of payment services providers, including card
issuers and merchant acquirers, and for their conduct of
business with customers. The objective of the Payment Services
Directive is to facilitate the operation of a single internal
payments market in the EU through harmonization of EU Member
State laws governing payment services. One provision of the
Payment Services Directive permits merchants to surcharge,
subject to disclosure requirements, but also allows individual
Member States to override this rule by prohibiting or limiting
surcharging. To date, the member states of the European Economic
Area are split on whether they prohibit or permit surcharging,
with countries such as the United Kingdom (which for a number of
years has permitted it for credit card purchases), the
Netherlands and Spain permitting it, in some cases within
limits, and other countries such as France, Italy and Sweden
prohibiting it. All member states permit discounts. The Payment
Services Directive complements another European initiative, the
Single Euro Payments Area (SEPA), which is an
industry-led initiative with support from EU institutions. Among
other changes, SEPA involves the adoption of new, pan-European
technical standards for cards and card transactions. All of the
foregoing requires significant costs to implement and maintain.
The Canadian Competition Bureau has commenced an application
against Visa and MasterCard under the price maintenance
provisions of the Canadian Competition Act seeking a remedial
order prohibiting Visa and MasterCard from entering into,
enforcing or imposing terms that restrain merchants from certain
business practices, including encouraging use of lower cost
methods of payment and discouraging use of credit cards with
higher card acceptance fees, declining acceptance of certain
credit cards and surcharging customers who use Visa and
MasterCard credit cards. While the Competition Bureau did not
name American Express in its application, this action evidences
the strong regulatory and judicial focus on this area, which
could have indirect implications for American Express.
The Canadian Department of Finance requires Amex Bank of Canada
as well as other payment networks, issuers and acquirers to
adhere to the Code of Conduct for the Credit and Debit Card
Industry in Canada which among other things requires increased
transparency and disclosure of fees in merchant agreements and
monthly statements, requires 90 days notice of merchant fee
increases or introduction of new fees and gives merchants the
right to cancel their contract without penalty after receiving
such notice, allows differential discounting by merchants
between forms of payment and payment networks and requires that
merchants provide their express consent to accept new products
or services.
U.S. CARD
SERVICES
As a significant part of our proprietary Card-issuing business,
our U.S. banking subsidiaries, Centurion Bank and AEBFSB,
issue a wide range of Card products and services to consumers
and small businesses in the United States. Our consumer travel
business, which provides travel services to Cardmembers and
other consumers, complements our core Card business, as does our
Global Payment Options business.
The proprietary Card business offers a broad set of card
products to attract our target customer base. As we continue to
focus on premium products, the Companys priority will be
to drive billed business and average spend per card rather than
achieve broad growth in
cards-in-force.
Core elements of our strategy are:
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focusing on acquiring and retaining high-spending, creditworthy
Cardmembers
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designing Card products with features that appeal to specific
customer segments
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using strong incentives to drive spending on our various Card
products, including our Membership
Rewards
®
program and other rewards features
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using loyalty programs such as Delta SkyMiles, sponsored by our
co-brand and other partners to drive spending
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developing and nurturing wide-ranging relationships with
co-brand and other partners
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17
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promoting and using incentives for Cardmembers to use their
Cards in new and expanded merchant categories, including
everyday spend and traditional cash and check categories
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providing exceptional customer service.
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In August 2010, J.D. Power and Associates released its
annual nationwide credit card satisfaction study and ranked
American Express highest in overall satisfaction among 10 of the
largest card issuers in the United States, for the fourth
consecutive year.
Consumer and
Small Business Services
We offer individual consumer charge Cards such as the American
Express
®
Card, the American
Express
®
Gold Card, the Platinum
Card
®
,
and the
Centurion
®
Card, as well as the
ZYNC
®
Card from American Express; revolving credit Cards such as Blue
from American
Express
®
,
Blue
Cash
®
Card from American Express, Blue Sky from American
Express
sm
,
and Blue Sky Preferred from American
Express
sm
;
and a variety of Cards sponsored by and co-branded with other
corporations and institutions, such as the Delta
SkyMiles
®
Credit Card from American Express,
True-Earnings
®
Card exclusively for Costco members, Starwood Preferred
Guest
®
Credit Card and JetBlue Card from American Express.
Centurion
Bank and AEBFSB as Issuers of Certain Cards
We have two U.S. bank subsidiaries, Centurion Bank and
AEBFSB, which are wholly owned subsidiaries of TRS. Each bank is
an FDIC insured depository institution. The activities of
Centurion Bank and AEBFSB are subject to examination by their
respective regulators. Both banks take steps to maintain
compliance programs to address the various safety and soundness,
internal control and compliance requirements, including
anti-money laundering requirements that apply to them. You can
find a further discussion of the anti-money laundering
initiatives affecting us under Corporate &
Other below.
Certain additional information regarding each bank is set forth
in the table below:
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Centurion Bank
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AEBFSB
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Type of Bank
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Utah-chartered industrial bank
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Federal savings bank
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Regulatory Supervision
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Regulated, supervised and regularly examined by the Utah
Department of Financial Institutions and the FDIC
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Regulated, supervised and regularly examined by the OTS, a
bureau of the U.S. Department of the Treasury, until
July 21, 2011*; thereafter regulated, supervised and
regularly examined by the OCC, a bureau of the U.S. Department
of the Treasury.
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Types of cards issued
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Consumer credit cards
Consumer charge cards
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Consumer credit cards (including all
Co-brand credit cards)
Consumer charge cards
All
OPEN
®
credit cards and charge cards
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Marketing methods
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Primarily direct mail and other remote marketing channels
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Direct mail and other remote marketing
channels
In-person selling and third-party
co-brand partners
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Risk-based capital adequacy requirements**, based on Tier One
risk-based capital, total risk-based capital and Tier One core
capital ratios at December 31, 2010
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Well capitalized
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Well capitalized***
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18
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*
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July 21, 2011 is the transfer date of the
OTSs supervisory responsibility for federal savings banks
to the OCC under Section 311 of Dodd-Frank. The Treasury
Secretary may extend the transfer date for up to six additional
months upon finding that an orderly implementation process is
not feasible by July 21, 2011.
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**
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The risk-based capital standards for both the FDIC and OTS are
substantively identical. Currently, a bank generally is deemed
to be well capitalized if it maintains a Tier One
risk-based capital ratio of at least 6%, a total risk-based
capital ratio of at least 10% and a leverage ratio of at least
5%. For further discussion regarding capital adequacy, including
changes to capital adequacy rules, please see Supervision
and Regulation General Capital
Adequacy beginning on page 41.
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***
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Since January 2009, AEBFSB has committed to maintain a Total
capital ratio of no less than 15%.
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Charge
Cards
Our charge Cards, which generally carry no preset spending
limits, are primarily designed as a method of payment and not as
a means of financing purchases of goods or services. Charges are
approved based on a variety of factors including a
Cardmembers current spending patterns, payment history,
credit record, and financial resources. Cardmembers generally
must pay the full amount billed each month, and no finance
charges are assessed on the balance. Charge Card accounts that
are past due are subject, in most cases, to a delinquency
assessment and, if not brought to current status, may be
cancelled. The no preset-spending limit and
pay-in-full
nature of these products attract high-spending Cardmembers.
The charge Cards also offer several ways for eligible U.S.
Cardmembers to pay off certain of their purchases over time. The
Sign &
Travel
®
Feature permits eligible U.S. Cardmembers to extend payment
for airline tickets, cruise ship tickets and other travel
charges purchased with our charge Cards. The Extended Payment
Option permits eligible U.S. Cardmembers to extend payment
for eligible charges above a certain dollar amount.
As part of our effort to deliver additional value for existing
Cardmembers and to attract new high-spending customers to
American Express, we launched in 2010 the following three new
benefits for our Platinum
Card
®
and Centurion
Card
®
that will provide our consumer and
OPEN
®
Cardmembers with improved value and service while traveling:
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a $200 airline fee credit that allows Cardmembers to enroll and
receive up to $200 annually on incidental fees on their airline
of choice
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a 20% travel bonus benefit that gives back to Cardmembers 20% of
the points they redeem for travel when they use Membership
Rewards
®
Pay With Points
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a special version of the new American Express Travel iphone
application.
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We also announced in December 2010 that we will eliminate
foreign currency transaction fees for U.S. consumer and
small business Cardmembers who make international purchases with
their Platinum
Cards
®
or
Centurion
®
Cards, which is expected to be effective towards the end of the
first quarter of 2011.
In September 2010, we also announced that Continental Airlines
will no longer participate in the Airport Club Access program
for Centurion and Platinum Cardmembers or the Membership Rewards
points transfer program as of October 1, 2011. However,
Cardmembers will still be able to redeem points for travel on
Continental
Airlines
®
through Membership Rewards Pay with
Points
®
.
While Continental Airlines was a significant participant in the
Airport Club Access Program and key redemption partner in our
Membership Rewards points transfer program, we continue to
strengthen our relationships with our Cardmembers by enhancing
the value we provide through our premium offerings and benefits,
including those listed above.
In May 2010, we launched the
ZYNC
®
Card from American Express, a new charge Card with a low annual
fee of $25. Cardmembers get core charge Card features and
protections on the base card with the added flexibility to
select bundles of rewards and benefits called Packs
that are tailored to specific lifestyle interests and spending
habits in categories such as music, fashion, food, travel and
more.
19
Revolving
Credit Cards
We offer a variety of revolving credit Cards. These Cards have a
range of different payment terms, interest rate and fee
structures, rewards programs and Cardmember benefits. Revolving
credit Card products, such as Blue from American Express, Blue
Cash from American Express and Blue Sky from American Express,
provide Cardmembers with the flexibility to pay their bill in
full each month or carry a monthly balance on their Cards to
finance the purchase of goods or services. Along with charge
Cards and co-brand Cards, these revolving credit Cards attract
affluent Cardmembers and promote increased relevance for our
expanding merchant network.
In 2010, we launched Blue Sky Preferred from American Express,
which offers double Blue
Sky
sm
points on hotel, dining and car rental purchases which can be
redeemed towards travel anywhere, anytime, on any airline with
no blackout dates or restrictions. In addition, Cardmembers
receive an annual $100 Airline Allowance for use on airline
incidental fees (e.g., checked baggage fees, in-flight meals,
etc.). Blue Sky
Preferred
sm
Card is the first proprietary lending product in the Blue Card
family with an annual fee, diversifying the revenue streams of
this portfolio.
Co-brand
Cards
We issue Cards under co-brand agreements with selected
commercial firms in the United States. The competition among
card issuers and networks for attractive co-brand card
partnerships is quite intense because these partnerships can
generate high-spending loyal cardholders. The duration of our
co-brand arrangements generally ranges from five to ten years.
Cardmembers earn rewards provided by the partners
respective loyalty programs based upon their spending on the
co-brand Cards, such as frequent flyer miles, hotel loyalty
points and cash back. We make payments to our co-brand partners,
which can be significant, based primarily on the amount of
Cardmember spending and corresponding rewards earned on such
spending and, under certain arrangements, on the number of
accounts acquired and retained. We expense amounts due under
co-brand arrangements in the month earned. Payment terms vary by
arrangement, but are monthly or quarterly. Generally, once we
make payment to the co-brand partner, the partner is solely
liable for providing rewards to the Cardmember under the
co-brand partners own loyalty program. As the issuer of
the co-brand Card, we retain all the credit risk with the
Cardmember and bear the receivables funding and operating
expenses for such Cards. The co-brand partner retains the risk
associated with the miles, points or other currency earned by
the Cardmember under the partners loyalty program.
During 2010, we introduced several new innovations to our
existing products. For example, we launched the First Bag Free
benefit which allows Gold, Platinum and Reserve Delta SkyMiles
Credit Card Cardmembers to check their first bag for free on
Delta Air Lines operated flights. We also launched two new
benefits on the Starwood Preferred Guest Credit Card and the
Starwood Preferred Guest Business Credit Card that provides a 5
night / 2 stay credit so Cardmembers earn elite status
faster and an exclusive Sheraton Hotels and Resorts offer.
Co-brand
Partnerships with Financial Services Institutions
We also issue Cards that are marketed under co-brand partnership
arrangements with financial services partners. Such partnerships
involve the offering of a standard product (issued by TRS or one
of its subsidiaries) to customers of the financial services
partner, generally co-branded with the partners name on
the Card. Under these arrangements, we may make payments to the
financial services partners that are primarily based on the
number of accounts acquired
and/or
retained through the arrangement
and/or
the
amount of Cardmember spending on such Cards. The duration of
such arrangements generally ranges from three to seven years.
Card
Pricing and Account Management
Certain Cards, particularly charge Cards, charge an annual fee
that varies based on the type of Card and the number of Cards
for each account. We also offer many revolving credit Cards with
no annual fee but on which we assess finance charges for
revolving balances. Depending on the product, we also charge
20
Cardmembers an annual program fee to participate in the
Membership Rewards programs and fees for account performance
(e.g., late fees) or for certain services (e.g., additional
copies of account statements). We apply standards and criteria
for creditworthiness to each Cardmember through a variety of
means both at the time of initial solicitation or application
and on an ongoing basis during the Card relationship. We use
sophisticated credit models and techniques in our risk
management operations. For a further description of our risk
management policies, please see Risk Management
appearing on page 48 of our 2010 Annual Report to
Shareholders, which information is incorporated herein by
reference.
Membership
Rewards
®
Program
The Membership Rewards program from American Express allows
Cardmembers to earn one point for virtually every dollar charged
on eligible, enrolled American Express Cards, and then redeem
points for a wide array of rewards, including travel, retail
merchandise, dining and entertainment, financial services and
even donations to benefit tens of thousands of charities. Points
generally have no expiration date and there is no limit on the
number of points one can earn. A large majority of spending by
eligible Cardmembers earns points under this program.
The U.S. Membership Rewards program has over 150 redemption
partners and features over 500 merchandise brands. Membership
Rewards program tiers are aligned with specific Card products to
better meet Cardmember lifestyle and reward program usage needs.
American Express Cardmembers participate in one of three
Membership Rewards program tiers based on the Credit or Charge
Card they have in their wallet. For those Cardmembers with
American Express Cards, such as Blue from American Express and
ZYNC from American Express, we have the Membership Rewards
Express
®
program. American Express Charge Cardmembers with American
Express Green and Gold Cards have the Membership
Rewards
®
program. Platinum
Card
®
members and
Centurion
®
Cardmembers are enrolled in the Membership Rewards
First
®
program.
During the year, we enhanced our Membership
Rewards
®
program with the introduction of new reward options designed to
meet customer demand and provide Cardmembers with greater
breadth and variety as well as utility. For example, we launched
a new benefit that allows Membership Rewards points to be used
for purchases on Amazon.com at the point of sale. In addition to
this redemption option at Amazon, we have added a number of new
partners to the program that give Cardmembers a broader range of
opportunities to redeem points, such as Universal Studios Theme
Parks, Four Seasons Hotels and Resorts, Victorias Secret,
Ruby Tuesday and Zynga. In addition, Cardmembers now have the
ability to pay for their annual membership fee with Membership
Rewards points. We believe our Membership Rewards point bank is
a substantial asset and a competitive advantage, and is moving
towards becoming a valued virtual currency.
When a Cardmember enrolled in the Membership Rewards program
uses the Card, we establish reserves to cover the cost of
estimated future reward redemptions for points earned to date.
When a Membership Rewards program enrollee redeems a reward
using Membership Rewards points, we make a payment to the
Membership Rewards program partner providing the reward pursuant
to contractual arrangements. Membership Rewards expense is
driven by Cardmember charge volume, customer participation in
the program, and contractual arrangements with redemption
partners. At year end, we estimated that current Cardmembers
will ultimately redeem approximately 90% of their points. For
more information on our Membership Rewards program, see
Critical Accounting Policies Reserves for
Membership Rewards Costs appearing on page 25 of our
2010 Annual Report to Shareholders, which information is
incorporated herein by reference.
Membership Rewards continues to be an important driver of
Cardmember spending and loyalty. We believe, based on historical
experience, that Cardmembers enrolled in rewards programs yield
higher spend, stronger credit performance and greater profit for
us. By offering a broader range of redemption choices, we
21
have given our Cardmembers more flexibility in the use of their
rewards points and have favorably affected our average cost per
point. We continually seek to optimize the overall economics of
the program and make changes to enhance its value to
Cardmembers. Our program is also valuable to merchants that
become redemption partners as we bring them high-spending
Cardmembers and new marketing channels to reach these
Cardmembers.
Cardmember
Special Services and Programs
Throughout the world, our Cardmembers have access to a variety
of fee-free and fee-based special services and programs,
depending on the type of Cards they have. Examples of these
special services and programs include:
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the Membership
Rewards
®
program
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Automatic Flight Insurance
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Premium Return Protection
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Premium Baggage Protection
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Global
Assist
®
Hotline
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CreditSecure
®
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Extended Warranty
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Account Protector
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Car Rental Loss and Damage Insurance Plan
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Online Fraud Protection Guarantee
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Purchase Protection Plan
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Credit Card Registry
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Emergency Card Replacement
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My Free Credit Score and Report
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Return Protection
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Identity Theft Assistance
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Manage Your Card Account Online
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Event Ticket Protection Plan
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Online Year-End Summary
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Platinum Office Program
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American Express Roadside Assistance Services
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Online Money Manager
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American Express Bill
Pay
®
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Exclusive Access to Cardmember Events
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Advanced Ticket Sales
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OPEN
In addition to our U.S. Consumer Card business, through
AEBFSB we are also a leading provider of financial services to
small businesses (generally, firms with less than
100 employees
and/or
annual sales up to $10 million). American Express OPEN
(OPEN) offers small business owners a wide range of
tools, services and savings designed to meet their evolving
needs, including:
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charge and credit cards
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fee-based business solutions to help everyday business
operations such as
AcceptPay
®
,
InsuranceEdge
sm
and SearchManager
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rewards on eligible spend and business relevant redemptions
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retail and travel protections such as purchase protection and
baggage insurance
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travel services
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3%10% or more discounts at select suppliers of travel,
business services, and products through OPEN
Savings
®
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expense management reporting
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enhanced online account management capabilities
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resources to help grow and manage a business through the award
winning community-driven website, OPEN
Forum
®
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All American Express
OPEN
®
Cardmembers are automatically enrolled in OPEN
Savings
®
,
a program that offers discounts for all OPEN customers on travel
and other major business expenses simply by using their American
Express OPEN Card at participating companies. These savings may
be combined with any existing discounts or offers.
22
Some of the highlights of our OPEN business in 2010 include:
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Launch of InsuranceEdge, an integrated solution designed to help
small business owners research, review, compare and purchase
commercial insurance appropriate for their business needs.
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Launch of SearchManager, a solution that simplifies the way
business owners can manage their online advertising campaigns.
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Launch of a new mobile platform for OPEN Forum.
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Expansion of the OPEN Savings program through new partnerships
with AirTran Airways, OfficeMax, Hewlett Packard and Firedog
tech support.
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Launch and development of the first ever Small Business
Saturday
sm
,
a day to support local businesses that create jobs, boost the
economy and preserve neighborhoods around the country by
providing an incentive for Cardmembers to spend at their local
businesses.
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Expansion of OPEN for Government Contracts: Victory in
Procurement
®
(VIP) for Small Business by holding proprietary events across
the U.S. designed to help business owners access government
contracts as a means to grow their business.
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Card-Issuing
Business Competition
Our proprietary Card business encounters substantial and intense
competition in the United States and internationally. As a card
issuer, we compete in the United States with financial
institutions (such as Citibank, Bank of America, JPMorgan Chase,
and Capital One Financial) that issue general-purpose charge and
revolving credit cards, and Discover Financial Services, which
issues the Discover Card on the Discover Business Services
network. We also encounter competition from businesses that
issue their own cards or otherwise extend credit to their
customers, such as retailers and airline associations, although
these cards are generally accepted only at limited locations.
Because of continuing consolidations among banking and financial
services companies and credit card portfolio acquisitions by
major card issuers, there are now a smaller number of
significant issuers. The largest competing issuers have
continued to grow, in several cases by acquiring card
portfolios, and also by cross-selling through their retail
branch networks.
In recent years, we have encountered increasingly intense
competition in the small business sector, as competitors have
targeted OPENs customer base and our leadership position
in providing financial services and other fee-based solutions to
small businesses. Competing card issuers offer a variety of
products and services to attract cardholders, including premium
cards with enhanced services or lines of credit, airline
frequent flyer program mileage credits, cash rebates and other
reward or rebate programs, services for small business owners,
teaser promotional interest rates for both credit
card acquisition and balance transfers, and co-branded
arrangements with partners that offer benefits to cardholders.
Most financial institutions that offer demand deposit accounts
also issue debit cards to permit depositors to access their
funds. Use of debit cards for
point-of-sale
purchases has grown as most financial institutions have replaced
ATM cards with general-purpose debit cards bearing either the
Visa or MasterCard logo. As a result, the purchase volume and
number of transactions made with debit cards in the United
States has grown more rapidly than credit and charge card
transactions. Debit cards were marketed as replacements for cash
and checks, and transactions made with debit cards have
typically been for smaller dollar amounts. There is no credit
extended when a debit card is used and the consumer must have
sufficient funds in his or her demand deposit account to pay for
the purchase at the time of the transaction as opposed to charge
cards where payment is due at the end of the billing period or
credit cards where payment can be extended over a period of
time. However, debit cards are also perceived as an alternative
to credit or charge cards and used in that manner. We do not
offer a debit card linked to a deposit account, but we do issue
various types of prepaid cards. As the payments industry
continues to evolve, we are also facing increasing competition
from non-traditional players, such as online networks, telecom
providers, or software-as-a-service providers that leverage new
technologies and customers existing charge and credit card
accounts and bank relationships to create payment or other
fee-based solutions. In addition, the evolution of payment
products in emerging markets may
23
be different than it has been in developed markets. Instead of
migrating from cash to checks to plastic, technology and
consumer behaviors in these markets may result in the skipping
of one or more steps to alternative payment mechanisms such as
mobile payments. For a further discussion of the evolving
competitive landscape in the payments industry, please see
Global Network & Merchant
ServicesCompetition
beginning on page 13
above.
The principal competitive factors that affect the card-issuing
business include:
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features and the quality of the services, including rewards
programs, provided to Cardmembers
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the number, spending characteristics and credit performance of
Cardmembers
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the quantity, diversity, and quality of the establishments that
accept Cards
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the cost of Cards to Cardmembers
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pricing, payment and other Card account terms and conditions
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the number and quality of other payment cards and other forms of
payment available to Cardmembers
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the nature and quality of expense management data capture and
reporting capability
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the success of targeted marketing and promotional campaigns
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reputation and brand recognition
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the ability of issuers to manage credit and interest rate risk
throughout the economic cycle
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the ability of issuers to implement operational and cost
efficiencies
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the quality of customer service.
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Financing
Activities
The Company meets its financing needs through a variety of
sources, including cash or assets that are readily convertible
into cash, direct and third-party distributed deposits,
unsecured medium- and long-term notes, asset securitizations,
securitized borrowings through a conduit facility and long-term
committed bank borrowing facilities in certain
non-U.S. markets.
American Express Credit Corporation, a wholly owned subsidiary
of TRS, along with its subsidiaries (Credco),
acquires or finances the majority of charge Card receivables
arising from the use of corporate Cards issued in the United
States and consumer and corporate Cards issued in certain
currencies outside the United States. Credco funds the
acquisition or financing of receivables principally through the
sale of medium- and long-term notes. Centurion Bank and AEBFSB
finance their revolving credit receivables and consumer and
small business charge card receivables, in part, through the
sale of medium-term notes and by offering consumer deposits in
the United States. TRS, Centurion Bank and AEBFSB also fund
receivables through asset securitization programs. The cost of
funding Cardmember receivables and loans is a major expense of
Card operations.
(You can find a discussion of our securitization and other
financing activities on pages 41-44 under the caption
Financial Review, and Note 7 on
pages 85-87 of our 2010 Annual Report to Shareholders,
which portions we incorporate herein by reference.) In addition,
please see
Difficult conditions in the global capital
markets and economy generally, as well as political conditions
in the United States and elsewhere, may materially adversely
affect our business and results of operations
and
Adverse capital and credit market conditions may
significantly affect the Companys ability to meet
liquidity needs, access to capital and cost of capital
in Item 1ARisk Factors below.
Deposit
Programs
Our banking subsidiaries offer deposits to individuals through
third-party brokerage networks as well as directly to consumers.
As of December 31, 2010, we had approximately
$29.7 billion in total consumer
24
deposits. The majority of the Companys outstanding
U.S. retail deposits have been raised through third-party
channels. As part of its funding strategy, a majority of the
deposits raised during 2010 were sourced directly by the Company
with consumers through Personal Savings from American Express.
Our deposit-taking activities compete with other deposit-taking
organizations that source deposits through telephone, internet
and other electronic delivery channels, brokerage networks,
and/or
through branch locations. We compete primarily in the deposit
sectors on the basis of rates and our brand reputation for
safety and service. We seek to obtain the deposits of new
customers as well as existing card customers by offering
attractive rates and marketing our name brand.
Our ability to obtain deposit funding and offer competitive
interest rates on deposits also is dependent on capital levels
of our bank subsidiaries. The Federal Deposit Insurance Act
(FDIA) generally prohibits a bank, including our
banking subsidiaries, from accepting brokered deposits or
offering interest rates on any deposits significantly higher
than the prevailing rate in its normal market area or nationally
(depending upon where the deposits are solicited), unless
(1) it is well capitalized or (2) it is adequately
capitalized and receives a waiver from the FDIC. A bank that is
less than well capitalized generally may not pay an interest
rate on any deposit, including
direct-to-consumer
deposits, in excess of 75 basis points over the national
rate published by the FDIC unless the FDIC determines that the
bank is operating in a high-rate area. An adequately capitalized
insured depository institution may not accept, renew or roll
over any brokered deposit unless it has applied for and been
granted a waiver of this prohibition by the FDIC.
Undercapitalized depository institutions may not solicit
deposits by offering interest rates that are significantly
higher than the prevailing rates of interest on insured deposits
in such institutions normal market areas or in the market
area in which such deposits would otherwise be accepted. There
are no such restrictions on a bank that is well capitalized
(provided such bank is not subject to a capital maintenance
provision within a written agreement, consent order, order to
cease and desist, capital directive, or prompt corrective action
directive issued by its federal regulator). If a depository
institutions federal regulator determines that it is in an
unsafe or unsound condition or is engaging in unsafe or unsound
banking practices, the regulator may reclassify a well
capitalized institution as adequately capitalized, require an
adequately capitalized institution to comply with certain
restrictions as if it were undercapitalized, and require an
undercapitalized institution to take certain actions applicable
to significantly undercapitalized institutions, all of which
would adversely impact its ability to accept brokered deposits.
Card-Issuing
Business Regulation
The charge card and consumer lending businesses are subject to
extensive regulation. In the United States, we are subject to a
number of federal laws and regulations, including:
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the Equal Credit Opportunity Act (which generally prohibits
discrimination in the granting and handling of credit)
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the Fair Credit Reporting Act (FCRA), as amended by
the Fair and Accurate Credit Transactions Act (FACT
Act) (which, among other things, regulates use by
creditors of consumer credit reports and credit prescreening
practices and requires certain disclosures when an application
for credit is rejected)
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the Truth in Lending Act (TILA) (which, among other
things, requires extensive disclosure of the terms upon which
credit is granted), including the amendments to TILA that were
adopted through the enactment of the Fair Credit and Charge Card
Disclosure Act (which mandates certain disclosures on credit and
charge card applications)
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the Fair Credit Billing Act (which, among other things,
regulates the manner in which billing inquiries are handled and
specifies certain billing requirements)
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the Electronic Funds Transfer Act (which regulates disclosures
and settlement of transactions for electronic funds transfers
including those at ATMs)
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the CARD Act (which prohibits certain acts and practices in
connection with consumer credit card accounts)
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25
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The Consumer Financial Protection Act of 2010 (Title X of
DoddFrank) (which provides for the creation of the
Consumer Financial Protection Bureau, a new consumer financial
services regulator)
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Regulation Z (which was recently amended by the Federal
Reserve to extensively revise the open end consumer credit
disclosure requirements and to implement the requirements of the
CARD Act)
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federal and state laws and regulations that generally prohibit
engaging in unfair and deceptive business practices.
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Certain federal privacy-related laws and regulations govern the
collection and use of customer information by financial
institutions (see Corporate & Other
below). Federal legislation also regulates abusive debt
collection practices. In addition, a number of states, the
European Union, and many foreign countries in which we operate
have significant consumer credit protection and disclosure and
privacy-related laws (in certain cases more stringent than the
laws of the United States). Bankruptcy and debtor relief laws
affect us to the extent that such laws result in amounts owed
being classified as delinquent
and/or
charged off as uncollectible. As stated above, card issuers and
card networks are subject to certain provisions of the Bank
Secrecy Act as amended by the Patriot Act, with regard to
maintaining effective anti-money laundering programs. For a
discussion of these and other regulations and legislation that
impact our business, please see Supervision and
Regulation General within
Corporate & Other below.
American Express Company and its subsidiaries, including in
particular Centurion Bank, AEBFSB and our other bank entities,
are subject to a variety of laws and regulations applicable to
financial institutions. Changes in such laws and regulations or
in the regulatory application or judicial interpretation thereof
could impact the manner in which we conduct our business and the
costs of compliance. The regulatory environment in which our
Card and lending businesses operate has become increasingly
complex and robust, and following the financial crisis of 2008,
supervisory efforts to apply relevant laws, regulations and
policies have become more intense. The U.S. Congress and
regulators, as well as various consumer advocacy groups, have
continued to focus their attention on certain practices of
credit card issuers, such as unfair and deceptive business
practices, increases in annual percentage rates
(APRs), changes in the terms of the account, and the
types and levels of fees and financial charges charged by card
issuers for, among other things, late payments, returned checks,
payments by telephone, copies of statements and the like. In
August 2010, AEBFSB entered into a public, written supervisory
agreement with the OTS, its primary federal banking regulator,
requiring AEBFSB to make certain enhancements to its compliance
program and to complete certain corrective actions relating to
compliance. We regularly review and, as appropriate, refine our
business practices in light of existing and anticipated
developments in laws, regulations and industry trends so we can
continue to manage our business prudently and consistent with
regulatory requirements and expectations. For information about
the recently enacted CARD Act, please see Privacy, Fair
Credit Reporting within Supervision and
Regulatory General below beginning on
page 48.
In January 2003, the Federal Financial Institutions Examination
Council (the FFIEC), an interagency body composed of
the principal U.S. federal entities that regulate banks and
other financial institutions, issued new guidance to the
industry on credit card account management and loss allowance
practices (the Guidance). The Guidance covers five
areas: (i) credit line management; (ii) over-limit
practices; (iii) minimum payment and negative amortization
practices; (iv) workout and forbearance practices; and
(v) certain income (fee) recognition and loss allowance
practices. The Guidance is generally applicable to all
institutions under the supervision of the federal bank
regulatory agencies that comprise the FFIEC, although it is
primarily the result of the identification by bank regulators in
their examinations of other credit card lenders practices
deemed by them to be inappropriate, particularly, but not
exclusively, with regard to subprime lending programs. At
present, we do not have any lending programs that target the
subprime sector. Centurion Bank and AEBFSB evaluate and discuss
the Guidance with their respective regulators on an ongoing
basis as part of their regulatory examination processes, and, as
a result, may refine their practices from time to time based on
regulatory input. The Guidance has not had, nor do we expect it
to have, any material impact on our businesses or practices.
26
American
Express Consumer Travel Network USA
The American Express Consumer Travel Network USA
provides travel, financial and Cardmember services to consumers
through American Express-owned travel service offices, call
centers, participating American Express Representatives
(independently owned travel agency locations that operate under
the American Express brand) and the Consumer Travel Web site.
U.S. Consumer Travel has distinguished itself in the luxury
segment through its Platinum Travel Services and Centurion
Travel Services, which service the needs of our premium
Cardmembers and support the exclusive travel benefits that we
provide for them. These exclusive travel benefits include the
International Airline Program, which offers international first-
and or business-class companion tickets on one of 22 world class
airlines, and the Fine Hotels & Resorts program, which
is a luxury hotel program offering room upgrades and value-added
amenities.
During 2010, we also introduced new travel benefits for Platinum
and Centurion Cardmembers, an American Express mobile
application to keep travelers informed with flight alerts and an
airport lounge locator. Other premium programs developed by
Consumer Travel for
Centurion
®
Card and Platinum
Card
®
members include the Cruise Privileges Program, Destinations
Vacations Program and the Private Jet Services Program. Consumer
Travel also provides other value-added programs such as Gold
Card Destinations, a collection of travel benefits exclusively
for Gold Card members, and Destination
Family
®
,
a set of valuable benefits and offers across cruise, tour,
hotel, and car rental designed for American Express Card members
traveling with families. In addition, the Consumer Travel
business operates a wholesale travel business in the United
States through our Travel Impressions subsidiary. (A wholesaler
secures allotments, such as hotel rooms, from suppliers and then
offers the services to customers at retail prices that the
wholesaler determines.) Our wholesale travel business manages
and operates American
Express
®
Vacations, sold exclusively through the American Express
Consumer Travel Network in the United States and our Membership
Travel Services International Group internationally. Travel
Impressions also distributes travel packages through other
retail travel agents and private label brands for third parties
in the United States. Travel Impressions is consistently
recognized by its customers for outstanding services, including
being named
Travel Weeklys
Best Tour
Operator, Sales and Service, for six years in a row.
Our Consumer Travel Web site, americanexpress.com/travel, offers
a full range of travel rates and discounts on airfares, hotels,
car rentals, last-minute deals, cruises and full vacation
packages. The Web site offers unique American Express Cardmember
benefits such as an American Express Travel Office locator,
Travel Specialist finder tools, double Membership
Rewards
®
points, and travel planning resources and destination content.
In addition, Cardmembers are able to Pay With Points by
redeeming Membership Rewards points for some categories of
travel through our Web site, as well as through our call centers
and Travel Offices.
In January 2010, we launched americanexpressfhr.com, allowing
Platinum Cardmembers to book Fine Hotels & Resorts
online for the first time. The web site provides details on the
700+ hotels in the program, including hotel overviews, photos,
room type descriptions, dining and service information, and any
special offer details. This site offers our Cardmembers another
option for booking luxury travel with American Express. In 2010,
Consumer Travel launched a new ad campaign, Left
Behind, highlighting the unique benefits we offer our
cardmembers and what they miss out on when they dont book
travel through our Consumer Travel Network. In addition, our
lodging marketing initiatives focused on the lowest rate
guarantee for all hotel bookings made through Consumer
Travels online site.
American
Express Consumer Travel Network USA
Competition
Consumer Travel competes with a variety of different competitors
including traditional brick and mortar travel
agents, credit card issuers offering products with significant
travel benefits, online travel agents and travel suppliers that
distribute their products to consumers directly via the Internet
or telephone-based customer service centers. In recent years we
have experienced an increasing presence of niche
players that are seeking to capitalize on the growth in the
luxury travel segment by combining luxury travel offers with
concierge-type services.
27
INTERNATIONAL
CARD SERVICES
We issue our charge and credit Cards in numerous countries
around the globe. Our geographic scope is widespread and we
focus primarily on those countries that we believe offer us the
greatest financial opportunity. For a discussion of Cards issued
internationally through our GNS partner relationships, please
see the section Global Network Services above.
The Company continued to bolster its international proprietary
Card business through the launch of numerous new or enhanced
Card products during 2010. These are Cards that we issue, either
on our own or as co-brands with partnering institutions. As we
have renewed many of our co-brand and financial institution
deals, we have been focused on adding new products, new
channels, and increasingly, new markets to the agreements. This
past year, among other new proprietary products, we announced or
launched several new co-branded products in the International
Consumer Business, including: a new Platinum co-brand card in
partnership with Air New Zealand, New Zealands national
air carrier; a co-brand Card program with Sol Melia, a luxury
hotel and resort chain based in Spain; and the new Starwood
Preferred Guest credit card from American Express in the United
Kingdom and Canada, offering cardmembers and Starwood Preferred
Guests program loyalists the opportunity to earn Starpoints on
virtually all of their card spending. We offer many of the same
programs and services in our international proprietary
Card-issuing business as we do in our U.S. proprietary
issuing business. For example, as in the United States, we offer
various flexible payment options similar to our Sign &
Travel
®
program and our Extended Payment Option to Cardmembers in
several countries outside the U.S. Also, as in the United
States, we issue Cards internationally under distribution
agreements with financial services institutions. Another example
of our distribution partnerships is affinity cards with
fraternal, professional, educational and other organizations.
For instance, we have been successful in penetrating the
affinity card segment in Australia, where we issue Cards with
the majority of the largest professional associations in that
country. In Australia, affinity cards are a substantial part of
our total revolving portfolio and contribute to our proprietary
consumer lending activities.
As in the United States, the Membership Rewards programs are a
strong driver of Cardmember spending in the international
consumer business. We have more than 1,500 redemption partners
across our international business, with an average of
approximately 84 partners in each country; approximately 30% of
these partners are in the travel industry. Cardmembers can
redeem their points with more than 40 airlines and over 175
hotels. Our redemption options include travel, retail
merchandise, entertainment, shopping and recreation gift
certificates, experiences, financial services and charity
rewards. In 2010, we continued to enhance our rewards programs
in several countries, offering more flexible choices that enable
Cardmembers to redeem Membership Rewards points more quickly.
We continue to build on the Companys strengths and look
for further opportunities to increase our presence
internationally. In December 2010, we announced that we entered
into an agreement to acquire Loyalty Partner, a leading
marketing services company known for the loyalty programs it
operates in Germany, Poland and India. Loyalty Partner also
provides analytics, operating platforms and consulting services
that help merchants grow their businesses. The acquisition will
deepen our merchant relationships in select countries, add more
than 34 million consumers to the companys
international customer base and expand its range of rewards and
loyalty marketing services. The acquisition is part of the
Companys drive to build and diversify its fee service
revenues and expand its international presence. The purchase,
which has received regulatory approval, is expected to close in
the first quarter of 2011. The transaction, which values the
company at $660 million (subject to currency movement and
other adjustments), consists of an upfront cash purchase price
of $566 million and an additional $94 million equity
interest that the Company will acquire over the next five years
at a value based on business performance.
Membership Travel Services International provides premium travel
and concierge services to our Platinum and Centurion Customers,
through 24 exclusively dedicated call centers in 23
international countries. Additionally, Membership Travel
Services operates 16 proprietary Travel Service Offices in
Mexico, Italy and Argentina to provide all Cardmembers with
travel and general card service assistance. We also provide to
our cardmembers certain foreign exchange, travelers cheque
services and other cardmember-related services in Travel Service
Offices in Mexico, Argentina and Italy. We have taken steps to
enhance our capabilities to sell
28
exclusively negotiated benefits and luxury travel packages with
preferred suppliers through the Fine Hotels & Resorts
Program, American Express Vacations and American Express
International Airline Program. Our International Airline
Program, which is exclusively available to Platinum Card and
Centurion Cardmembers, allows these Cardmembers to receive
complimentary companion tickets or a class upgrade when flying
on qualifying international flights in business or first class.
We expanded the flexibility of payment for travel and concierge
services by allowing International Consumer Cardmembers to use
their Membership Rewards points to pay for their travel
purchases in 15 countries outside the U.S.
International
Proprietary Consumer Card Competition
Compared to the United States, consumers outside the United
States use general-purpose charge and credit cards for a smaller
percentage of their total payments, with some large emerging
market countries just beginning to transition to card usage in
any meaningful way. Although our geographic scope is widespread,
we generally do not have significant share in the countries in
which we operate internationally. Our proprietary Card-issuing
business is subject to competition from multinational banks,
such as Citibank, HSBC and Banco Santander, as well as many
local banks and financial institutions. Globally, we view
Citibank and Banco Santander as our strongest competitors, as
they currently offer card products in a large number of
countries.
International
Proprietary Consumer Card Regulation
As discussed elsewhere in this
Form 10-K,
regulators in 2010 continued to propose and enact a variety of
regulatory changes to the payments landscape in many of our key
countries. We expect this activity to continue in 2011.
Regulators continue to consider developments in the United
States and other jurisdictions to help inform their policy.
While the nature of the proposals varies, regulators in a number
of countries have been focused on pricing, disclosure,
responsible lending and other card practices and we expect this
to continue in 2011. For example, in the United Kingdom the
government adopted a new policy by way of a white
paper setting out several requirements around card
practices. In the European Economic Area, member states have
implemented or are in the process of implementing European
Directive 2008/48/EC on credit agreements for consumers
(commonly referred to as the Consumer Credit Directive), which
in some countries will have impacts on charge cards in addition
to credit cards. Member states have also implemented the Payment
Services Directive, which regulates the conduct of business of
payment service providers, including card issuers.
As a consequence, these and perhaps other regulators may
consider and implement additional card practice regulation in
2011. We continue to evaluate our business planning in light of
changing market circumstances and the evolving political,
economic, regulatory and media environment.
GLOBAL
COMMERCIAL SERVICES
In our Global Commercial Services (GCS) segment, we
provide expense management services to companies and
organizations worldwide through Global Commercial Card and
Global Business Travel Services. American Express is a leading
global issuer of commercial cards and is also a leading global
travel management company for businesses. During 2010, we added
or retained several major Commercial Card clients in the United
States and internationally, including Eaton, GlaxoSmithKline,
Pfizer, Eastman Kodak, PPG, Xerox, Oracle, and McDonalds.
Additionally, in 2010, we added or retained several American
Express Business Travel clients in the United States and
internationally, including: HCSC (Health Care Services); AXA
Canada LTD.; University of Nottingham; FIS; Automatic Data
Processing Inc.; Motorola Mobility; and Symantec Corporation.
29
GCS offers a wide range of expense management products and
services to companies worldwide, including:
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A comprehensive offering of Corporate Card Programs, such as:
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Corporate Cards: issued to individuals through a corporate
account established by their employer and which many business
customers use to manage travel and entertainment
(T&E) spending
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Corporate Meeting Cards: provided primarily to corporate meeting
planners as a tool to help companies control their meeting and
event expenses
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Business Travel Accounts (BTA): centrally billed to
and paid directly by corporate clients, BTAs can be used by
companies to pay for their employees travel expenses
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A suite of
Business-to-Business
(or B2B) Payment Solutions, including:
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Corporate Purchasing Card: an account established by companies
to pay for everyday and large-ticket business expenses such as
office and computer supplies
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vPayment: provides fast and efficient payment for
business-related purchases and permits the processing of
transactions with effective fraud controls
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Buyer Initiated Payments: an electronic solution for companies
looking to automate their payment processes.
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American Express Global Business Travel, which helps businesses
manage and optimize their travel expenses through a variety of
travel-related products, services and solutions.
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Global
Commercial Card
Global Commercial Card (GCC) offers a range of
expense management solutions to companies worldwide through our
Corporate Card Programs and our
Business-to-Business
Payment Solutions.
Corporate
Card Programs
The American
Express
®
Corporate Card is a charge card that individuals may obtain
through a corporate account established by their employer for
business purposes. Through our Corporate Card Program, companies
can manage their T&E spending and everyday business
expenses and improve negotiating leverage with suppliers, among
other benefits. We use our direct relationships with merchants
to offer Corporate Card clients superior data about company
spending, as well as streamlined dispute resolution. We issue
local currency Corporate Cards in 44 countries and international
dollar/euro Corporate Cards in 108 countries. We also offer
Corporate Cards issued through our GNS partner relationships in
an additional 30 countries. In 2010, we introduced international
dollar/euro Corporate Cards in an additional 24 countries and
launched a ruble-based Business Travel Account to Russian
customers, the first product of its kind in Russian currency.
With the heightened focus on cost containment, many companies
increasingly are interested in our Corporate Meeting Card
program, which helps businesses control meeting-related
expenses. It allows clients to capture meeting spending,
simplify the payment process, and gain access to data to support
negotiations with suppliers.
American Express also partners with many other companies around
the world to offer a number of co-brand Corporate Cards in
various countries. These products, typically suited for
mid-sized companies, provide savings on everyday business
spending
and/or
air
travel. To date, American Express has 15 Corporate Card co-brand
partnerships worldwide. In 2010, we added the American
Express
®
Cathay Pacific Corporate Card, the first co-branded airline
corporate card in Hong Kong. We also continued to enhance our
existing co-brand portfolios through the launch of the American
Express
®
/ Business
ExtrAA
®
Corporate Platinum Card in the United States in 2010.
30
Business-to-Business
Payment Solutions
We also offer a series of
Business-to-Business
Payment Solutions to help companies manage B2B spending. This
type of spending by companies helps to diversify our spend mix.
These solutions provide a variety of benefits to companies,
including cost savings, process efficiency, improved cash flow
and increased visibility, and control and security over business
expenses. The Corporate Purchasing Card helps large corporations
and mid-sized companies manage their everyday spending. It is
used to pay for everyday goods and business expenses, such as
office supplies, industrial supplies and business equipment in
27 countries around the world.
vPayment, which offers companies single-use virtual account
numbers, allows GCC customers to make payments with enhanced
controls, data capture and reconciliation capabilities. Charges
are authorized for a specified amount during a specified amount
of time. The solution automates reconciliation, eliminates
manual check requests, interfaces easily with a customers
enterprise resource planning (ERP), procurement and accounts
payable systems, and can be used at one or more stages of the
procurement-to-payables
process.
Buyer Initiated Payments allows American Express to pay B2B
suppliers electronically on behalf of our clients, permitting
them to manage payments, extend their own days payable
outstanding (or float), and increase their cash on
hand. Buyer Initiated Payments is currently available to
companies in the United States and will be offered to companies
in Canada in 2011. This solution is best suited for mid- to
large-sized companies that want to transition rapidly to
electronic payments, reduce supplier inquiries, convert from
paper to electronic payments, and optimize cash flow. In 2010,
American Express and SAP AG announced an effort to develop an
integrated corporate payments solution for joint GCC and SAP
customers in the United States. The solution will integrate
SAPs software solutions into American Express Buyer
Initiated Payments platform to enable
plug-and-play
functionality when integrating Buyer Initiated Payments into the
clients Enterprise Resource Planning system, thereby
reducing the roadblocks that often delay or deter companies from
adopting electronic payments.
Mid-sized
Companies
In addition to providing Corporate Card Programs and our
Business-to-Business
Payment Solutions to large and global organizations, GCC markets
its products and services to mid-sized companies (defined in the
United States as firms with annual revenues of $10 million
to $1 billion worldwide). GCC is focused on continuing to
expand its business with mid-sized companies, which represent
significant growth opportunities. Businesses of this size often
do not have a corporate card program. However, once enrolled,
mid-sized companies typically put a significant portion of their
business spending on the Corporate Card because they can gain
control, savings and employee benefits.
In 2010, together with our partner, Concur Technologies Inc., we
launched Concur Breeze in the United States, a cost-effective
and
easy-to-manage
online expense reporting service for mid-sized clients that
automates and streamlines the submission, review, approval and
departmental allocation of all business expenses. We also
launched similar versions of this product targeted to mid-sized
clients in the United Kingdom, Netherlands, Germany and
Australia in 2010.
GCC offers the Savings at
Work
®
Program to mid-sized companies in the United States, as well as
similar programs globally, which provides companies with cash
back
and/or
discounted pricing on everyday business products and services,
such as car rentals, hotels, restaurants and courier services.
Corporate Cardmembers can also take advantage of our Membership
Rewards program to earn points that can be redeemed for air
travel and hotel stays, as well as retail, home, and recreation
items. Membership Rewards is a powerful tool for encouraging
Corporate Card usage, leading to greater control and savings.
Online
Capabilities
GCC offers companies and individual cardmembers the ability to
manage their Corporate Card Programs on a 24/7 basis through a
suite of secure web-based online tools. American Express @
Work
®
provides clients authorized users online access to global
management information to help them gain visibility into their
31
spending patterns, as well as the ability to make changes to
their Corporate Card, Corporate Purchasing Card, Business Travel
Account (BTA) and Corporate Meeting Card accounts.
Cardmembers can use the online Manage Your Card Account (MYCA)
tool to manage their individual Card account.
Global
Commercial CardCompetition
The commercial payments sector is dynamic and highly
competitive, with competition increasingly intense at both the
card network and card issuer levels. At the network level, we
have experienced increasing competition including intense price
competition, aggressive expansion into new and emerging
segments, efforts to transition
business-to-business
spend from cash and check to cards and electronic invoicing and
payment vehicles, and expanding marketing and advertising
budgets for commercial services. Both Visa and MasterCard
continue to support card issuers such as U.S. Bank,
JPMorgan Chase, and Citibank to build and support data
collection and reporting necessary to satisfy customer
requirements. Moreover, in the current economic environment, the
interest in expense management tools is particularly strong, as
clients aim to capture data, analyze trends and make decisions
that enhance their cash flow and profitability. Commercial card
issuers have increasingly acquired technology offerings to
enhance data capture capabilities and reporting functionality.
In addition, many issuers attempt to leverage their banking
relationships and capabilities to secure and retain card
business. Global servicing, data quality, technological
functionality and simplicity, customer experience, and price and
other financial terms are among the key competitive factors in
the commercial card business.
Global
Commercial CardRegulation
The Global Commercial Card business, which engages in the
extension of commercial credit, is subject to more limited
regulation than our consumer lending business. In the United
States, we are subject to certain of the federal and state laws
applicable to our consumer lending business, including the Equal
Credit Opportunity Act, the FCRA (as amended by the FACT Act),
as well laws that generally prohibit engaging in unfair and
deceptive business practices. (For a discussion of the FACT Act,
see Card-Issuing Business Regulation.)
We are also subject to certain state laws that regulate fees and
charges on our products. Additionally, as a global business, we
are subject to U.S. state data security and breach
notification laws and regulations, as well as significant data
protection laws in the European Union and many foreign countries
in which we operate. We are also subject to bankruptcy and
debtor relief laws that can affect our ability to collect
amounts owed to us. As discussed above, along with the rest of
our business, we are subject to certain provisions of the Bank
Secrecy Act as amended by the Patriot Act, with regard to
maintaining effective anti-money laundering programs. (For a
discussion of this legislation and its effect on our business,
see Supervision and RegulationGeneral within
Corporate & Other below.) In some
countries, regulation of card practices and consumer protection
legislation may apply to some commercial card relationships.
Global
Business Travel
American Express Global Business Travel (Global Business
Travel) provides globally integrated solutions, both
online and offline, to help organizations manage and optimize
their travel investments and service their traveling employees.
With clients ranging from small businesses to multinational
corporations, these solutions include travel reservation advice
and transaction processing through a global network that is
available 24 hours per day; travel expense management
policy consultation; meeting management, supplier negotiation
and consultation; advisory services, management information
reporting, data analysis and benchmarking; and group and
incentive travel services.
In 2010, we launched several new programs to support our
corporate clients. These included the launch of
aXcentis
sm
in key countries globally, which focuses on delivering
localized, flexible and comprehensive travel management programs
to small and mid-sized companies with up to $10 million in
annual travel spending; the entry into a new strategic alliance
with Concur Technologies Inc., which allows us to offer global
clients a comprehensive,
end-to-end
corporate travel and expense management program, expanding on
GCCs pre-existing partnership with Concur; and the launch
of an online, interactive travel management scorecard to measure
travel program effectiveness. We continue to evaluate our
economic model and invest in new products, services and
technologies to enhance the value that we deliver to our
customers and address
32
ongoing travel industry challenges and opportunities. For
example, we have substantially reduced our reliance on
commission revenues from suppliers (such as airlines or hotels),
and now generate revenues primarily from customers who pay for
the services that we provide.
These services include solutions designed to provide our clients
with savings, control, services and traveler care. For example,
we offer customers savings and benefits through the Preferred
Extra
sm
supplier value programs and advisory services, which provide
preferred supplier rates and consulting solutions in all areas
of T&E expense management. We also provide comprehensive
travel expenses insights through global data with our
aXis@work
®
solution, which provides real time global data through a single
on-line interface, enabling clients to gain real time visibility
into their spending patterns and make real time adjustments to
their programs and policies for maximum bottom line benefit.
In 2010, we further developed our comprehensive cost-saving
travel management offerings, including products such as
mobileXtend, a mobile travel solution that provides travelers
with various support services. Global Business Travel has moved
many of its business processes and customer servicing online. In
the United States, approximately 57.5% of all Global Business
Travel transactions continue to be processed online. In
addition, the volume of online transactions is growing in other
countries around the world.
Global
Business Travel Competition
Global Business Travel continues to face intense competition in
the United States and internationally from numerous traditional
and online travel management companies, as well as from direct
sales by airlines and other travel suppliers. Competition among
travel management companies is mainly based on price, service,
value creation, convenience, global capabilities and proximity
to the customer. Competition also comes from corporate customers
themselves, as some companies have become accredited as in-house
corporate travel agents. New entrants could also represent
additional competition along the end to end travel value chain,
which could impact competition in the medium to long term.
For many years, travel management companies have faced pressure
on revenues from airlines, as most carriers have stopped paying
base commissions to travel agents for tickets sold
and significantly reduced other forms of travel agent
compensation. Carriers have also increased the number of
transactions they book directly through their Web sites and
other means. These trends have reduced the revenue opportunities
for travel management companies because they do not receive
distribution revenue from directly booked transactions. In
recent years, the airline industry has undergone bankruptcies,
restructurings, consolidations and other similar events
including expanded grants of antitrust immunity to airline
alliances. This immunity enables airlines to closely coordinate
their international operations and to launch highly integrated
joint ventures in transatlantic and other markets. These types
of structural changes may result in additional challenges to
travel management companies. For additional information
concerning these issues, please see Risk
Factors
We have agreements with business partners
in a variety of industries, including the airline industry, that
represent a significant portion of our business
on
page 87 below.
Overall, intense competition among travel management companies,
the ongoing trends of increasing direct sales by airlines, the
rise of low-cost carriers and ongoing reductions in or
elimination of airline commissions and fees, continue to put
pressure on revenue and profitability for travel agents.
Over the last few years we have evolved our business model to
permit us to charge customers for the services we provide and
the value we create, and restructured our expense base through
the rationalization of our call center locations and the
transitioning of many of our services online. We continue to
look for new ways to enhance the value we deliver for our
customers both online and offline. Additionally, we are focusing
on developing new and innovative products, services and
technologies, which enhance the value we deliver to our
customers and suppliers and address ongoing travel industry
challenges and opportunities.
Global
Business Travel Regulation
The Global Business Travel business is subject to domestic and
international laws applicable to the provision of travel
services, including licensure requirements, as well as laws and
regulations regarding
33
passenger screening and registration such as the Secure Flight
Rule issued by the U.S. Transportation Security
Administration. Additionally, we are subject to U.S. state
data security and breach notification laws and regulations, as
well as significant data protection laws in the European Union
and many foreign countries in which we operate. We are also
subject to bankruptcy and debtor relief laws that can affect our
ability to collect amounts owed to us.
CORPORATE &
OTHER
Corporate & Other consists of corporate functions and
auxiliary businesses, including the Companys Enterprise
Growth Group, the Companys publishing business, as well as
other company operations. We also discuss information relevant
to the Company as a whole in this section.
Enterprise
Growth Group
The Enterprise Growth Group was established to create a digital
services platform for the company, to expand alternative mobile
and online payment services, form new partnerships and build new
revenue streams beyond the traditional card and travel
businesses. The Enterprise Growth Group will leverage the assets
and capabilities that exist today and build or acquire the
talent, businesses and platforms required to deliver new forms
of growth in the digital world. The Group consists of four core
business units: Online and Mobile Payments, Emerging Markets,
Fee Based Services and Global Payment Options (formerly known as
Global Prepaid).
The Enterprise Growth Group also includes Serve Virtual
Enterprises, Inc. or Serve (formerly known as
Revolution Money). Since acquiring Serve about a year ago, we
have been working to transition it from a separate business unit
into an enterprise wide platform to support future digital
initiatives. In early 2011, we plan to launch this next
generation payment platform, rebranded and retooled, as a first
step toward delivering more alternative payment options,
including
peer-to-peer
payments, mobile capabilities, prepaid products, virtual
currencies and international remittances.
Online
and Mobile Payments
The Online and Mobile business unit is responsible for
developing new online and mobile payment capabilities that can
expand the role we play in the digital world. The team is
focused on working with the right partners to roll out easy to
use digital payment solutions for consumers, businesses and
sellers.
Emerging
Markets
The Emerging Markets team is responsible for expanding our
presence in countries like India and China by embracing new
online and mobile payment technologies and introducing payment
forms, such as prepaid, that fall outside of our core charge and
credit cards. This business unit is focused on growing our
businesses organically, as well as identifying acquisition
targets and strategic partnerships that can significantly
increase international revenues.
Fee Based
Services
The Fee Based Services team within the Enterprise Growth Group,
as well as our existing businesses, is tasked with identifying
ways to capitalize on the existing assets of American Express by
creating business models that can generate new, non-payment
revenue streams. The Fee Based Services team is responsible for
supporting our LoyaltyEdge offering, a new business line that
assists partners, like Delta Airlines, with developing,
operating, and improving their own loyalty programs.
Global
Payment Options (formerly known as Global Prepaid)
Global Payment Options (GPO) offers a wide range of
prepaid products across the globe, including the American
Express
®
Gift Card, available in over 100,000 locations in the
U.S. and Canada. Sales of gift cards
34
continued to rise in 2010, reflecting the growing popularity of
these products and our efforts to increase buying convenience
for customers.
GPO also offers a variety of incentive prepaid cards, such as
prepaid rebate and reward card products, as well as prepaid
reloadable cards. In May, we launched PASS from American
Express
®
,
a prepaid reloadable card, which is sold and marketed to parents
as a payment tool for teens and young adults that is an
alternative to cash, credit or debit cards. In addition we
launched a prepaid travel card in Australia in August and Brazil
in December.
In addition, we have been in the business of issuing and selling
travelers cheques since 1891. We sell the American
Express
®
Travelers Cheque (Travelers Cheque or
Cheque) as a safe and convenient alternative to
cash. Travelers Cheques are currently available in
U.S. dollars and four foreign currencies, including Euros.
We also issue and sell other forms of paper travelers cheques,
including American
Express
®
Gift Cheques (Gift Cheques), which are available in
U.S. and Canadian dollars. Sales of Travelers Cheques
continued to decline in 2010.
During 2010 we formed a strategic partnership with the Bank of
China to launch the American Express Chinese Yuan Travelers
Cheques, the worlds first Yuan prepaid travel product and
available for international travelers visiting China from
certain key countries around the world.
We sell American Express prepaid products through a variety of
channels, including sales directly to customers via phone and
the Internet. Travelers Cheques and Gift Cheques are sold
primarily through a broad network of selling outlets worldwide,
including American Express travel offices, limited independent
agents and third-party financial institutions. Gift cards are
available at americanexpress.com, in most malls and retail
locations and in many bank branches.
The Global Foreign Exchange Services division (GFES)
of GPO consists of retail and wholesale foreign exchange
services and FX International Payments (FXIP). Other
than in Australia and Singapore, where we operate foreign
exchange offices in city locations and through selected partner
locations, we concentrate our retail foreign exchange business
in key international airports, for example at London Heathrow in
the United Kingdom, Barajas Madrid in Spain and Changi Airport
in Singapore. For corporate clients, our FXIP online product
allows companies and financial institutions to make cross-border
payments in major foreign currencies at competitive exchange
rates.
For fiscal periods ended on or prior to December 31, 2010,
the results of operations of GFES were included within the GCS
reportable operating segment. Effective January 1, 2011,
the results of operations of GFES will be reported as part of
GPO within the Corporate & Other Segment. This
organizational change is part of the Companys strategy to
accelerate the growth of foreign-exchange related activities in
new payment areas.
Global
Payment Options Competition
Our products compete with a wide variety of financial payment
products including cash, foreign currency, checks, other brands
of travelers cheques, debit, prepaid and ATM cards, store
branded gift cards, other network branded cards and other
payment cards.
The principal competitive factors affecting the prepaid sector
are:
|
|
|
|
|
the number and location of merchants willing to accept the form
of payment
|
|
|
|
the availability to the consumer of other forms of payment
|
|
|
|
the amount of fees charged to the consumer
|
|
|
|
the compensation paid to, and frequency of settlement by,
selling outlets
|
|
|
|
the accessibility of sales and refunds for the products
|
|
|
|
the success of marketing and promotional campaigns
|
|
|
|
the ability to service the customer satisfactorily, including
for lost or stolen instruments.
|
35
Global
Payment Options Regulation
As an issuer of travelers cheques and prepaid cards and a
provider of foreign exchange services, we are regulated in the
United States under the money transmitter or
sale of check laws in effect in most states. These
laws require travelers cheque (and, where applicable, prepaid
card) issuers, as well as providers of foreign exchange
services, to obtain licenses, to meet certain safety and
soundness criteria, to hold outstanding proceeds of sale in
highly rated and secure investments, and to provide detailed
reports. We invest the proceeds from sales of our Travelers
Cheques and prepaid cards in accordance with applicable law,
predominantly in highly rated debt securities consisting
primarily of intermediate- and long-term federal, state and
municipal obligations. Many states examine licensees annually.
In addition, federal anti-money laundering regulations require,
among other things, the registration of traveler cheque issuers
and the providers of foreign exchange services as Money
Service Businesses and compliance with applicable
anti-money laundering recordkeeping and reporting requirements.
Outside the United States, there are varying licensing and
anti-money laundering requirements, including some that are
similar to those in the United States.
Travelers cheque issuers are required by the laws of many states
to comply with state unclaimed and abandoned property laws under
which such issuers must pay to states the face amount of any
travelers cheque that is uncashed or unredeemed after a period
of time, usually 15 years. The abandoned property laws of
numerous states also apply to prepaid cards in a variety of ways.
In May 2009, the CARD Act amended provisions of the Electronic
Funds Transfer Act to impose new restrictions on the terms of
gift cards and certain other prepaid cards, including
restrictions on the fees that may be charged, expiration dates,
and consumer disclosures. The Federal Reserve issued final
regulations to implement the CARD Act gift card provisions that
became effective in August 2010. Congress thereafter passed
legislation that extended the August 2010 effective date of the
CARD Act gift card provisions to January 2011 for gift cards
produced prior to April 1, 2010, provided certain
conditions are met. We continue to monitor state legislative
activity restricting the terms of gift cards. In certain states
where regulation continues to restrict fees and has made it
unprofitable for us to offer gift cards, we have limited or
withdrawn from selling these cards.
In June 2010, the Financial Crimes Enforcement Network, an
enforcement agency of the U.S. Department of the Treasury,
issued a notice of proposed rule making that proposes a
number of changes to its regulation of the prepaid industry. In
general, the proposed rule redefines the term stored
value more broadly and renames this group of products
prepaid access. The three traditional categories of
stored value participants, issuers, sellers and redeemers
of stored value, are now consolidated into two groups,
providers and sellers of prepaid access. With
limited exceptions, the proposed rule imposes suspicious
activity reporting, customer identification, and record keeping
requirements on the two newly defined groups, which could mean
non-bank program managers and retailers would have to develop
and maintain AML programs that were not previously required. The
public comment period for the proposed rule closed on
August 27, 2010. We are awaiting issuance of the final rule
and will analyze its impact on our current products once the
final rule is issued.
Please see
Global Network & Merchant
Services Regulation
on page 14 for a
discussion of the Federal Reserves proposed rules under
Dodd-Frank to establish, among other things, interchange fee
limitation rules for debit or prepaid gift card transactions,
and to prohibit exclusive network routing restrictions for
electronic debit transactions (which applies to all prepaid
cards).
American
Express Publishing
Through American Express Publishing, we publish: luxury
lifestyle magazines such as Travel +
Leisure
®
,
Food &
Wine
®
,
Departures
®
and Black
Ink
®
;
travel resources such as
SkyGuide
®
;
business resources such as the American Express Appointment Book
and SkyGuide Executive Travel, a business traveler supplement; a
variety of general interest, cooking, travel, wine, cocktail,
financial and time management books; branded membership
services; a growing roster of international and electronic
editions of our magazines, and branded mobile applications; as
well as directly sold and licensed products. American Express
Publishing also has a
36
custom publishing group and is expanding its service-driven Web
sites and applications for mobile devices such as:
travelandleisure.com, foodandwine.com, departures.com,
tlgolf.com, tlfamily.com and eskyguide.com. We have an agreement
with Time Inc. under which it manages our publishing business,
and we share profits relating to this business.
The
Global Services Group
The Global Services Group (Global Services) was
created to heighten the companys focus on customer service
and to ensure all business operations are managed as effectively
and efficiently as possible. We have organized support functions
by process rather than business unit, which the Company expects
will streamline costs, reduce duplication of work, better
integrate skills and expertise, and improve customer service.
Global Services is comprised principally of the following
divisions:
World
Service
Our U.S. and international service organizations have been
consolidated under World Service. Our customer service units
have worked over a number of years to ensure outstanding service
to customers, while at the same time improving operating
margins. As mentioned earlier in this Report, J.D. Power
and Associates released its annual nationwide credit card
satisfaction study and ranked American Express highest in
overall satisfaction among 10 of the largest card issuers in the
United States for the fourth consecutive year.
Global
Business Services
The Global Business Services division is principally comprised
of procurement, real estate, human resources processing and
financial processing. These internal process-driven activities
have been consolidated to simplify and standardize processes for
increased quality, efficiency and cost savings.
Global
Credit Administration
Global Credit Administration (GCA) is responsible
for the
end-to-end
management of our credit, collections, and fraud operations
around the world. GCA aims to strike the right balance between
helping Cardmembers in need through a range of workout programs,
and taking actions to prevent spending that will not be paid
back to American Express.
Technologies
We continue to make significant investments, both in the United
States and internationally, in our Card systems and
infrastructure to allow faster introduction and greater
customization of products. We also are using technology to
develop and improve our service capabilities to continue to
deliver a high quality customer experience. For example, we
maintain a service delivery platform that our employees use in
the Card business to support a variety of customer servicing and
account management activities such as account maintenance,
updating of Cardmember information, the addition of new Cards to
an account and resolving customer satisfaction issues. In
international markets, we are enhancing our global platforms and
capabilities, such as in revolving credit.
We continue to leverage the Internet to lower costs, improve
service quality and enhance our business model. During 2010, we
continued to broaden our focus to use the Internet to drive
revenue and build our brand, while continuing to migrate
transaction volumes at lower costs. We also continue to have
more online customer service interactions in the United States
than we do by telephone or in person.
As of year-end, customers had enrolled approximately
30 million Cards globally in our online account management
capability known as the Manage Your Card Account
service. This service enables Cardmembers to review all of their
card transactions online, pay their American Express bills
electronically, view and service their Membership Rewards
program accounts and conduct various other functions quickly and
securely online. We now have an online presence in 24 countries
around the world, including the United Kingdom, Australia,
Italy, France, Mexico and Japan. We continue to devote
substantial resources to our technology
37
platform to ensure the highest level of data integrity, security
and privacy. We are one of the founders of PCI SSC, an
independent standards-setting organization that manages the
evolution of technical data security standards. We also are an
owner-member of EMVCo, the standards body that manages,
maintains, and enhances specifications for chip-based payment
cards and acceptance devices, including
point-of-sale
terminals. (For a discussion of these organizations, see the
Global Merchant Services section above.)
We have outsourced most of our technology infrastructure
management and application development and maintenance to third
party service providers to enable us to benefit from their
expertise while lowering our information technology costs per
transaction. However, our internal IT organization continues to
retain the Companys key technology competencies, including
information technology strategy, information security, managing
strategic relationships with technologies partners, data
center operations, technology architecture and engineering,
oversight of application and database development and
maintenance, and managing the technology portfolios of our
businesses.
Supervision
and Regulation General
Overview
Federal and state banking laws, regulations and policies
extensively regulate the Company, TRS, Centurion Bank and
AEBFSB, including prescribing standards relating to capital,
earnings, liquidity, dividends, the repurchase or redemption of
shares, loans or extension of credit to affiliates and insiders,
internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, asset growth and
impaired assets, among other things. Such laws and regulations
are intended primarily for the protection of depositors, other
customers and the federal deposit insurance funds, as well as to
minimize systemic risk, and not for the protection of our
shareholders or creditors. Following the financial crisis of
2008, supervisory efforts to apply these laws, regulations and
policies have become more intense.
American Express Company and TRS are bank holding companies
under the Bank Holding Company Act of 1956 (BHC Act)
and have elected to be treated as financial holding companies
under the BHC Act. As a bank holding company under the BHC Act,
the Company is subject to supervision and examination by the
Federal Reserve. Under the system of functional
regulation established under the BHC Act, the Federal
Reserve supervises the Company, including all of its non-bank
subsidiaries, as an umbrella regulator of the
consolidated organization and generally defers to the primary
U.S. regulators of the Companys U.S. depository
institution subsidiaries, as applicable. Bank regulatory
agencies have broad examination and enforcement power over bank
holding companies and their subsidiaries, including the power to
impose substantial fines, limit dividends, restrict operations
and acquisitions and require divestitures. Bank holding
companies and banks, as well as subsidiaries of both, are
prohibited by law from engaging in practices that the relevant
regulatory authority deems unsafe or unsound.
Many aspects of our business are also subject to rigorous
regulation by other U.S. federal and state regulatory
agencies and securities exchanges and by
non-U.S. government
agencies or regulatory bodies and securities exchanges. Certain
of our public disclosure, internal control environment and
corporate governance principles are subject to the
Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) and
related regulations and rules of the SEC and the New York Stock
Exchange, Inc. As a global financial institution, to the extent
that different regulatory systems impose overlapping or
inconsistent requirements on the conduct of our business, we
face complexity and additional costs in our compliance efforts.
The
Dodd-Frank Wall Street Reform and Consumer Protection
Act
Dodd-Frank, which was enacted in July 2010, significantly
restructures the financial regulatory regime in the United
States, including through the creation of a new systemic risk
oversight body, the Financial Stability Oversight Council
(FSOC). The FSOC will oversee and coordinate the
efforts of the primary U.S. financial regulatory agencies
(including the Federal Reserve, the SEC, the U.S. Commodity
Futures Trading Commission, the OCC and the FDIC) in
establishing regulations to address financial stability
concerns. Dodd-Frank directs the FSOC to make recommendations to
the Federal Reserve as to supervisory requirements and
prudential standards applicable to bank holding companies with
$50 billion or more in total consolidated
38
assets, which includes the Company, and other systemically
important financial institutions. The standards include capital,
leverage, liquidity and risk-management requirements. Dodd-Frank
mandates that the requirements applicable to systemically
important financial institutions be more stringent than those
applicable to other financial companies.
In addition to the framework for systemic risk oversight
implemented through the FSOC, Dodd-Frank broadly affects the
financial services industry in numerous respects, including by
creating a resolution authority, by requiring banks to pay
increased fees to regulatory agencies, by requiring all publicly
traded bank holding companies that have assets of at least
$10 billion to establish a risk committee (including
independent directors) responsible for enterprise-wide risk
management oversight and practices, and through numerous other
provisions aimed at strengthening the sound operation of the
financial services sector. Moreover, Title X of Dodd-Frank,
known as the Consumer Financial Protection Act of 2010 (the
CFPA), provides for the creation of the Consumer
Financial Protection Bureau, a new consumer financial services
regulator, discussed below under Consumer Financial
Protection Act of 2010. New laws or regulations or changes
to existing laws and regulations (including changes in
interpretation or enforcement) could materially adversely affect
our financial condition or results of operations. As discussed
further throughout this section, many aspects of Dodd-Frank are
subject to further rulemaking and will take effect over several
years, making it difficult to anticipate the overall financial
impact on the Company or across the industry. In addition to the
discussion in this section, please see Risk
Factors
The Dodd-Frank Wall Street Reform and
Consumer Protection Act may have a significant adverse impact on
our business, results of operations and financial
condition
on pages 77-78 and Risk
Factors
Banks, card issuers and card network
operators generally are the subject of increasing global
regulatory focus, which may impose costly new compliance burdens
on our Company and lead to decreased transaction volumes and
revenues through our network
on pages 80-82 for a
further discussion of some of the potential impact legislative
and regulatory changes may have on our results of operations and
financial condition.
Consumer
Financial Protection Act of 2010
As mentioned above, the CFPA provides for the creation of the
Consumer Financial Protection Bureau (the Bureau), a
new consumer financial services regulator. As of July 21,
2011, but subject to a possible six-month extension, our
marketing and sale of consumer financial products and our
compliance with certain federal consumer financial laws,
including the CFPA and the Truth in Lending Act, will be
supervised and examined by the Bureau. On that date, the Bureau
will assume responsibility from our current banking regulators
for supervision and examination of Centurion Bank, AEBFSB, and
their affiliates, including the Company, with respect to such
federal consumer financial laws. The Bureau will have authority
to take enforcement actions against us for violation of those
laws and also will have exclusive rulemaking authority for such
federal consumer financial laws. In the interim, the federal
banking agencies have been vigorously enforcing consumer
protection laws.
The Bureau also will be directed to prohibit unfair,
deceptive or abusive acts and practices and to ensure that
all consumers have access to markets for consumer financial
products and services, and that such markets are fair,
transparent and competitive. The new legislation also weakens
federal preemption available to federal savings associations,
including AEBFSB, and gives state attorneys general the ability
to enforce applicable federal consumer protection laws.
Financial
Holding Company Status and Activities
The BHC Act limits the nonbanking activities of bank holding
companies. Unless a bank holding company has qualified as a
financial holding company, its nonbanking activities
are restricted to those that the Federal Reserve has determined
are so closely related to banking as to be a proper
incident thereto. An eligible bank holding company may
elect to be a financial holding company, which is authorized to
engage in a broader range of financial activities. A financial
holding company may engage in any activity that has been
determined by rule or order to be financial in nature,
incidental to such financial activity, or (with prior Federal
Reserve approval) complementary to a financial activity and that
does not pose a substantial risk to the safety or soundness of a
depository institution or to the financial system generally.
American Express
39
engages in various activities permissible only for a bank
holding company that has elected to be treated as a financial
holding company, including in particular providing travel agency
services, acting as a finder and engaging in certain insurance
underwriting and agency services.
For a bank holding company to be eligible for financial holding
company status, each of its subsidiary U.S. depository
institutions must be well capitalized and well
managed and must have received at least a satisfactory
rating on its most recent Community Reinvestment Act of 1977
(the CRA) review. Pursuant to Dodd-Frank, beginning
July 21, 2011, but subject to a possible six-month
extension, to be eligible for financial holding company status,
the Company and TRS also must be and remain well capitalized and
well managed. If the Company fails to continue to meet
applicable capital or managerial standards for financial holding
company status, the Company would be required to enter into an
agreement with the Federal Reserve to comply with applicable
capital and managerial standards. Moreover, until all relevant
conditions are satisfied, the Company, its subsidiaries and
affiliates would not, without the Federal Reserves prior
approval, be permitted to commence any additional activities, or
acquire control or shares of any company, in reliance on the
Companys status as a financial holding company, and the
Company would be required to comply with any additional
limitations that the Federal Reserve imposes. If a company does
not return to compliance within 180 days, the Federal
Reserve may order the company to divest its subsidiary
U.S. depository institutions or the company may discontinue
or divest investments in companies engaged in activities
permissible only for a bank holding company that has elected to
be treated as a financial holding company. In addition, if any
subsidiary U.S. depository institution fails to maintain a
satisfactory rating under the CRA, American Express would be
subject to substantially the same restrictions on activities and
acquisitions as set forth above.
Please see
Our business is subject to significant and
extensive government regulation and supervision which could
adversely affect our results of operations and financial
condition
in Item 1ARisk
Factors below.
Heightened
Prudential Requirements for Large Bank Holding
Companies
As discussed above, Dodd-Frank creates a new systemic risk
oversight body, the FSOC, to identify, monitor and address
potential threats to U.S. financial stability.
Additionally, Dodd-Frank imposes heightened prudential
requirements on bank holding companies with at least
$50 billion in total consolidated assets, including the
Company, and requires the Federal Reserve to establish
prudential standards for such large bank holding companies that
are more stringent than those applicable to other bank holding
companies, including standards for risk-based capital
requirements and leverage limits, liquidity, risk-management
requirements, resolution plans (referred to as living
wills), credit exposure reporting, and concentration. The
Federal Reserve has discretionary authority to establish
additional prudential standards, on its own or at the
FSOCs recommendation, regarding contingent capital,
enhanced public disclosures, short-term debt limits and
otherwise as it deems appropriate.
Dodd-Frank requires the Federal Reserve to conduct annual
analyses of bank holding companies with at least
$50 billion in total consolidated assets to evaluate
whether the companies have sufficient capital on a total
consolidated basis necessary to absorb losses as a result of
adverse economic conditions. In addition, such large bank
holding companies, including the Company, must conduct similar
so-called stress tests on a semiannual basis.
Furthermore, such large bank holding companies may be required
to maintain a
debt-to-equity
ratio of no more than 15 to 1 upon a determination by the FSOC
that the company poses a grave threat to the financial stability
of the U.S. and the imposition of such requirement is
necessary to mitigate the posed threat.
As noted above, Dodd-Frank will require us to prepare and
provide to regulators a resolution plan that must, among other
things, ensure that our depository institution subsidiaries are
adequately protected from risks arising from our other
subsidiaries. The establishment and maintenance of this
resolution plan may, as a practical matter, present additional
constraints on transactions and business arrangements between
our bank and non-bank subsidiaries.
40
Activities
and Acquisitions
The BHC Act requires a bank holding company to obtain the prior
approval of the Federal Reserve before: (1) it may acquire
direct or indirect ownership or control of any voting shares of
any bank or savings and loan association, if after such
acquisition, the bank holding company will directly or
indirectly own or control more than 5% of any class of the
voting securities of the institution; (2) it or any of its
subsidiaries, other than a bank, may acquire all or
substantially all of the assets of any bank or savings and loan
association; or (3) it may merge or consolidate with any
other bank holding company.
The Federal Reserve must approve certain additional capital
contributions to an existing
non-U.S. investment
and certain direct and indirect acquisitions by the Company of
an interest in a
non-U.S. company,
including in a foreign bank, as well as the establishment by
Centurion Bank of foreign branches in certain circumstances.
Additionally, a provision of Dodd-Frank that became effective on
the day of enactment requires bank holding companies with total
consolidated assets equal to or greater than $50 billion to
provide the Federal Reserve with written notice prior to
acquiring direct or indirect ownership or control of any voting
shares of any company (other than an insured depository
institution) that is engaged in financial activities described
in section 4(k) of the BHC Act and that has total
consolidated assets of $10 billion or more, subject to
certain exceptions. Moreover, another provision of Dodd-Frank
that is effective on the transfer date of July 21, 2011,
but subject to a possible six-month extension, requires
financial holding companies to obtain Federal Reserve approval
prior to acquiring a nonbank company with total consolidated
assets in excess of $10 billion.
The Change in Bank Control Act prohibits a person, entity, or
group of persons or entities acting in concert, from acquiring
control of a bank holding company such as the
Company unless the Federal Reserve has been given prior notice
and has not objected to the transaction. Under Federal Reserve
regulations, the acquisition of 10% or more of a class of voting
stock of the Company would generally create a rebuttable
presumption of acquisition of control of the Company.
In addition, under the BHC Act, any company is required to
obtain the approval of the Federal Reserve before acquiring
control of the Company, which, among other things, includes the
acquisition of ownership of or control over 25% or more of any
class of voting securities of the Company or the power to
exercise a controlling influence over the Company.
In the case of an acquirer that is a bank or bank holding
company, the BHC Act requires approval of the Federal Reserve
for the acquisition of ownership or control of any voting
securities of the Company, if the acquisition results in the
bank or bank holding company controlling more than 5% of the
outstanding shares of any class of voting securities of the
Company.
Source of
Strength
Federal Reserve policy historically has required bank holding
companies to act as a source of strength to their bank
subsidiaries and to commit capital and financial resources to
support those subsidiaries. Dodd-Frank makes this a statutory
requirement and extends it to all insured depository institution
subsidiaries beginning on July 21, 2011, subject to a
possible six-month extension. Therefore, the Company is expected
to act as a source of strength to Centurion Bank and AEBFSB and
to commit capital and financial resources to support both
institutions. Such support may be required at times when, absent
this requirement, we otherwise might determine not to
provide it.
Capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to
certain other indebtedness of such subsidiary banks. In the
event of a bank holding companys bankruptcy, any
commitment by the bank holding company to a federal bank
regulator to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to a priority of
payment.
Capital
Adequacy
The Company, TRS, Centurion Bank and AEBFSB are required to
comply with the applicable capital adequacy guidelines
established by the federal banking regulators. There are two
risk-based measures of
41
capital adequacy for bank holding companies that have been
promulgated by the Federal Reserve, as well as a leverage
measure.
The Company currently calculates its risk-based capital ratios
under guidelines adopted by the Federal Reserve, based on the
1998 Capital Accord (Basel I) of the Basel Committee
on Banking Supervision (the Basel Committee). In
June 2004, the Basel Committee published new international
guidelines for determining regulatory capital (Basel
II). In December 2007, the U.S. bank regulatory
agencies jointly adopted a final rule based on Basel II. The
Company, Centurion Bank and AEBFSB are required to transition to
the Basel II based guidelines no later than January 1,
2013, unless extended by its regulators. In December 2010, the
Basel Committee released its final framework for strengthening
international capital and liquidity regulation, now officially
identified by the Basel Committee as Basel III.
Basel III, when implemented by the U.S. banking agencies
and fully phased-in, will require bank holding companies and
their bank subsidiaries to maintain substantially more capital,
with a greater emphasis on common equity. Each Basel Accord is
discussed below.
The risk-based capital guidelines are designed to make
regulatory capital requirements sensitive to differences in
credit and market risk profiles among banks and financial
holding companies, to account for off-balance-sheet exposure,
and to minimize disincentives for holding liquid assets. Assets
and off-balance-sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted
assets and off-balance-sheet items. As a supervisory matter,
federal bank regulatory agencies expect most bank holding
companies, and in particular larger bank holding companies such
as the Company, to maintain regulatory capital ratios that, at a
minimum, qualify a bank holding company and its depository
institution subsidiaries as well capitalized. The
required ratios to qualify as well capitalized are a total
risk-based capital ratio of at least 10%, a Tier 1
risk-based capital ratio of at least 6% and a leverage ratio of
at least 5%. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without
significant reliance on intangible assets. Following the recent
financial crisis, the federal bank regulatory agencies have
encouraged larger bank holding companies to maintain capital
ratios appreciably above the well capitalized
standard. Moreover, the Federal Reserve is focusing more on the
regulatory requirement that common equity be the
predominant element of Tier 1 capital.
Furthermore, the Federal Reserve has indicated that it will
consider a tangible Tier 1 capital leverage
ratio (deducting all intangibles) and other indicators of
capital strength in evaluating proposals for expansion or new
activities. In addition, the Federal Reserve has assessed the
capital adequacy of the countrys 19 largest bank holding
companies, including the Company, under a so-called stress
test.
For additional information regarding our capital ratios, please
see Consolidated Capital Resources and Liquidity on
pages 39-41 of our 2010 Annual Report to Shareholders,
which information is incorporated herein by reference.
Basel
I
The Company, Centurion Bank and AEBFSB currently calculate
regulatory capital ratios under Basel I, as adopted by the
applicable federal bank regulatory agencies. Under Basel I,
as adopted, the minimum guideline for the ratio of total capital
to risk-weighted assets (including certain off-balance-sheet
items, such as standby letters of credit) is 8%. At least half
of the total capital must be composed of Tier 1 capital,
which includes common equity, undivided profits, minority
interests in the equity accounts of consolidated subsidiaries
(including, for bank holding companies but not banks, trust
preferred securities), non-cumulative perpetual preferred stock
and for bank holding companies (but not banks) a limited amount
of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets. Tier 2 capital may consist
of, among other things, qualifying subordinated debt,
mandatorily convertible debt securities, other preferred stock
and trust preferred securities and a limited amount of the
allowance for loan losses. Non-cumulative perpetual preferred
stock, trust preferred securities and other so-called
restricted core capital elements are generally
limited to 25% of Tier 1 capital. The minimum guideline for
the ratio of Tier 1 capital to risk-weighted assets is 4%.
42
The risk-based capital rules state that the capital guidelines
are minimum standards based primarily on broad credit-risk
considerations and do not take into account the other types of
risk a banking organization may be exposed to (e.g., interest
rate, market, liquidity and operational risks). The Federal
Reserve may, therefore, set higher capital requirements for
categories of banks (e.g., systematically important firms), or
for an individual bank, as situations warrant.
Basel
II
The U.S. Basel II final rule became effective on
April 1, 2008. The Company, Centurion Bank and AEBFSB are
required to transition to the Basel II-based guidelines by
January 1, 2013,unless extended by its regulators. The
final rule provides for a series of three transitional periods
during which the Company must calculate its risk-based capital
ratios under both the Basel I-based guidelines and the new Basel
II-based guidelines, with the minimum capital requirements
during the transitional periods being the greater of the
required capital as calculated under the final rule and a
designated percentage of required capital as calculated under
Basel I. Prior to beginning the three transitional periods, we
must complete a satisfactory parallel-run period of no less than
four consecutive calendar quarters during which we will be
required to confidentially report regulatory capital under both
the Basel I and Basel II regulations. Under the final rule,
we must begin the first transitional period for capital
calculation under the final rule no later than January 1,
2013, unless this time is extended by the Federal Reserve.
Dodd-Frank appears to require the Federal Reserve to adopt
regulations imposing a continuing floor of the Basel
I-based capital guidelines in cases where the Basel II-based
capital requirements and any changes in capital regulations
resulting from Basel III otherwise would permit lower
requirements. In December 2010, the Federal Reserve published
for comment proposed regulations implementing this requirement.
Leverage
Requirement
Basel I and Basel II do not include a leverage requirement
as an international standard. However, the Federal Reserve has
established minimum leverage ratio guidelines for bank holding
companies (and, as further discussed below, Basel III will
impose a leverage requirement as an international standard). The
Federal Reserves existing guidelines provide for a minimum
ratio of Tier 1 capital to average total assets, less
goodwill and certain other intangible assets (the Leverage
Ratio), of 3% for bank holding companies that meet certain
specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required
to maintain a Leverage Ratio of at least 4%.
Basel
III
The Basel III final capital framework, among other things:
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introduces as a new capital measure Common Equity
Tier 1
,
or CET1, specifies that
Tier 1 capital consists of CET1 and Additional
Tier 1 capital instruments meeting specified
requirements, defines CET1 narrowly by requiring that most
adjustments to regulatory capital measures be made to CET1 and
not to the other components of capital, and expands the scope of
the adjustments as compared to existing regulations;
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when fully phased in on Jan. 1, 2019, requires banks to
maintain:
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as a newly adopted international standard, a minimum ratio of
CET1 to risk-weighted assets of at least 4.5%, plus a 2.5%
capital conservation buffer, which is added to the
4.5% CET1 ratio as that buffer is phased in, effectively
resulting in a minimum ratio of CET1 to risk-weighted assets of
at least 7% (there is no comparable CET1 requirement under Basel
I or II)
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a minimum ratio of Tier 1 capital to risk-weighted assets
of at least 6.0%, plus the capital conservation buffer, which is
added to the 6.0% Tier 1 capital ratio as that buffer is
phased in, effectively resulting in a minimum Tier 1
capital ratio of 8.5% upon full implementation (the current
requirement is 6.00% for a well capitalized bank)
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a minimum ratio of Total (that is, Tier 1 plus
Tier 2) capital to risk-weighted assets of at least
8.0%, plus the capital conservation buffer, which is added to
the 8.0% total capital ratio as that buffer is phased in,
effectively resulting in a minimum total capital ratio of 10.5%
upon full implementation (the current requirement is 10% for a
well capitalized bank) and
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as a newly adopted international standard, a minimum leverage
ratio of 3%, calculated as the ratio of Tier 1 capital to
balance sheet exposures plus certain off-balance sheet exposures
(as the average for each quarter of the month-end ratios for the
quarter) and
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provides for a countercyclical capital buffer,
generally to be imposed when national regulators determine that
excess aggregate credit growth becomes associated with a buildup
of systemic risk, that would be a CET1 add-on to the capital
conservation buffer in the range of 0% to 2.5% when fully
implemented (potentially resulting in total buffers of between
2.5% and 5%).
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The capital conservation buffer is designed to absorb losses
during periods of economic stress. Banking institutions with a
ratio of CET1 to risk-weighted assets above the minimum but
below the conservation buffer (or below the combined capital
conservation buffer and countercyclical capital buffer, when the
latter is applied) will face constraints on dividends, equity
repurchases and compensation based on the amount of the
shortfall.
The implementation of the Basel III final framework will
commence January 1, 2013. On that date, banking
institutions will be required to meet the following minimum
capital ratios:
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3.5% CET1 to risk-weighted assets;
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4.5% Tier 1 capital to risk-weighted assets; and
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8.0% Total capital to risk-weighted assets.
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The Basel III final framework provides for a number of new
deductions from and adjustments to CET1. These include, for
example, the requirement that mortgage servicing rights,
deferred tax assets dependent upon future taxable income and
significant investments in non-consolidated financial entities
be deducted from CET1 to the extent that any one such category
exceeds 10% of CET1 or all such categories in the aggregate
exceed 15% of CET1. The amount of these assets that is not
deducted from CET1 will be risk weighted at 250%.
Implementation of the deductions and other adjustments to CET1
will begin on January 1, 2014 and will be phased-in over a
five-year period (20% per year). The implementation of the
capital conservation buffer will begin on January 1, 2016
at 0.625% and be phased in over a four-year period (increasing
by that amount on each subsequent January 1, until it
reaches 2.5% on January 1, 2019).
The U.S. banking agencies have indicated informally that
they expect to propose regulations implementing Basel III
in mid-2011 with final adoption of implementing regulations in
mid-2012. Notwithstanding its release of the Basel III
framework as a final framework, the Basel Committee is
considering further amendments to Basel III, including the
imposition of additional capital surcharges on globally
systemically important financial institutions. The Company does
not believe it will be considered a globally systemically
important financial institution. Dodd-Frank requires the federal
banking agencies to adopt regulations affecting
U.S. banking institutions capital requirements in a
number of respects and mandates that the Federal Reserve adopt
prudential requirements applicable to systemically important
financial institutions (including risk-based capital and
leverage requirements) that are more stringent than those
applicable to other financial companies. The Company is a bank
holding company with more than $50 billion in total
consolidated assets, so it is considered a systemically
important financial institution under Dodd-Frank. The
implications of this designation on the Companys capital
requirements are uncertain at this time. Accordingly, the
regulations ultimately applicable to us may be substantially
different from the Basel III final framework as published
in December 2010.
44
Liquidity
Ratios under Basel III
Historically, regulation and monitoring of bank and bank holding
company liquidity has been addressed as a supervisory matter,
both in the U.S. and internationally, without required
formulaic measures. The Basel III final framework requires
banks and bank holding companies to measure their liquidity
against specific liquidity tests that, although similar in some
respects to liquidity measures historically applied by banks and
regulators for management and supervisory purposes, going
forward will be required by regulation. One test, referred to as
the liquidity coverage ratio (LCR), is designed to
ensure that the banking entity maintains an adequate level of
unencumbered high-quality liquid assets equal to the
entitys expected net cash outflow for a
30-day
time
horizon (or, if greater, 25% of its expected total cash outflow)
under an acute liquidity stress scenario. The other test,
referred to as the net stable funding ratio (NSFR),
is designed to promote more medium-and long-term funding of the
assets and activities of banking entities over a one-year time
horizon. These requirements will incent banking entities to
increase their holdings of U.S. Treasury securities and
other sovereign debt as a component of assets and increase the
use of long-term debt as a funding source. The LCR would be
implemented subject to an observation period beginning in 2011,
but would not be introduced as a requirement until
January 1, 2015, and the NSFR would not be introduced as a
requirement until January 1, 2018. These new standards are
subject to further rulemaking and their terms may change before
implementation.
Prompt
Corrective Action
The FDIA requires, among other things, that federal banking
regulators take prompt corrective action in respect of
FDIC-insured depository institutions (such as Centurion Bank and
AEBFSB) that do not meet minimum capital requirements. The FDIA
specifies five capital tiers: well capitalized,
adequately capitalized,
undercapitalized, significantly
undercapitalized, and critically
undercapitalized. A depository institutions capital
tier depends upon how its capital levels compare to various
relevant capital measures and certain other factors, as
established by regulation. A bank may be deemed to be in a
capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory
examination rating. Once an institution becomes
undercapitalized, the FDIA imposes progressively
more restrictive constraints on operations, management and
capital distributions, depending on the capital category in
which an institution is classified. A depository institution
that is not well capitalized is also subject to restrictions on
the acceptance of brokered deposits including Certificate of
Deposit Account Registry Service deposits. The majority of the
Companys outstanding U.S. retail deposits have been
raised through third-party channels and are considered brokered
deposits for bank regulatory purposes. As part of its funding
strategy, a majority of the deposits raised during 2010 were
sourced directly by the Company with consumers through Personal
Savings from American Express. For a description of our deposit
programs, please see Deposit Programs beginning on
page 24 above and Deposit Programs on
page 43 of our 2010 Annual Report to Shareholders, which
information is incorporated herein by reference.
The FDIA generally prohibits an FDIC-insured depository
institution from making any capital distribution (including
payment of dividends) or paying any management fee to its
holding company if the depository institution would thereafter
be undercapitalized. Undercapitalized depository institutions
are subject to restrictions on borrowing from the Federal
Reserve and to growth limitations, and are required to submit a
capital restoration plan. For a capital restoration plan to be
acceptable, any holding company must guarantee the capital plan
up to an amount equal to the lesser of 5% of the depository
institutions assets at the time it became undercapitalized
and the amount of the capital deficiency at the time it fails to
comply with the plan. In the event of the holding companys
bankruptcy, such guarantee would take priority over claims of
its general unsecured creditors. If a depository institution
fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized.
Significantly undercapitalized depository institutions may be
subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cessation
of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to
appointment of a receiver or conservator.
45
Dividends
The Company and TRS as well as Centurion Bank and AEBFSB are
limited by banking statutes and regulations in their ability to
pay dividends. In general, federal and applicable state banking
laws prohibit, without first obtaining regulatory approval,
insured depository institutions, such as Centurion Bank and
AEBFSB, from making dividend distributions if such distributions
are not paid out of available recent earnings or would cause the
institution to fail to meet capital adequacy standards. In
addition to specific limitations on the dividends that
subsidiary banks can pay to their holding companies, federal
regulators could prohibit a dividend that would constitute an
unsafe or unsound banking practice in light of the financial
condition of the banking organization.
Dividend payments by the Company and TRS to shareholders are
subject to the oversight of the Federal Reserve. It is Federal
Reserve policy that bank holding companies generally should pay
dividends on common stock to common shareholders only out of net
income available to common shareholders over the past year and
only if the prospective rate of earnings retention appears
consistent with the organizations current and expected
future capital needs, asset quality, and overall financial
condition. Moreover, bank holding companies should not maintain
dividend levels that place undue pressure on the capital of
depository institution subsidiaries or that may undermine the
bank holding companys ability to be a source of strength
to its banking subsidiaries. The Federal Reserve could prohibit
a dividend by the Company or TRS that would constitute an unsafe
or unsound banking practice in light of the financial condition
of the banking organization.
Under temporary guidance issued by the Federal
Reserve in November 2010, bank holding companies, such as the
Company and TRS, should consult with the Federal Reserve before
taking any actions that could result in a diminished capital
base, including actions such as increasing dividends. The
Federal Reserve will assess the bank holding companys
capital adequacy based on capital plans and stress tests
submitted by the bank holding company. The Federal Reserve will
review the capital plans, including dividend policies, against,
among other things, the bank holding companys ability to
achieve Basel III capital ratio requirements referred to
above as they are phased in by U.S. regulators and any
potential impact of Dodd-Frank on the companys risk
profile, business strategy, corporate structure or capital
adequacy. A company that has not achieved Basel III capital
requirements on a fully phased-in basis may have difficulty
increasing dividends. Although the regulations ultimately
applicable to the Company will be determined by the Federal
Reserve, the Company estimates that, had regulations
implementing Basel III been in place during the fourth
quarter of 2010, the Companys capital ratios under
Basel III would have exceeded the minimum requirements.
This estimate could change in the future. Although we expect to
meet the Basel III capital requirements, inclusive of the
capital conservation buffer, as phased in by the Federal
Reserve, the regulations ultimately applicable to us may be
substantially different from the Basel III final framework
as published in December 2010.
Transactions
between Centurion Bank or AEBFSB and Their Respective
Affiliates
Certain transactions (including loans and credit extensions from
Centurion Bank and AEBFSB) between Centurion Bank and AEBFSB, on
the one hand, and their affiliates (including the Company, TRS
and their non-bank subsidiaries), on the other hand, are subject
to quantitative and qualitative limitations, collateral
requirements, and other restrictions imposed by statute and
Federal Reserve regulation. Effective July 21, 2012
(subject to a six-month extension) Dodd-Frank significantly
expands the coverage and scope of the limitations on affiliate
transactions within a banking organization and changes the
procedure for seeking exemptions from these restrictions.
Transactions subject to these restrictions are generally
required to be made on an arms-length basis. These restrictions
generally do not apply to transactions between a depository
institution and its subsidiaries.
FDIC
Insurance Assessments
Centurion Bank and AEBFSB accept deposits, and those deposits
are insured by the FDIC up to the applicable limits. The
FDICs deposit insurance fund (Deposit Insurance
Fund) is funded by assessments on insured depository
institutions, which currently depend on the risk category of an
institution and the amount of
46
insured deposits that the institution holds. The FDIC may
increase or decrease the assessment rate schedule on a
semi-annual basis.
As part of its efforts to rebuild the Deposit Insurance Fund,
the FDIC required insured depository institutions, including
Centurion Bank and AEBFSB, to prepay their estimated assessments
for all of 2010, 2011 and 2012 on December 30, 2009.
Dodd-Frank requires the FDIC to amend its regulations to base
insurance assessments on the average consolidated total assets
less the average tangible equity of the insured depository
institution during the assessment period (the new
assessment base). The FDIC has approved a final rule,
effective April 1, 2011, that implements the required
change to the assessment base and changes the assessment rate
calculation for large insured depository institutions, including
Centurion Bank and AEBFSB. Effective April 1, 2011, the
assessment rates will be subject to adjustments based upon the
insured depository institutions ratio of
(1) long-term unsecured debt to the new assessment base,
(2) long-term unsecured debt issued by another insured
depository institution to the new assessment base, and
(3) brokered deposits to the new assessment base. However,
effective April 1, 2011, the adjustments based on brokered
deposits to the new assessment base will not apply so long as
the institution is well capitalized and has a composite CAMELS
rating of 1 or 2. Additionally, the rules permit the FDIC to
impose additional discretionary assessment rate adjustments.
These changes could have an adverse effect on our results of
operations and financial condition. Furthermore, future changes
to deposit insurance assessments also could have an adverse
effect on our results of operation and financial condition.
Dodd-Frank also requires the FDIC to increase the reserve ratio
for the Deposit Insurance Fund from 1.15 percent to reach a
minimum of 1.35 percent of estimated insured deposits by
September 30, 2020. On December 20, 2010, the FDIC
issued a final rule setting the increased reserve ratio at
2 percent. This increase will result in increased costs for
Centurion Bank and AEBFSB. In addition, Dodd-Frank eliminates
the ceiling (1.5 percent of insured deposits) on the size
of the Deposit Insurance Fund and makes the payment of dividends
from the Deposit Insurance Fund by the FDIC discretionary.
Under the FDIA, the FDIC may terminate the insurance of an
institutions deposits upon a finding that the institution
has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by
the FDIC. We do not know of any practice, condition or violation
that might lead to termination of deposit insurance at either of
our insured depository institution subsidiaries.
FDIC
Powers upon Insolvency of Insured Depository
Institutions
If the FDIC is appointed the conservator or receiver of an
insured depository institution, such as Centurion Bank or
AEBFSB, upon its insolvency or in certain other events, the FDIC
has the power: (1) to transfer any of the depository
institutions assets and liabilities to a new obligor
without the approval of the depository institutions
creditors; (2) to enforce the terms of the depository
institutions contracts pursuant to their terms; or
(3) to repudiate or disaffirm any contract or lease to
which the depository institution is a party, the performance of
which is determined by the FDIC to be burdensome and the
disaffirmation or repudiation of which is determined by the FDIC
to promote the orderly administration of the depository
institution.
In addition, under federal law, the claims of holders of
U.S. deposit liabilities and certain claims for
administrative expenses against an insured depository
institution would be afforded a priority over other general
unsecured claims against the institution, including claims of
debt holders of the institution and depositors in
non-U.S. offices,
in the liquidation or other resolution of the institution by a
receiver. As a result, whether or not the FDIC ever sought to
repudiate any debt obligations of Centurion Bank or AEBFSB, the
debt holders would be treated differently from, and could
receive substantially less, if anything, than the depositors in
U.S. offices of the depository institution.
47
Orderly
Liquidation Authority under Dodd-Frank
Dodd-Frank creates Orderly Liquidation Authority
(OLA), a resolution regime for systemically
important non-bank financial companies, including bank holding
companies, under which the Treasury Secretary may appoint the
FDIC as receiver to liquidate such a company if the company is
in danger of default and presents a systemic risk to
U.S. financial stability. This determination by the
Treasury Secretary must come after supermajority recommendations
by the Federal Reserve and the FDIC and consultation by the
Treasury Secretary with the President. OLA is similar to the
FDIC resolution model for depository institutions, with certain
modifications to reflect differences between depository
institutions and non-bank financial companies and to reduce
disparities between the treatment of creditors claims
under the U.S. Bankruptcy Code and in an OLA proceeding as
compared to disparities that would exist in the resolution by
the FDIC of an insured depository institution.
An Orderly Liquidation Fund will fund OLA liquidation
proceedings through borrowings from the U.S. Department of
Treasury and risk-based assessments made, first, on entities
that receive more in the resolution than they would have
received in liquidation to the extent of such excess, and
second, if necessary, on bank holding companies with total
consolidated assets of $50 billion or more, such as the
Company, and on certain other non-bank financial companies. If
an orderly liquidation is triggered, the Company could face
assessments for the Orderly Liquidation Fund. It is not possible
to determine the level of any such future assessments.
Cross-Guarantee
Provisions
Under the cross-guarantee provision of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), insured depository institutions, such as
Centurion Bank and AEBFSB, may be liable to the FDIC with
respect to any loss incurred or reasonably anticipated to be
incurred by the FDIC in connection with the default of, or FDIC
assistance to, any commonly controlled insured depository
institution. Centurion Bank and AEBFSB are commonly controlled
within the meaning of the FIRREA cross-guarantee provision.
Community
Reinvestment Act
Centurion Bank and AEBFSB are subject to the provisions of the
CRA. Under the terms of the CRA, the primary federal regulator
of a depository institution is required, in connection with its
examination of the depository institution, to assess such
depository institutions record in meeting the credit needs
of the communities served by that depository institution,
including low- and moderate-income neighborhoods. Furthermore,
such assessment also is required of any depository institution
that has applied to, among other things, merge or consolidate
with or acquire the assets or assume the liabilities of a
federally regulated financial institution or to open or relocate
a branch office. In the case of a bank holding company applying
for approval to acquire a bank or bank holding company, the
Federal Reserve will assess the record of each subsidiary
depository institution of the applicant bank holding company in
considering the application. In addition, as discussed
previously, the failure of the Companys subsidiary
depository institutions to maintain satisfactory CRA ratings
could result in restrictions on the Companys and TRS
ability to engage in activities in reliance on financial holding
company authority.
Privacy,
Fair Credit Reporting
We use information about our customers to develop and make
available relevant, personalized products and services.
Customers are given choices about how we use and disclose their
information, and we give them notice regarding the measures we
take to safeguard this information. Regulatory activity in the
areas of privacy and data security continues to increase
worldwide, spurred by advancements in technology and related
concerns about the rapid and widespread dissemination and use of
information. Our regulatory examiners, as well as our auditors,
are increasingly focused on ensuring that our privacy and data
security/access control policies and practices are adequate to
inform our customers of our data uses and to protect their
personal data.
48
As noted above, as part of our efforts to enhance payment
account data security, in 2006, we and several other payment
card networks formed the PCI SSC, an independent
standards-setting organization to manage the evolution of the
PCI Data Security Standard, which helps organizations that
process card payments to prevent credit/charge card security
breaches and fraud through increased controls around data and
its exposure to compromise.
The Gramm-Leach-Bliley Act (GLBA) became effective
on July 1, 2001. The GLBA requires consumer notice of a
financial institutions privacy policies and practices and
affords customers the right to opt out of the
institutions disclosure of their personal financial
information to nonaffiliated third parties (with limited
exceptions). This legislation does not preempt state laws that
afford greater privacy protections to consumers, and several
states have adopted such legislation. For example, in 2003
California enacted that states Financial Information
Privacy Act, which requires (with limited exceptions)
opt-in consent from customers before their data may
be disclosed to nonaffiliated third parties.
In addition, various federal banking regulatory agencies, and as
many as 46 states, the District of Columbia, Puerto Rico
and the Virgin Islands, have enacted security breach laws and
regulations, requiring varying levels of consumer notification
in the event of a data security breach. Data breach laws are
also becoming more prevalent in other parts of the world where
we operate, including Japan, Mexico and Germany. In many
countries that have yet to impose automatic data breach
notification requirements, regulators have increasingly used the
threat of significant sanctions and penalties by data protection
authorities to encourage voluntary notification and discourage
data breaches.
Beyond these data breach laws, we are subject to the GLBAs
requirements to safeguard customer information, and to a growing
number of state laws (including in Massachusetts and Nevada)
that impose broad-ranging data security obligations regarding
the protection of customer and employee data. In 1995, the
European Parliament and Council passed European Directive
95/46/EC on the protection of individuals with regard to the
processing of personal data and on the free movement of such
data (commonly referred to as the Data Protection Directive),
which obligates the controller of an individuals personal
data to, among other things, take the necessary technical and
organizational steps to protect personal data. Compliance with
these various laws could result in higher technology,
administrative and other costs for the Company. In July 2010, we
submitted for review by relevant European data protection
authorities our draft binding corporate rules for processing of
data within the American Express group which, once approved,
will enable a more efficient basis on which to transfer data
within our group. The European Commission is currently assessing
the need for further changes to the European Unions data
protection regime.
We continue our efforts to safeguard the data entrusted to us in
accordance with applicable law and our internal data protection
policies, including taking steps to reduce the potential for
identity theft or other fraud, while seeking to collect and use
data properly to achieve our business objectives. We also have
undertaken measures to assess the level of access to customer
data by our employees and our partners and service providers,
and to ensure that such access is limited to the least
privileged level necessary to perform their job or function for
the Company.
The FCRA regulates the disclosure of consumer credit reports by
consumer reporting agencies and the use of consumer credit
report information by banks and other companies. Among other
things, FCRA places restrictions (with limited exceptions) on
the sharing and use of certain personal financial and
creditworthiness information of our customers with and by our
affiliates.
FCRA was significantly amended by the enactment in December 2003
of the FACT Act. The FACT Act requires any company that receives
information concerning a consumer from an affiliate, subject to
certain exceptions, to permit the consumer to opt out from
having that information used to market the companys
products to the consumer. In November 2007, the federal banking
agencies issued a final rule implementing the affiliate
marketing provisions of the FACT Act. Companies subject to
oversight by these agencies were required to comply with the
rules by October 1, 2008. The Company has implemented
various mechanisms to allow our customers to opt out of
affiliate sharing and of marketing by the Company and our
affiliates, and it continues to review and enhance these
mechanisms to ensure compliance with applicable law and a
favorable customer experience.
49
The FACT Act further amended the FCRA by adding several new
provisions designed to prevent or decrease identity theft and to
improve the accuracy of consumer credit information. The federal
banking agencies and the Federal Trade Commission
(FTC) published a final rule in November 2007
requiring financial institutions to implement a program
containing reasonable policies and procedures to address the
risk of identity theft and to identify accounts where identity
theft is more likely to occur. Companies subject to oversight by
the federal banking agencies originally were required to comply
with the rule by November 1, 2008, but the FTC suspended
enforcement of its rule through December 31, 2010 pending
legislation to clarify the laws scope. On
December 18, 2010, the President signed the Red Flag
Program Clarification Act of 2010 into law. The Companys
internal policies and standards, as well as our enterprise-wide
data security and fraud prevention programs, comply with the new
identity theft requirements.
The FACT Act also imposes duties on both consumer reporting
agencies and on businesses that furnish or use information
contained in consumer credit reports. For example, a furnisher
of information is required to implement procedures to prevent
the reporting of any information that it learns is the result of
identity theft. Also, if a consumer disputes the accuracy of
information provided to a consumer reporting agency, the
furnisher of that information must conduct an investigation and
respond to the consumer in a timely fashion. The federal banking
regulatory agencies and the FTC have issued rules that specify
the circumstances under which furnishers of information would be
required to investigate disputes regarding the accuracy of the
information provided to a consumer reporting agency. The FACT
Act also requires grantors of credit that use consumer credit
report information in making a determination to offer a borrower
credit on terms that are materially less favorable
than the terms offered to most of the lenders other
customers to notify the borrower that the terms are based on a
consumer credit report. In such a case the borrower is entitled
to receive a free copy of the report from the consumer reporting
agency. The federal bank regulatory agencies and the FTC have
issued rules that specify the circumstances under which
risk-based pricing notices must be provided to
customers and the content, format and timing of such notices.
Dodd-Frank will require, effective July 21, 2011, the
addition of certain information about credit scores to
risk-based pricing notices and to adverse action
notices otherwise required by the FCRA. Grantors of credit using
prescreened consumer credit report information in credit
solicitations are also required to include an enhanced notice to
consumers that they have the right to opt out from receiving
further prescreened offers of credit. The enactment of the FACT
Act and the promulgation of rules implementing it are not
expected to have a significant impact on our business or
practices.
The CARD
Act
In May 2009, the CARD Act was enacted to prohibit certain
practices for consumer credit card accounts. The CARD Act, among
other requirements, prohibits issuers from treating a payment as
late for any purpose, including increasing the APR or imposing a
fee, unless a consumer has been provided a reasonable
amount of time to make the payment. It also requires
issuers to apply payment amounts in excess of the minimum
payment first to the balance with the highest APR and then to
balances with lower APRs. In addition, the Act prohibits an
issuer from increasing the APR on outstanding balances, except
in limited circumstances such as when a promotional rate
expires, a variable rate adjusts, or an account is seriously
delinquent or completes a workout arrangement. These
requirements became effective on February 22, 2010.
The CARD Act also requires issuers to maintain reasonable
written policies to consider a consumers income or assets
and current obligations prior to opening an account or
increasing a credit line. This required minor adjustments to our
account opening decisioning and line increase decisioning
processes. This requirement became effective on
February 22, 2010, and to date has not had any significant
impact on these decisions. In addition, applicants for new
accounts who are under the age of 21 must demonstrate an
independent ability to make the required minimum periodic
payments. On October 19, 2010, the Federal Reserve proposed
clarifications to its rules implementing the CARD Act, which
would include a requirement that applicants who are 21 and over
must also demonstrate an independent ability to make the
required monthly minimum payments. Issuers would not be
permitted to consider household income or assets, but only the
individual income or assets of the applicant. If adopted as
proposed, this rule may decrease the number of applications for
our Cards that are approved for applicants who do not have
sufficient individual income, even
50
though their household income may be sufficient for approval.
Since August 22, 2010, the CARD Act requires that penalty
fees be reasonable and proportional. While the Company has
adjusted penalty fees (late fees and returned payment fees)
accordingly, this requirement is not expected to have any
significant impact on results of operations.
Also, since August 22, 2010, the CARD Act requires issuers
to periodically reevaluate APR increases to determine if a
decrease is appropriate. The first of these reevaluations must
be completed in February 2011. The obligation to periodically
reevaluate APR increases is ongoing, and it is uncertain how
these provisions will be interpreted or amended by the new
Consumer Financial Protection Bureau. Therefore, while the
ultimate impact of this requirement is uncertain at this time,
it could have a significant impact on our results of operations.
The Federal Reserve also amended its rules on the format and
content of consumer credit card disclosures. The amendments
required revisions to the format and content of all main types
of open-end consumer credit disclosures, including applications
and solicitations, account-opening disclosures, and periodic
billing statements. These amendments became effective on
July 1, 2010.
Certain provisions of the CARD Act also apply to stored value
and prepaid products sold on or after August 22, 2010. In
March 2010, the Federal Reserve amended its Regulation E to
impose new restrictions on the ability to impose dormancy,
inactivity or service fees with respect to gift certificates,
store gift cards and general-use prepaid cards issued primarily
for personal use. Such fees may only be imposed under certain
conditions. Additionally, the rules prohibit the sale or
issuance of a gift certificate, store gift card or general-use
prepaid card that has an expiration date of less than five years
after either the date a certificate or card is issued or the
date on which funds were last loaded. The rules also require
implementation of policies and procedures to give consumers a
reasonable opportunity to purchase a certificate or card with at
least five years before the certificate or card expiration date,
prohibit any fees for replacing an expired certificate or card
or refunding the remaining balance as long as the underlying
funds remain valid, and require additional disclosures for any
fee other than a dormancy, inactivity or service fee.
While the Company has made certain changes to our product terms
and practices designed to comply with the CARD Act, the
long-term impact of the CARD Act on the Companys business
practices and revenues will depend upon a number of factors,
including our ability to successfully implement our business
strategies, consumer behavior and the actions of the
Companys competitors, which are difficult to predict at
this time. If the Company is not able to lessen the impact of
the changes required by the CARD Act, it will have a material
adverse effect on results of operations.
Anti-Money
Laundering Compliance
In the United States, the USA Patriot Act was enacted in October
2001 in the wake of the September 11, 2001 terrorist
attacks. The Patriot Act, in addition to substantially
broadening existing AML and terrorist financing legislation,
amended the Bank Secrecy Act, the primary legislation governing
AML requirements. The Patriot Act contains a wide variety of
provisions aimed at fighting terrorism and money laundering,
including provisions aimed at impeding terrorists ability
to access and move funds used in support of terrorist
activities. Among other things, the Bank Secrecy Act, as amended
by the Patriot Act, requires financial institutions to establish
AML programs that meet certain standards, including, in some
instances, expanded reporting and enhanced information gathering
and recordkeeping requirements. While American Express has long
maintained AML programs in our businesses, certain of our
business activities are subject to specific AML regulations that
prescribe minimum standards for components of the AML programs.
For example, our GNS business maintains a risk-based program to
ensure that institutions that are licensed to issue cards or
acquire merchants on their networks maintain adequate AML
controls. We have also developed and implemented a Know Your
Customer, or due diligence, program and an enhanced due
diligence program, including a program for verifying the
identity of our customers for applicable businesses. We will
take steps to comply with any additional regulations or
initiatives that are adopted, whether in the United States or in
other jurisdictions in which we conduct business.
51
Over the last several years, the industry has seen increased
regulatory scrutiny of the AML compliance programs of financial
institutions, with emphasis on record keeping and reporting
requirements such as the requirement to identify and report
suspicious activity, leading to enforcement actions and
increased penalties for non-compliance. To meet this increased
scrutiny, we continue to enhance our enterprise-wide AML
compliance program. Our AML compliance programs primarily
consist of risk-based policies, procedures and controls that are
reasonably designed to prevent, detect and report money
laundering.
We have significant operations in the European Union, including
a number of regulated businesses. We monitor developments in EU
legislation, as well as in the other countries in which we
operate, to ensure that we are in a position to comply with all
applicable legal requirements, including European Union
directives applicable to payment institutions, credit providers,
insurance intermediaries and other financial institutions.
Office of
Foreign Assets Control Regulation
The United States has imposed economic sanctions that affect
transactions with designated foreign countries, nationals and
others. These are typically known as the OFAC rules,
and they are administered by the U.S. Department of
Treasurys Office of Foreign Assets Control
(OFAC). The OFAC-administered sanctions take many
different forms. Generally, however, they contain one or more of
the following elements: (i) restrictions on trade with or
investment in a sanctioned country, including prohibitions
against direct or indirect imports from and exports to a
sanctioned country and prohibitions on
U.S. persons engaging in financial transactions
relating to making investments in, or providing
investment-related advice or assistance to, a sanctioned
country; and (ii) a blocking of assets in which the
government or specially designated nationals of the sanctioned
country have an interest, by prohibiting transfers of property
subject to U.S. jurisdiction (including property in the
possession or control of U.S. persons). Blocked assets
(e.g., property or bank deposits) cannot be paid out, withdrawn,
set off or transferred in any manner without a license from
OFAC. Failure to comply with these sanctions could have serious
legal and reputational consequences.
Compensation
Practices
Our compensation practices are subject to oversight by the
Federal Reserve. In June 2010, the Federal Reserve, the OCC, the
FDIC and the OTS jointly issued final guidance on sound
incentive compensation policies that applies to all banking
organizations supervised by the Federal Reserve, including bank
holding companies, such as the Company, as well as all insured
depository institutions, including Centurion Bank and AEBFSB.
The final guidance sets forth three key principles for incentive
compensation arrangements that are designed to help ensure that
incentive compensation plans do not encourage excessive
risk-taking and are consistent with the safety and soundness of
banking organizations. The three principles provide that a
banking organizations incentive compensation arrangements
should provide incentives that appropriately balance risk and
financial results in a manner that does not encourage employees
to expose their organizations to imprudent risks, be compatible
with effective internal controls and risk management, and be
supported by strong corporate governance, including active and
effective oversight by the organizations board of
directors. Any deficiencies in compensation practices of a
banking institution that are identified by the Federal Reserve
or other bank regulatory agencies in connection with its review
of such organizations compensation practices may be
incorporated into the organizations supervisory ratings,
which can affect its ability to make acquisitions or perform
other actions. The final guidance provides that enforcement
actions may be taken against a banking organization if its
incentive compensation arrangements or related risk-management
control or governance processes pose a risk to the
organizations safety and soundness and the organization is
not taking prompt and effective measures to correct the
deficiencies.
Additionally, on February 7, 2011, the FDIC approved a
notice of proposed rulemaking pursuant to Dodd-Frank on
incentive-based compensation practices. The proposed rule is a
joint rulemaking by the Federal Reserve, the OCC, the FDIC, the
OTS, the SEC, the Federal Housing Finance Agency and the
National Credit Union Administration, which each must
independently approve the proposed rule before it is published
for comment. Under the proposed rule, all financial institutions
with total consolidated assets of $1 billion or more (such
as the Company, Centurion Bank and AEBFSB) would be prohibited
from offering incentive-based compensation arrangements that
encourage inappropriate risk taking by offering
excessive compensation or
52
compensation that could lead the company to material financial
loss. All covered institutions would be required to provide
federal regulators with additional disclosures to determine
compliance with the proposed rule and also to maintain policies
and procedures to ensure compliance. Additionally, for covered
institutions with at least $50 billion in total
consolidated assets, such as the Company, the proposed rule
requires that at least 50% of certain executive officers
incentive-based compensation be deferred for a minimum of three
years and provides for the adjustment of deferred payments to
reflect actual losses or other measures of performance that
become known during the deferral period. Moreover, the board of
directors of a covered institution with at least
$50 billion in total consolidated assets must identify
employees who have authority to expose an institution to
substantial risk, evaluate and document the incentive-based
compensation methods used to balance risk and financial rewards
for the identified employees, and approve incentive-based
compensation arrangements for those employees after
appropriately considering other available methods for balancing
risk and financial rewards. The form and timing of any final
rule cannot be determined at this time.
Our compensation practices are affected by Dodd-Frank amendments
to the Securities Exchange Act of 1934 (the Exchange
Act) requiring a non-binding
say-on-pay
vote to be provided at least once every three years at a
shareholders meeting and a non-binding shareholder vote to
be provided at least once every six years to determine the
frequency of
say-on-pay
votes. These votes must be provided at meetings of shareholders
occurring after January 21, 2011. In addition, Dodd-Frank
requires proxy statement disclosure of compensation arrangements
requiring payments to named executive officers upon a change in
control (golden parachutes) if shareholders are
voting on a merger or similar transaction, as well as a separate
non-binding vote to approve golden parachute compensation
arrangements that had not previously been subject to a
say-on-pay
vote. The golden parachute disclosure and vote is required in
proxy statements and other schedules and forms initially filed
on or after April 25, 2011.
The scope and content of these policies and regulations on
executive compensation are continuing to develop and are likely
to continue evolving in the near future. It cannot be determined
at this time whether compliance with such policies and
regulations will adversely affect the ability of American
Express and its subsidiaries to hire, retain and motivate its
and their key employees.
Foreign
Corrupt Practices Act
Our international operations are subject to complex
international and U.S. laws and regulations, including the
Foreign Corrupt Practices Act (the FCPA) and local
laws that prohibit the making or offering of improper payments
to foreign government officials, political parties or political
party officials for the purpose of obtaining or retaining
business or an improper advantage. The anti-corruption
provisions of the FCPA are enforced by DOJ. The FCPA also
requires us to strictly comply with certain accounting and
internal controls standards enforced by the SEC. In recent
years, DOJ and SEC enforcement of the FCPA has become more
intense. Failure to comply with the FCPA and other laws can
expose us and/or individual employees to potentially severe
criminal and civil penalties. The risk may be greater when we
transact business, whether through subsidiaries or joint
ventures or other partnerships, in countries with higher
perceived levels of corruption. We have policies and procedures
designed to detect and deter prohibited practices, provide
specialized training, monitor our operations and payments
globally, and investigate allegations of improprieties relating
to transactions and the manner in which transactions are
recorded. However, if our employees, contractors or agents fail
to comply with applicable laws governing our international
operations, the Company, as well as individual employees, may
face investigations or prosecutions, which could have a material
adverse effect on our financial condition or results of
operations.
FOREIGN
OPERATIONS
We derive a significant portion of our revenues from the use of
our Card products, Travelers Cheques, travel and other financial
products and services in countries outside the United States and
continue to broaden the use of these products and services
outside the United States. (For a discussion of our revenue by
geographic region, see Note 25 to our Consolidated
Financial Statements, which you can find on
pages 114-116
of our 2010 Annual Report to Shareholders and which is
incorporated herein by reference.)
53
Our revenues can be affected by political and economic
conditions in these countries (including the availability of
foreign exchange for the payment by the local Card issuer of
obligations arising out of local Cardmembers spending
outside such country, for the payment of Card bills by
Cardmembers who are billed in other than their local currency,
and for the remittance of the proceeds of Travelers Cheque
sales). Substantial and sudden devaluation of local
Cardmembers currency can also affect their ability to make
payments to the local issuer of the Card in connection with
spending outside the local country.
As a result of our foreign operations, we are exposed to the
possibility that, because of foreign exchange rate fluctuations,
assets and liabilities denominated in currencies other than the
U.S. dollar may be realized in amounts greater or less than
the U.S. dollar amounts at which they are currently
recorded in our Consolidated Financial Statements. Examples of
transactions in which this may occur include the purchase by
Cardmembers of goods and services in a currency other than the
currency in which they are billed; the sale in one currency of a
Travelers Cheque denominated in a second currency; and, in most
instances, investments in foreign operations. These risks,
unless properly monitored and managed, could have an adverse
effect on our operations. For more information on how we manage
risk relating to foreign exchange, see Risk
Management Market Risk Management Process on
pages 48-49
of our 2010 Annual Report to Shareholders, which information is
incorporated herein by reference.
SALE OF
AMERICAN EXPRESS BANK LTD. / DISCONTINUED OPERATIONS
On September 18, 2007, we entered into an agreement to sell
our international banking subsidiary, American Express Bank Ltd.
(AEBL), to Standard Chartered PLC (Standard
Chartered), and to sell American Express International
Deposit Company (AEIDC) through a put/call agreement
to Standard Chartered 18 months after the close of the AEBL
sale. The sale of AEBL was completed on February 29, 2008.
In the third quarter of 2008, AEIDC qualified to be reported as
a discontinued operation and the sale of AEIDC was completed on
September 10, 2009.
For all periods presented, all of the operating results, assets
and liabilities, and cash flows of AEBL (except for certain
components of AEBL that were not sold) and AEIDC have been
removed from the Corporate & Other segment and are
presented separately in discontinued operations in the
Companys Consolidated Financial Statements. The Notes to
the Consolidated Financial Statements have been adjusted to
exclude discontinued operations unless otherwise noted.
You can find more information regarding this transaction in
Note 2 to our Consolidated Financial Statements, appearing
on page 75 of our 2010 Annual Report to Shareholders, which
is incorporated herein by reference.
SEGMENT
INFORMATION AND CLASSES OF SIMILAR SERVICES
You can find information regarding the Companys reportable
operating segments, geographic operations and classes of similar
services in Note 25 to our Consolidated Financial
Statements, which appears on
pages 114-116
of our 2010 Annual Report to Shareholders, which Note is
incorporated herein by reference.
EXECUTIVE
OFFICERS OF THE COMPANY
Set forth below in alphabetical order is a list of all our
executive officers as of February 25, 2011. None of our
executive officers has any family relationship with any other
executive officer, and none of our executive officers became an
officer pursuant to any arrangement or understanding with any
other person. Each executive
54
officer has been elected to serve until the next annual election
of officers or until his or her successor is elected and
qualified. Each officers age is indicated by the number in
parentheses next to his or her name.
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DOUGLAS E. BUCKMINSTER
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President, International Consumer and Small Business Services
|
Mr. Buckminster (50) has been President, International
Consumer and Small Business Services of the Company since
November 2009. Prior thereto he had been Executive Vice
President, International Consumer Products and Marketing since
July 2002.
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KENNETH I. CHENAULT
|
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Chairman and Chief Executive Officer
|
Mr. Chenault (59) has been Chairman since April 2001
and Chief Executive Officer since January 2001.
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L. KEVIN COX
|
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Executive Vice President, Human Resources
|
Mr. Cox (46) has been Executive Vice President, Human
Resources of the Company since April 2005. Prior thereto, he had
been Executive Vice President of The Pepsi Bottling Group since
September 2004.
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EDWARD P. GILLIGAN
|
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Vice Chairman
|
Mr. Gilligan (51) has been Vice Chairman of the
Company and head of the Companys Global Consumer and Small
Business Card Issuing, Network and Merchant businesses since
October 2009. Prior thereto, he had been Vice Chairman of the
Company and head of the Companys Global Business to
Business Group since July 2007. Prior thereto, he had been Group
President, American Express International & Global
Corporate Services since July 2005. Prior thereto, he had been
Group President, Global Corporate Services since June 2000 and
Group President, Global Corporate Services &
International Payments, since July 2003.
|
|
|
WILLIAM H. GLENN
|
|
President, Global Merchant Services
|
Mr. Glenn (53) has been President, Global Merchant
Services since June 2007. Prior thereto, he had been President
of Merchant Services North America and Global Merchant Network
Group since September 2002.
|
|
|
ASH GUPTA
|
|
Chief Risk Officer and President, Risk and Information
Management
|
Mr. Gupta (57) has been President of Risk, Information
Management and Banking Group and Chief Risk Officer since July
2007. Prior thereto, he had been Executive Vice President and
Chief Risk Officer of the Company since July 2003.
|
|
|
JOHN D. HAYES
|
|
Executive Vice President and Chief Marketing Officer
|
Mr. Hayes (56) has been Executive Vice President since
May 1995 and Chief Marketing Officer of the Company since August
2003.
|
|
|
DANIEL T. HENRY
|
|
Executive Vice President and Chief Financial Officer
|
Mr. Henry (61) has been Executive Vice President and
Chief Financial Officer of the Company since October 2007. Since
February 2007, Mr. Henry had been serving as Executive Vice
President and Acting Chief Financial Officer of the Company.
Prior thereto, he had been Executive Vice President and Chief
Financial Officer, U.S. Consumer, Small Business and
Merchant Services since October 2005 and Executive Vice
President and Chief Financial Officer, U.S. Consumer and
Small Business Services since August 2000.
|
|
|
LOUISE M. PARENT
|
|
Executive Vice President and General Counsel
|
Ms. Parent (60) has been Executive Vice President and
General Counsel since May 1993.
|
|
|
THOMAS SCHICK
|
|
Executive Vice President, Corporate and External Affairs
|
Mr. Schick (64) has been Executive Vice President,
Corporate and External Affairs since March 1993.
55
|
|
|
DANIEL H. SCHULMAN
|
|
Group President, Enterprise Growth
|
Mr. Schulman (53) has been Group President, Enterprise
Growth since August 2010. Mr. Schulman joined American
Express from Sprint Nextel Corporation, where he served as
President of the Prepaid group from 2009 until August 2010.
Before joining Sprint, Mr. Schulman was the founding CEO of
Virgin Mobile USA, a mobile virtual operator, acquired by Sprint
in 2009. Prior to that he was CEO of priceline.com and spent the
early part of his career with AT&T, where he ultimately led
the companys consumer long distance business.
|
|
|
STEPHEN J. SQUERI
|
|
Group President, Global Services
|
Mr. Squeri (51) has been Group President, Global
Services, since October 2009. From May 2005 to October 2009, he
served as Executive Vice President and Chief Information
Officer. In addition, from July 2008 to September 2010, he was
the head of Corporate Development, overseeing mergers and
acquisitions activities for the Company. Prior thereto, he had
been President, Global Commercial Card Global
Corporate Services since January 2002.
EMPLOYEES
We had approximately 61,000 employees on December 31,
2010.
GUIDE
3 STATISTICAL DISCLOSURE BY BANK HOLDING
COMPANIES
The accompanying supplemental information should be read in
conjunction with the Consolidated Financial Statements and the
Notes to the Consolidated Financial Statements in the
Companys 2010 Annual Report to Shareholders, which
information is incorporated herein by reference (Annual
Report). This information excludes discontinued operations
unless otherwise noted.
Upon adoption of new GAAP governing transfers of financial
assets and consolidation of variable interest entities
(VIEs), the Company was required to change its
accounting for the American Express Credit Account Master Trust
(the Lending Trust), a previously unconsolidated
VIE, which is now consolidated. As a result, beginning
January 1, 2010, the securitized cardmember loans and
related debt securities issued to third parties by the Lending
Trust are included on the Companys Consolidated Balance
Sheet. The Company continues to consolidate the American Express
Issuance Trust (the Charge Trust). Prior period
results have not been revised for the change in accounting for
the Lending Trust. Refer to Note 1 Summary of
Significant Accounting Policies on page 72 and
Note 7 Asset Securitizations on page 85 of
the Annual Report for further discussion.
56
DISTRIBUTION
OF ASSETS, LIABILITIES, AND SHAREHOLDERS EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
The following tables provide a summary of the Companys
consolidated average balances including major categories of
interest-earning assets and interest-bearing liabilities along
with an analysis of net interest earnings. Consolidated average
balances, interest, and average yields are segregated between
U.S. and
non-U.S. offices.
Assets, liabilities, interest income and interest expense are
attributed to U.S. and
non-U.S. based
on location of the office recording such items.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
Years Ended December 31,
(Millions, except
percentages)
|
|
Balance(a)
|
|
|
Income
|
|
|
Yield
|
|
|
Balance(a)
|
|
|
Income
|
|
|
Yield
|
|
|
Balance(a)
|
|
|
Income
|
|
|
Yield
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in other banks(b)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
16,276
|
|
|
$
|
40
|
|
|
|
0.2
|
%
|
|
$
|
7,090
|
|
|
$
|
13
|
|
|
|
0.2
|
%
|
|
$
|
8,814
|
|
|
$
|
136
|
|
|
|
1.5
|
%
|
Non-U.S.
|
|
|
2,203
|
|
|
|
23
|
|
|
|
1.0
|
|
|
|
1,724
|
|
|
|
28
|
|
|
|
1.6
|
|
|
|
1,402
|
|
|
|
19
|
|
|
|
1.4
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
309
|
|
|
|
12
|
|
|
|
3.9
|
|
|
|
123
|
|
|
|
6
|
|
|
|
4.9
|
|
|
|
122
|
|
|
|
10
|
|
|
|
8.2
|
|
Short-term investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
1,214
|
|
|
|
2
|
|
|
|
0.2
|
|
|
|
10,523
|
|
|
|
28
|
|
|
|
0.3
|
|
|
|
4,926
|
|
|
|
73
|
|
|
|
1.5
|
|
Non-U.S.
|
|
|
349
|
|
|
|
1
|
|
|
|
0.3
|
|
|
|
195
|
|
|
|
1
|
|
|
|
0.5
|
|
|
|
31
|
|
|
|
2
|
|
|
|
6.5
|
|
Cardmember loans(d)(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
47,700
|
|
|
|
5,407
|
|
|
|
11.3
|
|
|
|
26,114
|
|
|
|
2,984
|
|
|
|
11.4
|
|
|
|
36,962
|
|
|
|
4,464
|
|
|
|
12.1
|
|
Non-U.S.
|
|
|
8,419
|
|
|
|
1,356
|
|
|
|
16.1
|
|
|
|
8,696
|
|
|
|
1,446
|
|
|
|
16.6
|
|
|
|
10,670
|
|
|
|
1,649
|
|
|
|
15.5
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
41
|
|
|
|
3
|
|
|
|
7.3
|
|
|
|
140
|
|
|
|
3
|
|
|
|
2.1
|
|
|
|
175
|
|
|
|
4
|
|
|
|
2.3
|
|
Non-U.S.
|
|
|
410
|
|
|
|
18
|
|
|
|
4.4
|
|
|
|
527
|
|
|
|
38
|
|
|
|
7.2
|
|
|
|
646
|
|
|
|
74
|
|
|
|
11.5
|
|
Taxable investment securities(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
11,225
|
|
|
|
137
|
|
|
|
1.2
|
|
|
|
13,198
|
|
|
|
457
|
|
|
|
3.5
|
|
|
|
5,841
|
|
|
|
333
|
|
|
|
5.6
|
|
Non-U.S.
|
|
|
247
|
|
|
|
13
|
|
|
|
5.3
|
|
|
|
285
|
|
|
|
18
|
|
|
|
6.0
|
|
|
|
382
|
|
|
|
24
|
|
|
|
6.1
|
|
Non-taxable investment securities(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
5,999
|
|
|
|
252
|
|
|
|
6.3
|
|
|
|
5,989
|
|
|
|
286
|
|
|
|
6.8
|
|
|
|
6,565
|
|
|
|
334
|
|
|
|
7.6
|
|
Other assets(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily U.S.
|
|
|
523
|
|
|
|
28
|
|
|
|
n.m.
|
|
|
|
485
|
|
|
|
23
|
|
|
|
n.m.
|
|
|
|
336
|
|
|
|
79
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets(h)
|
|
$
|
94,915
|
|
|
$
|
7,292
|
|
|
|
7.8
|
%
|
|
$
|
75,089
|
|
|
$
|
5,331
|
|
|
|
7.3
|
%
|
|
$
|
76,872
|
|
|
$
|
7,201
|
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
82,978
|
|
|
|
5,869
|
|
|
|
|
|
|
|
63,539
|
|
|
|
3,794
|
|
|
|
|
|
|
|
63,619
|
|
|
|
5,423
|
|
|
|
|
|
Non-U.S.
|
|
|
11,937
|
|
|
|
1,423
|
|
|
|
|
|
|
|
11,550
|
|
|
|
1,537
|
|
|
|
|
|
|
|
13,253
|
|
|
|
1,778
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
Years Ended December 31,
(Millions, except
percentages)
|
|
Balance(a)
|
|
|
Balance(a)
|
|
|
Balance(a)
|
|
|
Non-interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
1,805
|
|
|
$
|
1,063
|
|
|
$
|
1,179
|
|
Non-U.S.
|
|
|
640
|
|
|
|
429
|
|
|
|
448
|
|
Cardmember receivables, net
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
18,045
|
|
|
|
17,056
|
|
|
|
20,220
|
|
Non-U.S.
|
|
|
16,253
|
|
|
|
13,812
|
|
|
|
16,500
|
|
Other receivables, net
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
1,825
|
|
|
|
2,149
|
|
|
|
2,349
|
|
Non-U.S.
|
|
|
1,227
|
|
|
|
1,249
|
|
|
|
1,279
|
|
Reserves for cardmember and other loans losses
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(3,696
|
)
|
|
|
(2,556
|
)
|
|
|
(1,923
|
)
|
Non-U.S.
|
|
|
(612
|
)
|
|
|
(564
|
)
|
|
|
(432
|
)
|
Other assets(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
11,900
|
|
|
|
12,288
|
|
|
|
9,699
|
|
Non-U.S.
|
|
|
1,907
|
|
|
|
2,131
|
|
|
|
2,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest-earning assets
|
|
|
49,294
|
|
|
|
47,057
|
|
|
|
51,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
29,879
|
|
|
|
30,000
|
|
|
|
31,524
|
|
Non-U.S.
|
|
|
19,415
|
|
|
|
17,057
|
|
|
|
20,000
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
75
|
|
|
|
5,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
144,209
|
|
|
$
|
122,221
|
|
|
$
|
134,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
112,857
|
|
|
|
93,539
|
|
|
|
95,143
|
|
Non-U.S.
|
|
|
31,352
|
|
|
|
28,607
|
|
|
|
33,253
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
75
|
|
|
|
5,745
|
|
Percentage of total average assets attributable to
non-U.S.
activities
|
|
|
21.7
|
%
|
|
|
23.4
|
%
|
|
|
24.8
|
%
|
|
|
|
(a)
|
|
Averages based on month end balances, except reserves for
cardmember and other receivables/loans, which are based on
quarter end averages.
|
|
(b)
|
|
Amounts include (i) average interest-bearing restricted
cash balances of $1,570 million, $417 million, and
$214 million for 2010, 2009 and 2008, respectively, which
are included in other assets on the Consolidated Balance Sheets,
and (ii) the associated interest income.
|
|
(c)
|
|
Interest bearing deposits in other banks and
cash and due from banks have been revised for book
overdraft misclassifications in 2009 and 2008, as described in
Note 1 Summary of Significant Accounting
Policies on page 72 of the Annual Report.
|
|
(d)
|
|
Card fees related to cardmember loans included in interest
income were $115 million, $107 million, and
$95 million in U.S. and $105 million, $79 million
and $51 million in
non-U.S.
for
2010, 2009 and 2008, respectively.
|
|
(e)
|
|
Average non-accrual loans were included in the average loan
balances used to determine the average yield on loans in amounts
of $839 million, $554 million and $8 million in
U.S. as well as $11 million, $15 million and
$6 million in
non-U.S.
for
2010, 2009 and 2008, respectively.
|
|
(f)
|
|
Average yields for
available-for-sale
investment securities have been calculated using total amortized
cost balances and do not include changes in fair value recorded
in other comprehensive (loss) income. Average yield on
non-taxable investment securities is calculated on a
tax-equivalent basis using the U.S. federal statutory tax rate
of 35 percent.
|
|
(g)
|
|
Amounts include (i) average equity securities balances,
which are included in investment securities on the Consolidated
Balance Sheets, and (ii) the associated dividend income.
The average yield on other assets has not been shown as it would
not be meaningful.
|
|
(h)
|
|
The average yield on total interest-earning assets is adjusted
for the impacts of items mentioned in (f) above.
|
|
(i)
|
|
Includes premises and equipment, net of accumulated depreciation.
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
Years Ended December 31,
(Millions, except
percentages)
|
|
Balance(a)
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance(a)
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance(a)
|
|
|
Expense
|
|
|
Rate
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
27,373
|
|
|
$
|
522
|
|
|
|
1.9
|
%
|
|
$
|
19,638
|
|
|
$
|
393
|
|
|
|
2.0
|
%
|
|
$
|
12,130
|
|
|
$
|
366
|
|
|
|
3.0
|
%
|
Non-U.S.
|
|
|
693
|
|
|
|
24
|
|
|
|
3.5
|
|
|
|
798
|
|
|
|
32
|
|
|
|
4.0
|
|
|
|
1,432
|
|
|
|
88
|
|
|
|
6.1
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
1,493
|
|
|
|
53
|
|
|
|
3.5
|
|
Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
1,066
|
|
|
|
4
|
|
|
|
0.4
|
|
|
|
2,145
|
|
|
|
31
|
|
|
|
1.4
|
|
|
|
12,490
|
|
|
|
399
|
|
|
|
3.2
|
|
Non-U.S.
|
|
|
1,066
|
|
|
|
|
|
|
|
|
|
|
|
801
|
|
|
|
6
|
|
|
|
0.7
|
|
|
|
942
|
|
|
|
31
|
|
|
|
3.3
|
|
Long-term debt(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
66,121
|
|
|
|
1,811
|
|
|
|
2.7
|
|
|
|
54,032
|
|
|
|
1,658
|
|
|
|
3.1
|
|
|
|
54,408
|
|
|
|
2,491
|
|
|
|
4.6
|
|
Non-U.S.
|
|
|
2,202
|
|
|
|
40
|
|
|
|
1.8
|
|
|
|
1,463
|
|
|
|
55
|
|
|
|
3.8
|
|
|
|
1,968
|
|
|
|
82
|
|
|
|
4.2
|
|
Other liabilities(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily U.S.
|
|
|
292
|
|
|
|
22
|
|
|
|
n.m.
|
|
|
|
284
|
|
|
|
32
|
|
|
|
n.m.
|
|
|
|
277
|
|
|
|
45
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
98,813
|
|
|
$
|
2,423
|
|
|
|
2.5
|
%
|
|
$
|
79,209
|
|
|
$
|
2,207
|
|
|
|
2.8
|
%
|
|
$
|
85,140
|
|
|
$
|
3,555
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
94,852
|
|
|
|
2,359
|
|
|
|
|
|
|
|
76,147
|
|
|
|
2,114
|
|
|
|
|
|
|
|
80,798
|
|
|
|
3,354
|
|
|
|
|
|
Non-U.S.
|
|
|
3,961
|
|
|
|
64
|
|
|
|
|
|
|
|
3,062
|
|
|
|
93
|
|
|
|
|
|
|
|
4,342
|
|
|
|
201
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travelers Cheques outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
5,272
|
|
|
|
|
|
|
|
|
|
|
|
5,623
|
|
|
|
|
|
|
|
|
|
|
|
6,289
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
Accounts payable(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
6,666
|
|
|
|
|
|
|
|
|
|
|
|
5,854
|
|
|
|
|
|
|
|
|
|
|
|
7,172
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
3,757
|
|
|
|
|
|
|
|
|
|
|
|
3,146
|
|
|
|
|
|
|
|
|
|
|
|
2,699
|
|
|
|
|
|
|
|
|
|
Other liabilities(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
10,962
|
|
|
|
|
|
|
|
|
|
|
|
10,298
|
|
|
|
|
|
|
|
|
|
|
|
9,311
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
3,732
|
|
|
|
|
|
|
|
|
|
|
|
3,130
|
|
|
|
|
|
|
|
|
|
|
|
5,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
|
30,643
|
|
|
|
|
|
|
|
|
|
|
|
28,381
|
|
|
|
|
|
|
|
|
|
|
|
31,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
22,900
|
|
|
|
|
|
|
|
|
|
|
|
21,775
|
|
|
|
|
|
|
|
|
|
|
|
22,772
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
7,743
|
|
|
|
|
|
|
|
|
|
|
|
6,606
|
|
|
|
|
|
|
|
|
|
|
|
8,593
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
5,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
129,456
|
|
|
|
|
|
|
|
|
|
|
|
107,651
|
|
|
|
|
|
|
|
|
|
|
|
122,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
117,752
|
|
|
|
|
|
|
|
|
|
|
|
97,922
|
|
|
|
|
|
|
|
|
|
|
|
103,570
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
11,704
|
|
|
|
|
|
|
|
|
|
|
|
9,668
|
|
|
|
|
|
|
|
|
|
|
|
12,935
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
5,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
14,753
|
|
|
|
|
|
|
|
|
|
|
|
14,570
|
|
|
|
|
|
|
|
|
|
|
|
12,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
144,209
|
|
|
|
|
|
|
|
|
|
|
$
|
122,221
|
|
|
|
|
|
|
|
|
|
|
$
|
134,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total average liabilities attributable to
non-U.S.
activities
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and net average yield on interest-earning
assets(e)
|
|
|
|
|
|
$
|
4,869
|
|
|
|
5.3
|
%
|
|
|
|
|
|
$
|
3,124
|
|
|
|
4.3
|
%
|
|
|
|
|
|
$
|
3,646
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Averages based on month end balances.
|
|
(b)
|
|
Interest expense incurred on derivative instruments in
qualifying hedging relationships has been reported along with
the related interest expense incurred on the hedged debt
instrument.
|
59
|
|
|
(c)
|
|
Amounts include (i) average deferred compensation liability
balances which are included in other liabilities on the
Consolidated Balance Sheets, and (ii) the associated
interest expense. The average rate on other liabilities has not
been shown as it would not be meaningful.
|
|
(d)
|
|
Accounts payable and other liabilities
have been revised for book overdraft misclassifications in 2009
and 2008, as further described in Note 1 Summary of
Significant Accounting Policies on page 72 of the
Annual Report.
|
|
(e)
|
|
Net average yield on interest-earning assets is defined as net
interest income divided by average total interest-earning assets
as adjusted for the items mentioned in note (f) on page 58.
|
CHANGES
IN NET INTEREST INCOME -VOLUME AND RATE ANALYSIS (a)
The following table presents the amount of changes in interest
income and interest expense due to changes in both average
volume and average rate. Major categories of interest-earning
assets and interest-bearing liabilities have been segregated
between U.S. and
non-U.S. offices.
Average volume/rate changes have been allocated between the
average rate and average volume variances on a consistent basis
based upon the respective percentage changes in average balances
and average rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 versus 2009
|
|
|
2009 versus 2008
|
|
|
|
Increase (Decrease) due to change in:
|
|
|
|
|
|
Increase (Decrease) due to change in:
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Net
|
|
|
Average
|
|
|
Average
|
|
|
Net
|
|
Years Ended December 31,
(Millions)
|
|
Volume
|
|
|
Rate
|
|
|
Change
|
|
|
Volume
|
|
|
Rate
|
|
|
Change
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in other banks(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
17
|
|
|
$
|
10
|
|
|
$
|
27
|
|
|
$
|
(27
|
)
|
|
$
|
(96
|
)
|
|
$
|
(123
|
)
|
Non-U.S.
|
|
|
8
|
|
|
|
(13
|
)
|
|
|
(5
|
)
|
|
|
4
|
|
|
|
5
|
|
|
|
9
|
|
Securities purchased under agreements to resell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
6
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Short-term investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(25
|
)
|
|
|
(1
|
)
|
|
|
(26
|
)
|
|
|
83
|
|
|
|
(128
|
)
|
|
|
(45
|
)
|
Non-U.S.
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
11
|
|
|
|
(12
|
)
|
|
|
(1
|
)
|
Cardmember loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
2,467
|
|
|
|
(44
|
)
|
|
|
2,423
|
|
|
|
(1,310
|
)
|
|
|
(170
|
)
|
|
|
(1,480
|
)
|
Non-U.S.
|
|
|
(46
|
)
|
|
|
(44
|
)
|
|
|
(90
|
)
|
|
|
(305
|
)
|
|
|
102
|
|
|
|
(203
|
)
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Non-U.S.
|
|
|
(8
|
)
|
|
|
(12
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
(22
|
)
|
|
|
(36
|
)
|
Taxable investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(70
|
)
|
|
|
(250
|
)
|
|
|
(320
|
)
|
|
|
404
|
|
|
|
(280
|
)
|
|
|
124
|
|
Non-U.S.
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
Non-taxable investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(12
|
)
|
|
|
(22
|
)
|
|
|
(34
|
)
|
|
|
(17
|
)
|
|
|
(31
|
)
|
|
|
(48
|
)
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily U.S.
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
|
|
35
|
|
|
|
(91
|
)
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in interest income
|
|
|
2,337
|
|
|
|
(376
|
)
|
|
|
1,961
|
|
|
|
(1,142
|
)
|
|
|
(728
|
)
|
|
|
(1,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 versus 2009
|
|
|
2009 versus 2008
|
|
|
|
Increase (Decrease) due to change in:
|
|
|
|
|
|
Increase (Decrease) due to change in:
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Net
|
|
|
Average
|
|
|
Average
|
|
|
Net
|
|
Years Ended December 31,
(Millions)
|
|
Volume
|
|
|
Rate
|
|
|
Change
|
|
|
Volume
|
|
|
Rate
|
|
|
Change
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
155
|
|
|
|
(26
|
)
|
|
|
129
|
|
|
|
227
|
|
|
|
(200
|
)
|
|
|
27
|
|
Non-U.S.
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(8
|
)
|
|
|
(39
|
)
|
|
|
(17
|
)
|
|
|
(56
|
)
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
(2
|
)
|
|
|
(53
|
)
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(16
|
)
|
|
|
(11
|
)
|
|
|
(27
|
)
|
|
|
(330
|
)
|
|
|
(38
|
)
|
|
|
(368
|
)
|
Non-U.S.
|
|
|
2
|
|
|
|
(8
|
)
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
(20
|
)
|
|
|
(25
|
)
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
371
|
|
|
|
(218
|
)
|
|
|
153
|
|
|
|
(17
|
)
|
|
|
(816
|
)
|
|
|
(833
|
)
|
Non-U.S.
|
|
|
28
|
|
|
|
(43
|
)
|
|
|
(15
|
)
|
|
|
(21
|
)
|
|
|
(6
|
)
|
|
|
(27
|
)
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily U.S.
|
|
|
1
|
|
|
|
(11
|
)
|
|
|
(10
|
)
|
|
|
1
|
|
|
|
(14
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in interest expense
|
|
|
537
|
|
|
|
(321
|
)
|
|
|
216
|
|
|
|
(235
|
)
|
|
|
(1,113
|
)
|
|
|
(1,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
1,800
|
|
|
$
|
(55
|
)
|
|
$
|
1,745
|
|
|
$
|
(907
|
)
|
|
$
|
385
|
|
|
$
|
(522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Refer to the notes on pages 58 and 59 for additional information.
|
|
(b)
|
|
Interest bearing deposits in other banks has been
revised for book overdraft misclassifications in 2009 and 2008,
as described in Note 1 Summary of Significant
Accounting Policies on page 72 of the Annual Report.
|
INVESTMENT
SECURITIES PORTFOLIO
The following table presents the fair value of the
Companys
available-for-sale
investment securities portfolio. Refer to Note 6
Investment Securities on page 83 in the Annual
Report for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
State and municipal obligations
|
|
$
|
5,797
|
|
|
$
|
6,250
|
|
|
$
|
5,631
|
|
U.S. Government agency obligations
|
|
|
3,413
|
|
|
|
6,745
|
|
|
|
3,185
|
|
U.S. Government treasury obligations
|
|
|
2,456
|
|
|
|
5,566
|
|
|
|
1,981
|
|
Corporate debt securities
|
|
|
1,445
|
|
|
|
1,335
|
|
|
|
218
|
|
Retained subordinated securities
|
|
|
|
|
|
|
3,599
|
|
|
|
744
|
|
Mortgage-backed securities
|
|
|
276
|
|
|
|
180
|
|
|
|
75
|
|
Equity securities
|
|
|
475
|
|
|
|
530
|
|
|
|
544
|
|
Foreign government bonds and obligations
|
|
|
99
|
|
|
|
92
|
|
|
|
81
|
|
Other
|
|
|
49
|
|
|
|
40
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
14,010
|
|
|
$
|
24,337
|
|
|
$
|
12,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
The following table presents an analysis of remaining
contractual maturities and weighted average yields for
available-for-sale
investment securities. Yields on tax-exempt obligations have
been computed on a tax-equivalent basis as discussed earlier.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
Due after 1
|
|
|
Due after 5
|
|
|
|
|
|
|
|
|
|
Due in 1
|
|
|
through
|
|
|
through
|
|
|
Due after
|
|
|
|
|
December 31,
(Millions, except percentages)
|
|
year or less
|
|
|
5 years
|
|
|
10 years
|
|
|
10 years
|
|
|
Total
|
|
|
State and municipal obligations(a)
|
|
$
|
3
|
|
|
$
|
71
|
|
|
$
|
257
|
|
|
$
|
5,466
|
|
|
$
|
5,797
|
|
U.S. Government agency obligations
|
|
|
2,953
|
|
|
|
458
|
|
|
|
|
|
|
|
2
|
|
|
|
3,413
|
|
U.S. Government treasury obligations
|
|
|
2,427
|
|
|
|
4
|
|
|
|
7
|
|
|
|
18
|
|
|
|
2,456
|
|
Corporate debt securities
|
|
|
815
|
|
|
|
590
|
|
|
|
40
|
|
|
|
|
|
|
|
1,445
|
|
Mortgage-backed securities(a)
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
273
|
|
|
|
276
|
|
Foreign government bonds and obligations
|
|
|
55
|
|
|
|
11
|
|
|
|
|
|
|
|
33
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value(b)
|
|
$
|
6,253
|
|
|
$
|
1,134
|
|
|
$
|
307
|
|
|
$
|
5,792
|
|
|
$
|
13,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield(c)
|
|
|
0.7
|
%
|
|
|
2.4
|
%
|
|
|
7.2
|
%
|
|
|
6.4
|
%
|
|
|
3.5
|
%
|
|
|
|
(a)
|
|
The expected payments on state and municipal obligations and
mortgage-backed securities may not coincide with their
contractual maturities because the issuers have the right to
call or prepay certain obligations.
|
|
(b)
|
|
Excludes equity securities and other securities included in the
prior table above as these are not debt securities with
contractual maturities.
|
|
(c)
|
|
Average yields for
available-for-sale
investment securities have been calculated using the effective
yield on the date of purchase.
|
As of December 31, 2010, U.S. Government treasury and
agency obligations were the only investments that exceeded
10 percent of shareholders equity.
LOANS AND
CARDMEMBER RECEIVABLES PORTFOLIOS
The following table presents gross loans, net of unearned
income, and gross cardmember receivables by customer type
segregated between U.S. and
non-U.S.,
based on the domicile of the borrowers. Allowance for losses is
presented beginning on page 67. Refer to Note 4
Accounts Receivable and Loans on page 78 and
Note 5 Reserves for Losses on page 81 in
the Annual Report for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember(a)
|
|
$
|
51,565
|
|
|
$
|
23,507
|
|
|
$
|
32,684
|
|
|
$
|
43,253
|
|
|
$
|
33,543
|
|
Other(b)
|
|
|
44
|
|
|
|
46
|
|
|
|
144
|
|
|
|
91
|
|
|
|
132
|
|
Non-U.S.
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember(a)
|
|
|
9,285
|
|
|
|
9,265
|
|
|
|
9,527
|
|
|
|
11,155
|
|
|
|
9,685
|
|
Other(b)
|
|
|
392
|
|
|
|
487
|
|
|
|
913
|
|
|
|
716
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
61,286
|
|
|
$
|
33,305
|
|
|
$
|
43,268
|
|
|
$
|
55,215
|
|
|
$
|
44,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(c)
|
|
$
|
19,155
|
|
|
$
|
17,750
|
|
|
$
|
17,822
|
|
|
$
|
21,418
|
|
|
$
|
20,586
|
|
Commercial(d)
|
|
|
6,439
|
|
|
|
5,587
|
|
|
|
5,269
|
|
|
|
6,261
|
|
|
|
5,897
|
|
Non-U.S.
cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(c)
|
|
|
6,852
|
|
|
|
6,149
|
|
|
|
5,769
|
|
|
|
7,243
|
|
|
|
6,484
|
|
Commercial(d)
|
|
|
4,820
|
|
|
|
4,257
|
|
|
|
4,128
|
|
|
|
5,150
|
|
|
|
4,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cardmember receivables
|
|
$
|
37,266
|
|
|
$
|
33,743
|
|
|
$
|
32,988
|
|
|
$
|
40,072
|
|
|
$
|
37,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents loans to individual and small business consumers.
|
|
(b)
|
|
Other loans at December 31, 2010, 2009 and 2008 primarily
represent small business installment loans, a store card
portfolio whose billed business is not processed on the
Companys network, and small business loans associated with
the acquisition of Corporate Payment Services. Other loans at
December 31, 2008,
|
62
|
|
|
|
|
also included a loan to an affiliate in discontinued operations.
2007 and prior periods primarily represent small business
installment loans.
|
|
(c)
|
|
Represents receivables from individual and small business charge
card consumers.
|
|
(d)
|
|
Represents receivables from corporate charge card clients.
|
MATURITIES
AND SENSITIVITIES TO CHANGES IN INTEREST RATES
The following table presents contractual maturities of loans and
cardmember receivables by customer type and segregated between
U.S. and
non-U.S. borrowers,
and distribution between fixed and floating interest rates for
loans due after one year based upon the stated terms of the loan
agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
Within
|
|
|
1-5
|
|
|
After
|
|
|
|
|
December 31,
(Millions)
|
|
1 year(a)(b)
|
|
|
years(b)(c)
|
|
|
5 years(c)
|
|
|
Total
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember
|
|
$
|
51,410
|
|
|
$
|
155
|
|
|
$
|
|
|
|
$
|
51,565
|
|
Other
|
|
|
9
|
|
|
|
15
|
|
|
|
20
|
|
|
|
44
|
|
Non-U.S.
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember
|
|
|
9,274
|
|
|
|
3
|
|
|
|
8
|
|
|
|
9,285
|
|
Other
|
|
|
389
|
|
|
|
3
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
61,082
|
|
|
$
|
176
|
|
|
$
|
28
|
|
|
$
|
61,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans due after one year at fixed interest rates
|
|
|
|
|
|
|
176
|
|
|
|
28
|
|
|
|
204
|
|
Loans due after one year at variable interest rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
|
|
|
$
|
176
|
|
|
$
|
28
|
|
|
$
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
19,131
|
|
|
$
|
24
|
|
|
|
|
|
|
$
|
19,155
|
|
Commercial
|
|
|
6,439
|
|
|
|
|
|
|
|
|
|
|
|
6,439
|
|
Non-U.S.
cardmember Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
6,852
|
|
|
|
|
|
|
|
|
|
|
|
6,852
|
|
Commercial
|
|
|
4,820
|
|
|
|
|
|
|
|
|
|
|
|
4,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cardmember receivables
|
|
$
|
37,242
|
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
37,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Cardmember loans have no stated maturity and are therefore
included in the due within one year category. However, many of
the Companys cardmembers will revolve their balances,
which may extend their repayment period beyond one year for
balances due at December 31, 2010.
|
|
(b)
|
|
Cardmember receivables are immediately due upon receipt of
cardmember statements and have no stated interest rate and are
included within the due within one year category. Receivables
due after one year represent long-term modification programs or
Troubled Debt Restructurings (TDRs), wherein the terms of a
receivable have been modified for cardmembers that are
experiencing financial difficulties and a long-term concession
(more than 12 months) has been granted to the borrower.
|
|
(c)
|
|
Cardmember and other loans due after one year primarily
represent installment loans and approximately $166 million
of TDRs.
|
63
CARDMEMBER
LOAN AND CARDMEMBER RECEIVABLE CONCENTRATIONS
The following table presents the Companys exposure to any
concentration of gross cardmember loans and cardmember
receivables which exceeds 10 percent of total cardmember
loans and cardmember receivables. Cardmember loan and cardmember
receivable concentrations are defined as cardmember loans and
cardmember receivables due from multiple borrowers engaged in
similar activities that would cause these borrowers to be
impacted similarly to certain economic or other related
conditions.
|
|
|
|
|
December 31,
(Millions)
|
|
2010(a)
|
|
|
Individuals
|
|
$
|
86,857
|
|
Commercial(b)
|
|
$
|
11,259
|
|
|
|
|
|
|
Total on-balance sheet
|
|
$
|
98,116
|
|
|
|
|
|
|
Unused lines of credit-individuals(c)
|
|
$
|
225,830
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Refer to Note 22 Significant Credit
Concentrations on page 110 in the Annual Report for
additional information on concentrations, including exposure to
the airline industry, and for a discussion of how the Company
manages concentration exposures. Certain distinctions between
categories require management judgment.
|
|
(b)
|
|
Includes corporate charge card receivables of $641 million
from financial institutions, $21 million from U.S.
Government agencies and $10.6 billion from other corporate
institutions.
|
|
(c)
|
|
Because charge card products have no preset spending limit, the
associated credit limit on cardmember receivables is not
quantifiable. Therefore, the quantified unused
line-of-credit
amounts only include the approximate credit line available on
cardmember loans (including both for on-balance sheet loans and
loans previously securitized).
|
RISK
ELEMENTS
The following table presents the amounts of non-performing loans
and cardmember receivables that are either non-accrual, past
due, or restructured, segregated between U.S. and
non-U.S. borrowers.
Past due loans are loans that are contractually past due
90 days or more as to principal or interest payments.
Restructured loans and cardmember receivables are those that
meet the definition of Troubled Debt Restructurings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(Millions)
|
|
2010(a)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.(c)
|
|
$
|
628
|
|
|
$
|
480
|
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
112
|
|
Non-U.S.
|
|
|
12
|
|
|
|
14
|
|
|
|
6
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
|
640
|
|
|
|
494
|
|
|
|
14
|
|
|
|
13
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans contractually 90 days past-due and still accruing
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.(d)
|
|
|
90
|
|
|
|
102
|
|
|
|
692
|
|
|
|
558
|
|
|
|
277
|
|
Non-U.S.
|
|
|
99
|
|
|
|
151
|
|
|
|
166
|
|
|
|
149
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans contractually 90 days past-due and still
accruing interest
|
|
|
189
|
|
|
|
253
|
|
|
|
858
|
|
|
|
707
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans(d)(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
1,076
|
|
|
|
706
|
|
|
|
403
|
|
|
|
47
|
|
|
|
73
|
|
Non-U.S.
|
|
|
11
|
|
|
|
15
|
|
|
|
24
|
|
|
|
41
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
|
1,087
|
|
|
|
721
|
|
|
|
427
|
|
|
|
88
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
1,916
|
|
|
$
|
1,468
|
|
|
$
|
1,299
|
|
|
$
|
808
|
|
|
$
|
666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured cardmember receivables(d)(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
114
|
|
|
|
94
|
|
|
|
141
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured cardmember receivables
|
|
$
|
114
|
|
|
$
|
94
|
|
|
$
|
141
|
|
|
$
|
4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The increase in impaired loans was due to the adoption of new
GAAP effective January 1, 2010, which resulted in the
consolidation of the Lending Trust as discussed further in
Note 1 Summary of Significant
|
64
|
|
|
|
|
Accounting Policies on page 72 of the Annual Report.
As a result of these changes, amounts as of December 31,
2010 include impaired loans and receivables for both the Charge
Trust and Lending Trust; correspondingly, amounts as of
December 31, 2009 only include impaired loans and
receivables for the Charge Trust and the sellers interest
portion of the Lending Trust. Amounts as of both balance sheet
dates also include impaired loans and receivables associated
with other non-securitized portfolios.
|
|
(b)
|
|
The Companys policy is generally to cease accruing
interest income once a related cardmember loan is 180 days
past due at which time the cardmember loan is written off. The
Company establishes loan loss reserves for estimated
uncollectible interest receivable balances prior to write-off.
Beginning with 2009, certain cardmember loans placed with
outside collection agencies are put on non-accrual status.
|
|
(c)
|
|
As of December 31, 2009, these amounts primarily include
certain cardmember loans placed with outside collection
agencies. Non-accrual loans at December 31, 2006 and 2005
included a single loan to a U.S. commercial airline of
approximately $104 million and $266 million,
respectively, which was paid off in full during the second
quarter of 2007. The loan was put on non-accrual status in the
third quarter of 2005.
|
|
(d)
|
|
Represents long-term and short-term modification programs or
TDRs, wherein the terms of a loan or receivable have been
modified for cardmembers that are experiencing financial
difficulties and a concession has been granted to the borrower.
The Company may modify cardmember loans and receivables and such
modifications may include reducing the interest rate/delinquency
fees on the loans and receivables and/or placing the cardmember
on a fixed payment plan not exceeding 60 months. If the
cardmember does not comply with the modified terms, then the
loan or receivable agreement reverts back to its original terms.
|
|
(e)
|
|
Certain reclassifications of prior year amounts have been made
to conform to the current presentation.
|
IMPACT OF
NON-PERFORMING LOANS ON INTEREST INCOME
The following table presents the gross interest income for both
non-accrual and restructured loans for 2010 that would have been
recognized if such loans had been current in accordance with
their original contractual terms, and had been outstanding
throughout the period or since origination if held for only part
of 2010. The table also presents the interest income related to
these loans that was actually recognized for the period. These
amounts are segregated between U.S. and
non-U.S. borrowers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Year Ended December 31,
(Millions)
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
Gross amount of interest income that would have been recorded in
accordance with the original contractual terms(a)
|
|
$
|
143
|
|
|
$
|
3
|
|
|
$
|
146
|
|
Interest income actually recognized
|
|
|
16
|
|
|
|
1
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest revenue foregone
|
|
$
|
127
|
|
|
$
|
2
|
|
|
$
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Based on the contractual rate that was being charged at the time
the loan was restructured or placed on non-accrual status.
|
POTENTIAL
PROBLEM RECEIVABLES
This disclosure presents outstanding amounts as well as specific
reserves for certain receivables where information about
possible credit problems of borrowers causes management to have
serious doubts as to the ability of such borrowers to comply
with the present repayment terms. At December 31, 2010, the
Company did not identify any potential problem loans or
receivables within the cardmember loans and receivables
portfolio that were not already included in Risk
Elements above.
CROSS-BORDER
OUTSTANDINGS
Cross-border disclosure is based upon the Federal Financial
Institutions Examination Councils (FFIEC)
guidelines governing the determination of cross-border risk. The
Company has adopted the FFIEC guidelines for its cross-border
disclosure starting with 2009 reporting.
65
The primary differences between the FFIEC and Guide 3 guidelines
for reporting cross-border exposure are:
i) available-for-sale
investment securities are reported based on amortized cost for
FFIEC instead of fair value for Guide 3; ii) net local
country claims are reduced by local country liabilities
(regardless of currency denomination) excluding any debt that is
funding the local assets through a foreign domiciled subsidiary
for FFIEC compared to Guide 3 where only amounts in the same
currencies are offset and such debt noted above is a reduction
to local country claims; iii) the FFIEC methodology
includes
mark-to-market
exposures of derivative assets which are excluded under Guide 3;
and iv) investments in unconsolidated subsidiaries are
included under FFIEC but excluded under Guide 3.
The following table presents the aggregate amount of
cross-border outstandings from borrowers or counterparties for
each foreign country that exceeds 1 percent of consolidated
total assets for any of the periods reported below. Cross-border
outstandings include loans, receivables, interest-bearing
deposits with other banks, other interest-bearing investments
and other monetary assets that are denominated in either dollars
or other non-local currency.
The table separately presents the amounts of cross-border
outstandings by type of borrower including governments and
official institutions, banks and other financial institutions
and other, along with an analysis of local country assets net of
local country liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Governments
|
|
|
Banks and
|
|
|
|
|
|
Net local
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
and official
|
|
|
other financial
|
|
|
|
|
|
country
|
|
|
cross-border
|
|
|
Cross-border
|
|
|
Total
|
|
Years Ended December 31,
(Millions)
|
|
|
|
|
institutions
|
|
|
institutions
|
|
|
Other
|
|
|
claims
|
|
|
outstandings
|
|
|
commitments(b)
|
|
|
exposure
|
|
|
Australia
|
|
|
2010
|
|
|
$
|
|
|
|
$
|
37
|
|
|
$
|
1
|
|
|
$
|
4,225
|
|
|
$
|
4,263
|
|
|
|
|
|
|
$
|
4,263
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
1,026
|
|
|
|
1
|
|
|
|
3,869
|
|
|
|
4,896
|
|
|
|
|
|
|
|
4,896
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
278
|
|
|
|
5
|
|
|
|
3,686
|
|
|
|
3,969
|
|
|
|
|
|
|
|
3,969
|
|
|
|
United Kingdom
|
|
|
2010
|
|
|
$
|
2
|
|
|
$
|
1,582
|
|
|
$
|
345
|
|
|
$
|
800
|
|
|
$
|
2,729
|
|
|
|
|
|
|
$
|
2,729
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
959
|
|
|
|
314
|
|
|
|
1,264
|
|
|
|
2,537
|
|
|
|
|
|
|
|
2,537
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
844
|
|
|
|
379
|
|
|
|
2,286
|
|
|
|
3,509
|
|
|
|
|
|
|
|
3,509
|
|
|
|
Canada
|
|
|
2010
|
|
|
$
|
|
|
|
$
|
258
|
|
|
$
|
3
|
|
|
$
|
2,212
|
|
|
$
|
2,473
|
|
|
|
|
|
|
$
|
2,473
|
|
|
|
|
2009
|
|
|
|
4
|
|
|
|
25
|
|
|
|
3
|
|
|
|
1,667
|
|
|
|
1,699
|
|
|
|
|
|
|
|
1,699
|
|
|
|
|
2008
|
|
|
|
5
|
|
|
|
782
|
|
|
|
3
|
|
|
|
1,451
|
|
|
|
2,241
|
|
|
|
|
|
|
|
2,241
|
|
|
|
France
|
|
|
2010
|
|
|
$
|
|
|
|
$
|
45
|
|
|
$
|
8
|
|
|
$
|
824
|
|
|
$
|
877
|
|
|
|
|
|
|
$
|
877
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
1,136
|
|
|
|
7
|
|
|
|
876
|
|
|
|
2,019
|
|
|
|
|
|
|
|
2,019
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
1,213
|
|
|
|
9
|
|
|
|
800
|
|
|
|
2,022
|
|
|
|
|
|
|
|
2,022
|
|
|
|
Netherlands
|
|
|
2010
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
221
|
|
|
$
|
|
|
|
$
|
228
|
|
|
|
|
|
|
$
|
228
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
35
|
|
|
|
188
|
|
|
|
|
|
|
|
223
|
|
|
|
|
|
|
|
223
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
886
|
|
|
|
223
|
|
|
|
183
|
|
|
|
1,292
|
|
|
|
|
|
|
|
1,292
|
|
|
|
Other countries(a)
|
|
|
2010
|
|
|
$
|
1
|
|
|
$
|
501
|
|
|
$
|
283
|
|
|
$
|
2,389
|
|
|
$
|
3,174
|
|
|
|
|
|
|
$
|
3,174
|
|
|
|
|
2009
|
|
|
|
1
|
|
|
|
5
|
|
|
|
223
|
|
|
|
2,156
|
|
|
|
2,385
|
|
|
|
|
|
|
|
2,385
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
1,003
|
|
|
|
227
|
|
|
|
1,984
|
|
|
|
3,214
|
|
|
|
|
|
|
|
3,214
|
|
|
|
|
|
|
(a)
|
|
In 2010, only Mexico cross-border outstandings are between
0.75 percent and 1.0 percent of consolidated total
assets. Italy and Sweden were also included within 2009 or 2008
as they exceeded the threshold, to be consistent with prior year
presentation.
|
|
(b)
|
|
Generally, all charge and credit cards have revocable lines of
credit, and therefore, are not disclosed as cross-border
commitments. Refer to loan concentrations on page 64 for
amount of unused lines of credit.
|
66
SUMMARY
OF LOAN LOSS EXPERIENCE
ANALYSIS
OF THE ALLOWANCE FOR LOAN LOSSES
The following table summarizes the changes to the Companys
allowance for cardmember loan losses. The table segregates such
changes between U.S. and
non-U.S. borrowers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(Millions, except
percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cardmember loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at beginning of year
U.S. loans
|
|
$
|
2,541
|
|
|
$
|
2,164
|
|
|
$
|
1,457
|
|
|
$
|
836
|
|
|
$
|
727
|
|
Reserves established for consolidation of a variable interest
entities
|
|
|
2,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans adjusted balance
|
|
|
5,072
|
|
|
|
2,164
|
|
|
|
1,457
|
|
|
|
836
|
|
|
|
727
|
|
Non-U.S.
loans
|
|
|
727
|
|
|
|
406
|
|
|
|
374
|
|
|
|
335
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for losses beginning of year
|
|
|
5,799
|
|
|
|
2,570
|
|
|
|
1,831
|
|
|
|
1,171
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember lending provisions(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
1,291
|
|
|
|
3,276
|
|
|
|
3,490
|
|
|
|
2,179
|
|
|
|
993
|
|
Non-U.S.
loans
|
|
|
236
|
|
|
|
990
|
|
|
|
741
|
|
|
|
582
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cardmember lending provisions
|
|
|
1,527
|
|
|
|
4,266
|
|
|
|
4,231
|
|
|
|
2,761
|
|
|
|
1,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
(3,614
|
)
|
|
|
(2,914
|
)
|
|
|
(2,816
|
)
|
|
|
(1,630
|
)
|
|
|
(946
|
)
|
Non-U.S.
loans
|
|
|
(573
|
)
|
|
|
(810
|
)
|
|
|
(708
|
)
|
|
|
(655
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total write-offs
|
|
|
(4,187
|
)
|
|
|
(3,724
|
)
|
|
|
(3,524
|
)
|
|
|
(2,285
|
)
|
|
|
(1,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
468
|
|
|
|
230
|
|
|
|
207
|
|
|
|
198
|
|
|
|
108
|
|
Non-U.S.
loans
|
|
|
100
|
|
|
|
97
|
|
|
|
94
|
|
|
|
97
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
568
|
|
|
|
327
|
|
|
|
301
|
|
|
|
295
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net write-offs(b)(c)
|
|
|
(3,619
|
)
|
|
|
(3,397
|
)
|
|
|
(3,223
|
)
|
|
|
(1,990
|
)
|
|
|
(1,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
(64
|
)
|
|
|
(215
|
)
|
|
|
(174
|
)
|
|
|
(126
|
)
|
|
|
(46
|
)
|
Non-U.S.
loans
|
|
|
3
|
|
|
|
44
|
|
|
|
(95
|
)
|
|
|
15
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
|
|
|
(61
|
)
|
|
|
(171
|
)
|
|
|
(269
|
)
|
|
|
(111
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
3,153
|
|
|
|
2,541
|
|
|
|
2,164
|
|
|
|
1,457
|
|
|
|
836
|
|
Non-U.S.
loans
|
|
|
493
|
|
|
|
727
|
|
|
|
406
|
|
|
|
374
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for losses
|
|
|
3,646
|
|
|
$
|
3,268
|
|
|
$
|
2,570
|
|
|
$
|
1,831
|
|
|
$
|
1,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net write-offs / average cardmember loans
outstanding(b)(c)(e)
|
|
|
5.6
|
%
|
|
|
8.5
|
%
|
|
|
5.5
|
%
|
|
|
3.5
|
%
|
|
|
3.3
|
%
|
|
|
|
(a)
|
|
Refer to Note 5 Reserves for Losses on
page 81 in the Annual Report for a discussion of
managements process for evaluating allowance for loan
losses.
|
|
(b)
|
|
In the third quarter of 2008, the Company revised its method of
reporting the cardmember lending net write-off rate.
Historically, the net write-off rate has been presented using
net write-off amounts for principal, interest, and fees.
However, industry convention is generally to include only the
net write-offs related to principal in write-off rate
disclosures. The write-off rate for 2010, 2009, 2008 and 2007 is
a principal only write-off rate consistent with industry
convention. The write-off rate for 2006 reflects principal only
write-offs in the U.S. and total write-offs (principal,
interest, and fees) outside the U.S. as principal only write-off
information was not available outside the U.S. for 2006.
|
|
(c)
|
|
For purposes of calculating the net write-off rate in accordance
with (b) above, net write-offs were $3.3 billion,
$2.9 billion, $2.6 billion, $1.6 billion,
$1.2 billion for
2010-2006,
respectively.
|
|
(d)
|
|
Includes $160 million of reserves in 2009, that were
removed in connection with securitizations during the year. The
offset is in the allocated cost of the associated retained
subordinated securities. This amount also includes foreign
currency translation adjustments. The prior years included
foreign currency translation and other adjustments primarily
related to the reclassification of waived fee reserves to a
contra-cardmember loan.
|
|
(e)
|
|
Average cardmember loans are based on month end balances.
|
67
The following table summarizes the changes to the Companys
allowance for other loan losses. The table segregates such
changes between U.S. and
non-U.S. borrowers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(Millions, except
percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
$
|
2
|
|
|
$
|
15
|
|
|
$
|
12
|
|
|
$
|
16
|
|
|
$
|
19
|
|
Non-U.S.
loans
|
|
|
25
|
|
|
|
24
|
|
|
|
33
|
|
|
|
24
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for losses
|
|
|
27
|
|
|
|
39
|
|
|
|
45
|
|
|
|
40
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for other loan losses(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
3
|
|
|
|
5
|
|
|
|
10
|
|
|
|
4
|
|
|
|
1
|
|
Non-U.S.
loans
|
|
|
22
|
|
|
|
45
|
|
|
|
53
|
|
|
|
41
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provisions for other loan losses
|
|
|
25
|
|
|
|
50
|
|
|
|
63
|
|
|
|
45
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
(4
|
)
|
|
|
(19
|
)
|
|
|
(8
|
)
|
|
|
(9
|
)
|
|
|
(6
|
)
|
Non-U.S.
loans
|
|
|
(34
|
)
|
|
|
(50
|
)
|
|
|
(72
|
)
|
|
|
(36
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total write-offs
|
|
|
(38
|
)
|
|
|
(69
|
)
|
|
|
(80
|
)
|
|
|
(45
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
Non-U.S.
loans
|
|
|
8
|
|
|
|
10
|
|
|
|
7
|
|
|
|
6
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
9
|
|
|
|
11
|
|
|
|
8
|
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net write-offs
|
|
|
(29
|
)
|
|
|
(58
|
)
|
|
|
(72
|
)
|
|
|
(38
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
loans
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
2
|
|
|
|
2
|
|
|
|
15
|
|
|
|
12
|
|
|
|
16
|
|
Non-U.S.
loans
|
|
|
22
|
|
|
|
25
|
|
|
|
24
|
|
|
|
33
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for losses
|
|
$
|
24
|
|
|
$
|
27
|
|
|
$
|
39
|
|
|
$
|
45
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net write-offs/average other loans outstanding(c)
|
|
|
6.5
|
%
|
|
|
8.7
|
%
|
|
|
8.8
|
%
|
|
|
4.0
|
%
|
|
|
1.2
|
%
|
|
|
|
(a)
|
|
Provisions for other loan losses are determined based on a
specific identification methodology and models that analyze
specific portfolio statistics.
|
|
(b)
|
|
Includes primarily foreign currency translation adjustments.
|
|
(c)
|
|
The net write-off rate presented is on a worldwide basis and is
based on write-offs of principal and fees. Average other loans
are based on month end balances.
|
68
The following table summarizes the changes to the Companys
allowance for losses on cardmember receivables. The table
segregates such changes between U.S. and
non-U.S. borrowers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(Millions, except
percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses at beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
256
|
|
|
$
|
474
|
|
|
$
|
844
|
|
|
$
|
666
|
|
|
$
|
659
|
|
Commercial
|
|
|
93
|
|
|
|
113
|
|
|
|
104
|
|
|
|
99
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. receivables
|
|
|
349
|
|
|
|
587
|
|
|
|
948
|
|
|
|
765
|
|
|
|
755
|
|
Non-U.S.
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
148
|
|
|
|
173
|
|
|
|
167
|
|
|
|
188
|
|
|
|
166
|
|
Commercial
|
|
|
49
|
|
|
|
50
|
|
|
|
34
|
|
|
|
28
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-U.S.
receivables
|
|
|
197
|
|
|
|
223
|
|
|
|
201
|
|
|
|
216
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for losses
|
|
|
546
|
|
|
|
810
|
|
|
|
1,149
|
|
|
|
981
|
|
|
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for losses(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
296
|
|
|
|
492
|
|
|
|
899
|
|
|
|
824
|
|
|
|
567
|
|
Commercial
|
|
|
105
|
|
|
|
106
|
|
|
|
130
|
|
|
|
96
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. provisions
|
|
|
401
|
|
|
|
598
|
|
|
|
1,029
|
|
|
|
920
|
|
|
|
635
|
|
Non-U.S.
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
148
|
|
|
|
196
|
|
|
|
255
|
|
|
|
170
|
|
|
|
264
|
|
Commercial
|
|
|
46
|
|
|
|
63
|
|
|
|
79
|
|
|
|
50
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-U.S.
provisions
|
|
|
194
|
|
|
|
259
|
|
|
|
334
|
|
|
|
220
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provisions for losses
|
|
|
595
|
|
|
|
857
|
|
|
|
1,363
|
|
|
|
1,140
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(528
|
)
|
|
|
(984
|
)
|
|
|
(1,326
|
)
|
|
|
(748
|
)
|
|
|
(671
|
)
|
Commercial
|
|
|
(128
|
)
|
|
|
(154
|
)
|
|
|
(142
|
)
|
|
|
(111
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. write-offs
|
|
|
(656
|
)
|
|
|
(1,138
|
)
|
|
|
(1,468
|
)
|
|
|
(859
|
)
|
|
|
(755
|
)
|
Non-U.S.
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(222
|
)
|
|
|
(261
|
)
|
|
|
(214
|
)
|
|
|
(208
|
)
|
|
|
(193
|
)
|
Commercial
|
|
|
(77
|
)
|
|
|
(81
|
)
|
|
|
(57
|
)
|
|
|
(43
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-U.S.
write-offs
|
|
|
(299
|
)
|
|
|
(342
|
)
|
|
|
(271
|
)
|
|
|
(251
|
)
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total write-offs
|
|
|
(955
|
)
|
|
|
(1,480
|
)
|
|
|
(1,739
|
)
|
|
|
(1,110
|
)
|
|
|
(987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(Millions, except
percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
227
|
|
|
$
|
268
|
|
|
$
|
115
|
|
|
$
|
139
|
|
|
$
|
121
|
|
Commercial
|
|
|
50
|
|
|
|
29
|
|
|
|
27
|
|
|
|
22
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. recoveries
|
|
|
277
|
|
|
|
297
|
|
|
|
142
|
|
|
|
161
|
|
|
|
141
|
|
Non-U.S.
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
55
|
|
|
|
37
|
|
|
|
34
|
|
|
|
32
|
|
|
|
27
|
|
Commercial
|
|
|
25
|
|
|
|
15
|
|
|
|
11
|
|
|
|
10
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-U.S.
recoveries
|
|
|
80
|
|
|
|
52
|
|
|
|
45
|
|
|
|
42
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
357
|
|
|
|
349
|
|
|
|
187
|
|
|
|
203
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net write-offs(b)
|
|
|
(598
|
)
|
|
|
(1,131
|
)
|
|
|
(1,552
|
)
|
|
|
(907
|
)
|
|
|
(810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(58
|
)
|
|
|
6
|
|
|
|
(58
|
)
|
|
|
(37
|
)
|
|
|
(10
|
)
|
Commercial
|
|
|
(41
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. other
|
|
|
(99
|
)
|
|
|
5
|
|
|
|
(64
|
)
|
|
|
(39
|
)
|
|
|
(11
|
)
|
Non-U.S.
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(45
|
)
|
|
|
3
|
|
|
|
(69
|
)
|
|
|
(15
|
)
|
|
|
(76
|
)
|
Commercial
|
|
|
(13
|
)
|
|
|
2
|
|
|
|
(17
|
)
|
|
|
(11
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-U.S.
other
|
|
|
(58
|
)
|
|
|
5
|
|
|
|
(86
|
)
|
|
|
(26
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
|
|
|
(157
|
)
|
|
|
10
|
|
|
|
(150
|
)
|
|
|
(65
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
193
|
|
|
|
256
|
|
|
|
474
|
|
|
|
844
|
|
|
|
666
|
|
Commercial
|
|
|
79
|
|
|
|
93
|
|
|
|
113
|
|
|
|
104
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. receivables
|
|
|
272
|
|
|
|
349
|
|
|
|
587
|
|
|
|
948
|
|
|
|
765
|
|
Non-U.S.
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
84
|
|
|
|
148
|
|
|
|
173
|
|
|
|
167
|
|
|
|
188
|
|
Commercial
|
|
|
30
|
|
|
|
49
|
|
|
|
50
|
|
|
|
34
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-U.S.
receivables
|
|
|
114
|
|
|
|
197
|
|
|
|
223
|
|
|
|
201
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for losses
|
|
$
|
386
|
|
|
$
|
546
|
|
|
$
|
810
|
|
|
$
|
1,149
|
|
|
$
|
981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net write-offs / average cardmember receivables
outstanding(d)
|
|
|
1.7
|
%
|
|
|
3.6
|
%
|
|
|
4.1
|
%
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
Net loss ratio as a percentage of charge volume(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.24
|
%
|
|
|
0.24
|
%
|
|
|
|
(a)
|
|
Refer to Note 5 Reserves for Losses on
page 81 in the Annual Report for a discussion of
managements process for evaluating allowance for
receivable losses.
|
|
(b)
|
|
In the fourth quarter of 2008, the Company revised the time
period in which past due cardmember receivables in U.S. Card
Services are written off to 180 days past due, consistent
with applicable regulatory guidance. Previously, receivables
were written off when 360 days past billing. The net
write-offs for 2008 include approximately $341 million
resulting from this write-off methodology change.
|
|
(c)
|
|
Includes foreign currency translation and other adjustments
primarily related to the reclassification of waived fee reserves
to a contra-cardmember receivable.
|
|
(d)
|
|
The net write-off rate presented is on a worldwide basis and is
based on write-offs of principal and fees. The U.S. Card
Services write-off rate was 1.6 percent, for 2010. Averages
are based on month end balances.
|
|
(e)
|
|
The net loss ratio represents the worldwide ratio of charge card
write-offs consisting of principal (resulting from authorized
and unauthorized transactions) and fee components, less
recoveries, on cardmember receivables expressed as a percent of
gross amounts billed to customers. As a result of the change
discussed in (b) above, the Company stopped calculating the
worldwide net loss ratio beginning in 2008 based on
360 days past billing methodology.
|
70
ALLOCATION
OF ALLOWANCE FOR LOSSES
The following table presents an allocation of the allowance for
losses for loans and cardmember receivables and the percent of
loans and cardmember receivables in each category of total loans
and cardmember receivables, respectively, by customer type. The
table segregates loans and cardmember receivables and related
allowances for losses between U.S. and
non-U.S. borrowers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
loans/
|
|
|
|
|
|
loans/
|
|
|
|
|
|
loans/
|
|
|
|
|
|
loans/
|
|
|
|
|
|
loans/
|
|
|
|
|
|
|
receivables
|
|
|
|
|
|
receivables
|
|
|
|
|
|
receivables
|
|
|
|
|
|
receivables
|
|
|
|
|
|
receivables
|
|
|
|
|
|
|
in each
|
|
|
|
|
|
in each
|
|
|
|
|
|
in each
|
|
|
|
|
|
in each
|
|
|
|
|
|
in each
|
|
|
|
|
|
|
category
|
|
|
|
|
|
category
|
|
|
|
|
|
category
|
|
|
|
|
|
category
|
|
|
|
|
|
category
|
|
Allowance for
|
|
|
|
|
to total
|
|
|
|
|
|
to total
|
|
|
|
|
|
to total
|
|
|
|
|
|
to total
|
|
|
|
|
|
to total
|
|
losses at end of year
|
|
|
|
|
loans/
|
|
|
|
|
|
loans/
|
|
|
|
|
|
loans/
|
|
|
|
|
|
loans/
|
|
|
|
|
|
loans/
|
|
applicable to
|
|
Amount
|
|
|
receivables
|
|
|
Amount
|
|
|
receivables
|
|
|
Amount
|
|
|
receivables
|
|
|
Amount
|
|
|
receivables
|
|
|
Amount
|
|
|
receivables
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember
|
|
$
|
3,153
|
|
|
|
84
|
%
|
|
$
|
2,541
|
|
|
|
71
|
%
|
|
$
|
2,164
|
|
|
|
76
|
%
|
|
$
|
1,457
|
|
|
|
79
|
%
|
|
$
|
836
|
|
|
|
76
|
%
|
Other
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
15
|
|
|
|
1
|
|
|
|
12
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
Non-U.S.
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember
|
|
|
493
|
|
|
|
15
|
|
|
|
727
|
|
|
|
28
|
|
|
|
406
|
|
|
|
22
|
|
|
|
374
|
|
|
|
20
|
|
|
|
335
|
|
|
|
22
|
|
Other
|
|
|
22
|
|
|
|
1
|
|
|
|
25
|
|
|
|
1
|
|
|
|
24
|
|
|
|
1
|
|
|
|
33
|
|
|
|
1
|
|
|
|
24
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,670
|
|
|
|
100
|
%
|
|
$
|
3,295
|
|
|
|
100
|
%
|
|
$
|
2,609
|
|
|
|
100
|
%
|
|
$
|
1,876
|
|
|
|
100
|
%
|
|
$
|
1,211
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
193
|
|
|
|
52
|
%
|
|
$
|
256
|
|
|
|
53
|
%
|
|
$
|
474
|
|
|
|
54
|
%
|
|
$
|
844
|
|
|
|
53
|
%
|
|
$
|
666
|
|
|
|
55
|
%
|
Commercial
|
|
|
79
|
|
|
|
17
|
|
|
|
93
|
|
|
|
17
|
|
|
|
113
|
|
|
|
16
|
|
|
|
104
|
|
|
|
16
|
|
|
|
99
|
|
|
|
16
|
|
Non-U.S.
cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
84
|
|
|
|
18
|
|
|
|
148
|
|
|
|
18
|
|
|
|
173
|
|
|
|
17
|
|
|
|
167
|
|
|
|
18
|
|
|
|
188
|
|
|
|
17
|
|
Commercial
|
|
|
30
|
|
|
|
13
|
|
|
|
49
|
|
|
|
12
|
|
|
|
50
|
|
|
|
13
|
|
|
|
34
|
|
|
|
13
|
|
|
|
28
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
386
|
|
|
|
100
|
%
|
|
$
|
546
|
|
|
|
100
|
%
|
|
$
|
810
|
|
|
|
100
|
%
|
|
$
|
1,149
|
|
|
|
100
|
%
|
|
$
|
981
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CUSTOMER
DEPOSITS
The following table presents the average balances and average
interest rates paid for types of customer deposits segregated
between U.S. and
non-U.S. offices.
Refer to Note 9 Customer Deposits on
page 89 in the Annual Report for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
Years Ended December 31,
(Millions, except
percentages)
|
|
Balance(a)
|
|
|
Rate
|
|
|
Balance(a)
|
|
|
Rate
|
|
|
Balance(a)
|
|
|
Rate
|
|
|
U.S. customer deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
12,657
|
|
|
|
1.1
|
%
|
|
$
|
7,977
|
|
|
|
0.8
|
%
|
|
$
|
3,215
|
|
|
|
2.5
|
%
|
Time
|
|
|
14,462
|
|
|
|
2.7
|
|
|
|
11,412
|
|
|
|
2.9
|
|
|
|
8,737
|
|
|
|
3.3
|
|
Other(b)
|
|
|
254
|
|
|
|
0.6
|
|
|
|
249
|
|
|
|
0.5
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. customer deposits
|
|
|
27,373
|
|
|
|
1.9
|
|
|
|
19,638
|
|
|
|
2.0
|
|
|
|
12,130
|
|
|
|
3.0
|
|
Non-U.S.
customer deposits(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other foreign time & savings
|
|
|
502
|
|
|
|
4.5
|
|
|
|
612
|
|
|
|
4.8
|
|
|
|
1,205
|
|
|
|
6.0
|
|
Other foreign demand
|
|
|
191
|
|
|
|
1.0
|
|
|
|
186
|
|
|
|
1.3
|
|
|
|
227
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Non-U.S.
customer deposits
|
|
|
693
|
|
|
|
3.5
|
|
|
|
798
|
|
|
|
4.0
|
|
|
|
1,432
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customer deposits
|
|
$
|
28,066
|
|
|
|
1.9
|
%
|
|
$
|
20,436
|
|
|
|
2.1
|
%
|
|
$
|
13,562
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Averages are based on month end balances.
|
|
(b)
|
|
Other U.S. customer deposits include primarily
non-interest-bearing and interest-bearing demand deposits.
|
|
(c)
|
|
Prior year numbers have been revised to conform to current year
presentation.
|
71
TIME
CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
The following table presents the amount of time certificates of
deposit of $100,000 or more issued by the Company in its
U.S. offices, further segregated by time remaining until
maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By remaining maturity as of December 31, 2010
|
|
|
|
|
|
|
Over 3 months
|
|
|
Over 6 months
|
|
|
|
|
|
|
|
|
|
3 months
|
|
|
but within
|
|
|
but within
|
|
|
Over
|
|
|
|
|
(Millions)
|
|
or less
|
|
|
6 months
|
|
|
12 months
|
|
|
12 months
|
|
|
Total
|
|
|
U.S. time certificates of deposits ($100,000 or more)
|
|
$
|
105
|
|
|
$
|
107
|
|
|
$
|
197
|
|
|
$
|
280
|
|
|
$
|
689
|
|
As of December 31, 2010, time certificates of deposit and
other time deposits in amounts of $100,000 or more issued by
non-U.S. offices
was $291 million.
RETURN ON
EQUITY AND ASSETS
The following table presents the Companys return on
average total assets, return on average shareholders
equity, dividend payout ratio, and average shareholders
equity to average total assets ratio.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Millions, except percentages and per share
amounts)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
2,130
|
|
|
$
|
2,699
|
|
Net income per share basic(a)
|
|
$
|
3.37
|
|
|
$
|
1.54
|
|
|
$
|
2.33
|
|
Dividends declared per share
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
Return on average total assets(b)
|
|
|
2.8
|
%
|
|
|
1.8
|
%
|
|
|
2.0
|
%
|
Return on average shareholders equity(c)
|
|
|
27.5
|
%
|
|
|
14.6
|
%
|
|
|
22.3
|
%
|
Dividend payout ratio(d)
|
|
|
21.4
|
%
|
|
|
46.8
|
%
|
|
|
30.9
|
%
|
Average shareholders equity to average total assets ratio
|
|
|
10.2
|
%
|
|
|
12.0
|
%
|
|
|
9.1
|
%
|
|
|
|
(a)
|
|
Effective January 1, 2009, guidance for determining whether
instruments granted in share-based payment transactions are
participating securities requires that restricted stock awards
be included in the computation of basic and diluted earnings per
share (EPS) pursuant to the two-class method.
Accordingly, the Company has retrospectively adjusted EPS for
2008.
|
|
(b)
|
|
Based on the years net income as a percentage of average
total assets calculated using month end average balances.
|
|
(c)
|
|
Based on the years net income as a percentage of average
shareholders equity calculated using month end average
balances.
|
|
(d)
|
|
Calculated on the years dividends declared per share as a
percentage of the years net income per basic share.
|
72
SHORT-TERM
BORROWINGS
The following table presents amounts and weighted average rates
for categories of short-term borrowings. Refer to Note 10,
Debt on page 89 in the Annual Report for
additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(Millions, except
percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Commercial paper
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
645
|
|
|
$
|
975
|
|
|
$
|
7,272
|
|
Monthly average balance outstanding during the year
|
|
$
|
900
|
|
|
$
|
1,990
|
|
|
$
|
10,638
|
|
Maximum month-end balance during the year
|
|
$
|
1,398
|
|
|
$
|
5,201
|
|
|
$
|
14,634
|
|
Stated rate at December 31(a)
|
|
|
0.16
|
%
|
|
|
0.19
|
%
|
|
|
2.20
|
%
|
Weighted average rate during the year
|
|
|
0.22
|
%
|
|
|
1.50
|
%
|
|
|
2.90
|
%
|
Federal funds purchased and securities sold under repurchase
agreements(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
470
|
|
Monthly average balance outstanding during the year
|
|
$
|
|
|
|
$
|
48
|
|
|
$
|
1,493
|
|
Maximum month-end balance during the year
|
|
$
|
|
|
|
$
|
86
|
|
|
$
|
2,972
|
|
Stated rate at December 31(a)
|
|
|
|
%
|
|
|
|
%
|
|
|
1.30
|
%
|
Weighted average rate during the year
|
|
|
|
%
|
|
|
0.76
|
%
|
|
|
3.58
|
%
|
Other short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
2,769
|
|
|
$
|
1,369
|
|
|
$
|
1,251
|
|
Monthly average balance outstanding during the year
|
|
$
|
1,231
|
|
|
$
|
956
|
|
|
$
|
2,794
|
|
Maximum month-end balance during the year
|
|
$
|
2,769
|
|
|
$
|
1,369
|
|
|
$
|
4,244
|
|
Stated rate at December 31(a)
|
|
|
1.23
|
%
|
|
|
0.85
|
%
|
|
|
1.90
|
%
|
Weighted average rate during the year (c)
|
|
|
0.19
|
%
|
|
|
0.70
|
%
|
|
|
4.33
|
%
|
|
|
|
(a)
|
|
For floating rate debt issuances, the stated interest rates are
based on the floating rates in effect as of December 31,
2010, 2009 and 2008, respectively.
|
|
(b)
|
|
Includes term federal funds purchased and overnight federal
funds purchased.
|
|
(c)
|
|
Does not include non-interest-bearing short-term borrowings
(i.e. book overdrafts).
|
Short-term borrowings, including commercial paper and federal
funds purchased, are defined as any debt instrument with an
original maturity of 12 months or less. Federal funds
purchased represent overnight and term funds as well as Federal
Home Loan Bank advances. Commercial paper generally is issued in
amounts not less than $100,000 and with maturities of
270 days or less. Other short-term borrowings include
certain book overdrafts (i.e., primarily timing differences
arising in the ordinary course of business), short-term
borrowings from banks, as well as interest-bearing amounts due
to merchants in accordance with merchant service agreements.
This section highlights specific risks that could affect our
Company and its businesses. You should carefully consider each
of the following risks and all of the other information set
forth in this Annual Report on
Form 10-K.
Based on the information currently known to us, we believe the
following information identifies the most significant risk
factors affecting our Company. However, the risks and
uncertainties our Company faces are not limited to those
described below. Additional risks and uncertainties not
presently known to us or that we currently believe to be
immaterial may also adversely affect our business.
If any of the following risks and uncertainties develops into
actual events or if the circumstances described in the risks and
uncertainties occur or continue to occur, these events or
circumstances could have a material adverse effect on our
business, financial condition or results of operations. These
events could also have a negative effect on the trading price of
our securities.
Current
Economic and Political Risks
Difficult
conditions in the global capital markets and economy generally,
as well as political conditions in the United States and
elsewhere, may materially adversely affect our business and
results of operations.
Our results of operations are materially affected by conditions
in the global capital markets and the economy generally, both in
the United States and elsewhere around the world.
73
Ongoing concerns over the availability and cost of credit, the
mortgage and real estate markets, sovereign debt crises, fear of
a double-dip recession and geopolitical issues have contributed
to uncertain expectations for the economy and the markets going
forward. These factors, combined with still relatively low
levels of consumer confidence and relatively high levels of
unemployment, continue to impact global economies. This
environment has had, and may continue to have, an adverse effect
on us, in part because we are very dependent upon consumer and
business behavior. If the economy were to worsen, customer
behaviors could change further. For example, Cardmembers could
decide to redeem Membership Rewards points at abnormally high
levels to replace cash expenditures.
Factors such as consumer spending, business investment,
government spending, interest rates, the volatility and strength
of the capital markets and inflation all affect the business and
economic environment and, ultimately, our profitability. An
economic downturn characterized by higher unemployment, lower
family income, lower corporate earnings, lower business
investment and lower consumer spending is likely to materially
and adversely affect our business, results of operations and
financial condition. Furthermore, the factors discussed above
may cause our earnings, credit metrics and margins to fluctuate
and diverge from expectations of analysts and investors, who may
have differing assumptions regarding their impact on our
business, and may impact the trading price of our common shares.
Political or economic instability in certain regions or
countries could also affect our commercial or other lending
activities, among other businesses, or result in restrictions on
convertibility of certain currencies. In addition, our travel
network may be adversely affected by world geopolitical and
other conditions. Travel expenditures are sensitive to business
and personal discretionary spending levels and tend to decline
during general economic downturns.
Terrorist attacks, intrusion into our infrastructure by
hackers or other catastrophic events may have a
negative effect on our business. Because of our proximity to the
World Trade Center, our headquarters were damaged as a result of
the terrorist attacks of September 11, 2001. Similar events
or other disasters or catastrophic events in the future could
have a negative effect on our businesses and infrastructure,
including our information technology systems. Because we derive
a portion of our revenues from travel-related spending, our
business will be sensitive to safety concerns, and thus is
likely to decline during periods in which travelers become
concerned about safety issues or when travel might involve
health-related risks.
We held approximately $5.8 billion of investment securities
of state and municipal obligations as of December 31, 2010.
In the event that actual default rates of these investment
securities were to significantly change from historical patterns
due to challenges in the economy or otherwise, it could have a
material adverse impact on the value of our investment portfolio.
If the conditions described above (or similar ones) were to
persist or worsen, we could experience continuing or increased
adverse effects on our results of operations and financial
condition.
Adverse
capital and credit market conditions may significantly affect
our ability to meet liquidity needs, access to capital and cost
of capital.
The global money and capital markets, while demonstrating
generally improved conditions, remain susceptible to volatility
and disruption, which could negatively impact market liquidity
conditions.
We need liquidity to pay merchants, operating expenses, interest
on debt and dividends on capital stock and to repay maturing
liabilities. Without sufficient liquidity, we could be forced to
limit our investments in growth opportunities or curtail
operations. The principal sources of our liquidity are payments
from Cardmembers and merchants, cash flow from our investment
portfolio and assets, consisting mainly of cash or assets that
are readily convertible into cash, direct and third-party
distributed deposits, debt instruments such as unsecured medium-
and long-term notes and asset securitizations, securitized
borrowings through our conduit facility, the Federal Reserve
discount window and long-term committed bank borrowing
facilities in certain countries outside the United States.
Notwithstanding our solid financial position, we are not immune
from pressures experienced broadly across the financial markets.
The fragility of the credit markets and the current economic and
regulatory
74
environment have impacted financial services companies. Although
the market for our unsecured term debt and asset securitizations
has improved, there is no assurance that the markets will be
open to us in the future. Therefore, our ability to obtain
financing in the debt capital markets for unsecured term debt
and asset securitizations is dependent on investor demand. In
addition, our liquidity position will be impacted by our ability
to meet our objectives with respect to the maintenance and
growth of our direct and third-party distributed deposit
programs. We also would have less flexibility in accessing the
commercial paper market as a short-term funding vehicle in the
event of a downgrade in Credcos short-term debt rating and
volatility in the commercial paper market generally.
In the event that current sources of liquidity, including
internal sources, do not satisfy our needs, we would be required
to seek additional financing. The availability of additional
financing will depend on a variety of factors such as market
conditions, the general availability of credit and consumer
deposits, the overall availability of credit to the financial
services industry, our credit ratings (which were downgraded in
April 2009 by two of the major ratings agencies), and credit
capacity, as well as the possibility that lenders or depositors
could develop a negative perception of our long- or short-term
financial prospects if we incur large credit losses or if the
level of our business activity decreases due to an economic
downturn.
Similarly, our access to funds may be impaired if regulatory
authorities or rating agencies take negative actions against us.
While we have experienced positive credit trends since the
latter half of 2009, if the performance of our charge card and
credit card portfolios were to weaken through increasing
delinquencies and write-offs, our long-term and short-term debt
ratings could be downgraded and our access to capital could be
materially adversely affected and our cost of capital could
increase. Disruptions, uncertainty or volatility in the capital
and credit markets may also limit our access to capital required
to operate our business. Such market conditions may limit our
ability to replace, in a timely manner, maturing liabilities,
satisfy regulatory capital requirements and access the capital
necessary to grow our business. As such, we may be forced to
delay raising capital or bear an unattractive cost to raise
capital, which could decrease profitability and significantly
reduce financial flexibility. If levels of market disruption and
volatility worsen, there can be no assurance that we will not
experience an adverse effect, which may be material, on our
ability to access capital and on our business, financial
condition and results of operations.
For a further discussion of our liquidity and funding needs, see
Financial Review Funding Programs and
Activities on pages 42-46 of our 2010 Annual Report
to Shareholders, which information is incorporated herein by
reference.
We can
be adversely affected by the impairment of other financial
institutions.
Our ability to engage in routine funding transactions could be
adversely affected by the actions and commercial soundness of
other financial services institutions. Financial services
institutions are interrelated as a result of trading, clearing,
counterparty or other relationships. We routinely execute
transactions with counterparties in the financial services
industry, including commercial banks, investment banks and
insurance companies. Defaults or non-performance by, or even
rumors or questions about, one or more financial services
institutions, or the financial services industry generally, have
led to market-wide liquidity problems and could lead to losses
or defaults by one or more of our counterparties, which, in
turn, could have a material adverse effect on our results of
operations and financial condition.
Any
reduction in the Companys and its subsidiaries
credit ratings could increase the cost of our funding from, and
restrict our access to, the capital markets and have a material
adverse effect on our results of operations and financial
condition.
Although the Companys and its subsidiaries long-term
debt is currently rated investment grade by the major rating
agencies, the ratings of that debt were downgraded during the
second quarter of 2009 by Moodys Investors Services
(Moodys) and Standard & Poors
(S&P), two of the major rating agencies. The
rating agencies regularly evaluate the Company and its
subsidiaries, and their ratings of the Companys and its
subsidiaries long-term and short-term debt are based on a
number of factors, including their financial strength as well as
factors not entirely within their control, including conditions
affecting the financial services industry
75
generally, and the wider state of the economy. There can be no
assurance that the Company and its subsidiaries will maintain
their current respective ratings. Failure to maintain those
ratings could, among other things, adversely limit our access to
the capital markets and adversely affect the cost and other
terms upon which the Company and its subsidiaries are able to
obtain funding.
The ability of issuers of asset-backed securities to obtain
necessary credit ratings for their issuances has historically
been based, in part, on qualification under the FDICs safe
harbor rule for assets transferred in securitizations. In 2009
and 2010, the FDIC issued a series of changes to its safe harbor
rule, with its new final rule for its securitization safe
harbor, issued in 2010, requiring issuers to comply with a new
set of requirements in order to qualify for the safe harbor.
Issuances out of our American Express Credit Account Master
Trust are grandfathered under the new FDIC final
rule. The trust for the Companys Cardmember charge
receivable securitization (the Charge Trust) does
not satisfy the criteria required to be covered by the
FDICs new safe harbor rule, nor did it meet the
requirements to be covered by the safe harbor rule existing
prior to 2009. It was structured and continues to be structured
such that the financial assets transferred to the Charge Trust
would not be deemed to be property of the originating banks in
the event the FDIC is appointed as a receiver or conservator of
the originating banks. The Company has received confirmation
from Moodys, S&P and Fitch Ratings, which rate
issuances from the Charge Trust, that they will continue to rate
issuances from the Charge Trust in the same manner as they have
historically, even though they do not satisfy the requirements
to be covered by the FDICs safe harbor rule. Nevertheless,
one or more of the rating agencies may ultimately conclude that
in the absence of compliance with the safe harbor rule, the
highest rating a Charge Trust security could receive would be
based on the originating banks unsecured debt rating. If
one or more rating agencies come to this conclusion, it could
adversely impact the Companys capacity and cost of using
its Charge Trust as a source of funding for its business.
We cannot predict what actions rating agencies may take. As with
other companies in the financial services industry, the
Companys and its subsidiaries ratings could be
downgraded at any time and without any notice by any of the
rating agencies.
Adverse
currency fluctuations and foreign exchange controls could
decrease revenue we receive from our international
operations.
During 2010, over 33% of our revenue net of interest expense was
generated from activities outside the United States. We are
exposed to foreign exchange risk from our international
operations, and some of the revenue we generate outside the
United States is subject to unpredictable and indeterminate
fluctuations if the values of other currencies change relative
to the U.S. dollar. Resulting exchange gains and losses are
included in our net income. Furthermore, we may become subject
to exchange control regulations that might restrict or prohibit
the conversion of our other revenue currencies into
U.S. dollars. The occurrence of any of these events or
circumstances could decrease the revenues we receive from our
international operations and have a material adverse effect on
our results of operations.
Legal and
Regulatory Risks
Ongoing
legal proceedings regarding the Companys
anti-steering and surcharging-related contractual
provisions could require changes to those provisions that could
result in a material loss of revenue or increased expenses,
substantial monetary judgments and/or damage to the
Companys global reputation and brand.
The DOJ and certain state attorneys general have recently
brought an action against the Company alleging that the
provisions in the Companys card acceptance agreements with
merchants that prohibit merchants from discriminating against
the Companys card products at the point of sale violate
the U.S. antitrust laws. Visa and MasterCard are also
defendants in this proceeding, but they have entered into a
proposed settlement, which is subject to judicial review and
approval following a comment period. In addition, the Company is
a defendant in a number of actions, including proposed class
actions, filed by merchants that challenge the Companys
anti-steering provisions as well as
surcharging-related provisions. Visa and MasterCard have been
named as defendants in lawsuits that include similar allegations
relating to their anti-steering
and/or
76
surcharging-related policies and rules. A description of these
legal proceedings is contained in Legal Proceedings
below. An adverse outcome in any of these proceedings against
the Company could materially and adversely impact the
profitability of the Company, require it to change its merchant
agreements in a way that could expose the Companys card
products to steering or other forms of discrimination at the
point of sale that would impair our Cardmembers
experience, result in the imposition of substantial monetary
damages
and/or
damage the Companys global reputation and brand. Even if
the Company were not required to change its merchant agreements,
changes in Visa and MasterCards policies or practices as a
result of any such legal proceedings or regulatory actions could
subject the Company to market pressures that could materially
and adversely impact its profitability.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act may
have a significant adverse impact on our business, results of
operations and financial condition.
In July 2010, President Obama signed into law Dodd-Frank.
Dodd-Frank, as well as regulations promulgated thereunder, could
have a significant adverse impact on the Companys
business, results of operations and financial condition by, for
example, requiring the Company to change its business practices,
requiring the Company to comply with more stringent capital,
liquidity and leverage ratio requirements, limiting the
Companys ability to pursue business opportunities,
imposing additional costs on the Company (including increased
compliance costs and increased costs of funding raised through
the issuance of asset-backed securities), limiting the fees the
Company can charge for services and impacting the value of the
Companys assets. A description of certain provisions of
Dodd-Frank and other legislative and regulatory developments is
contained in Supervision and Regulation above.
Dodd-Frank will result in increased scrutiny and oversight of
consumer financial services and products, primarily through the
establishment of the Consumer Financial Protection Bureau within
the Federal Reserve. The Bureau will have broad rulemaking and
enforcement authority over providers of credit, savings and
payment services and products and authority to prevent
unfair, deceptive or abusive practices. The Bureau
will write regulations under federal consumer financial
protection laws, and enforce those laws against and examine
large financial institutions like us, Centurion Bank and AEBFSB
for compliance. The Bureau will collect fines and provide
consumer restitution in the event of violations, engage in
consumer financial education, track consumer complaints, request
data and promote the availability of financial services to
underserved consumers and communities. Depending on how the
Bureau functions and its areas of focus, it could have a
material adverse impact on our businesses. In addition to
increasing our compliance costs and potentially delaying our
ability to respond to marketplace changes, this could result in
requirements to alter our products and services that would make
our products less attractive to consumers and impair our ability
to offer them profitably. The impact this new regulatory regime
will have on the Companys business is uncertain at this
time and will depend on, among other things, the timing of the
Bureaus assumption of its authority from other
governmental agencies, which is expected to occur by
July 21, 2011.
Under Dodd-Frank, the Federal Reserve is authorized to regulate
interchange fees charged by payment card issuers for
transactions in which a person uses a debit or general-use
prepaid card, and to enforce a new statutory requirement that
such fees be reasonable and proportional to the actual cost of a
transaction to the issuer, with specific allowances for the
costs of fraud prevention, as well as to prohibit exclusive
network routing restrictions for electronic debit transactions.
Additionally, Dodd-Frank prohibits payment card networks from
restricting merchants from offering discounts or incentives to
encourage customers to pay with particular forms of payment such
as cash, check, credit or debit card, provided that such offers
do not discriminate on the basis of the network or issuer.
Further, to the extent required by federal law or applicable
state law, the discount or incentive must be offered to all
prospective buyers and must be clearly and conspicuously
disclosed. Dodd-Frank also permits U.S. merchants to
establish minimum purchase amounts of no more than $10 for
credit card purchases, provided that the merchants do not
discriminate between networks or issuers. Federal government
agencies and institutions of higher learning also are permitted
to establish maximum amounts for credit card purchases provided
they do not discriminate between networks or issuers. For more
information on this aspect of Dodd-Frank and its potential
impact on our business, please see Risk Factors-
Banks,
card issuers and card network operators generally are the
subject of increasing global regulatory
77
focus, which may impose costly new compliance burdens on our
Company and lead to decreased transaction volumes and revenues
through our network.
Dodd-Frank mandates the Federal Reserve to establish heightened
capital, leverage and liquidity standards, risk management
requirements, concentration limits on credit exposures,
living wills and stress tests for, among others,
bank holding companies that have greater than $50 billion
in total consolidated assets, such as the Company. In addition,
most interest rate and currency swaps will be required to be
exchange-traded which may increase collateral posting
requirements for the Company.
Pursuant to Dodd-Frank, the responsibility and authority of the
OTS to supervise federal savings associations, including AEBFSB,
will be transferred to the OCC on July 21, 2011 (unless
extended for up to six months). AEBFSB will need to develop a
relationship with its new regulator, and there could be
additional compliance costs associated with aligning
AEBFSBs current compliance structure with the OCCs
expectations. Additionally, the transfer of responsibility from
the OTS to the OCC could result in new regulatory standards as
it is, at this time, unclear whether the OCC will adopt or
modify OTS regulations, orders or policies, including
interpretations or applications. Any shifts in current
regulatory positions could adversely affect our results of
operation.
Many provisions of Dodd-Frank, including numerous provisions not
described above, require the adoption of rules to implement. In
addition, Dodd-Frank mandates multiple studies, which could
result in additional legislative or regulatory action.
Therefore, the ultimate consequences of Dodd-Frank and its
implementing regulations on the Companys business, results
of operations and financial condition remain uncertain.
The
Credit Card Accountability Responsibility and Disclosure Act of
2009 will significantly impact our business practices and could
have a material adverse effect on our results of
operations.
The CARD Act required the Company to make fundamental changes to
many of our business practices, including marketing,
underwriting, pricing and billing. Among other things, the CARD
Act prohibits an issuer from increasing the APR on outstanding
balances (with limited exceptions), requires additional account
disclosures, provides consumers with the right to opt out of
significant changes to account terms, and restricts penalty fees
and charges that may be imposed by an issuer. Most of the
requirements of the CARD Act became effective in February 2010.
Additional amendments to Regulation Z revising the open-end
credit disclosure requirements became effective on July 1,
2010.
Since August 22, 2010, the CARD Act, among other things,
requires that penalty fees be reasonable and proportional. Also,
since August 22, 2010, the CARD Act requires issuers to
periodically reevaluate APR increases to determine if a decrease
is appropriate. The first of these reevaluations must be
completed in February 2011. The obligation to periodically
reevaluate APR increases is ongoing, and it is uncertain how
these provisions will be interpreted or amended by the new
Consumer Financial Protection Bureau. Therefore, while the
ultimate impact of this requirement is uncertain at this time,
it could have a significant impact on our results of operations.
While the Company has made certain changes to its product terms
and practices that are designed to mitigate the impact of the
changes required by the CARD Act, there is no assurance that it
will be successful. The long-term impact of the CARD Act on the
Companys business practices and revenues will depend upon
a number of factors, including its ability to successfully
implement its business strategies, consumer behavior and the
actions of the Companys competitors, which are difficult
to predict at this time. In the event the actions undertaken by
the Company to date to offset the impact of the new legislation
and regulations are not ultimately effective, they could have a
material adverse effect on the Companys results of
operations, including its revenue and net income.
78
Our
business is subject to significant and extensive government
regulation and supervision which could adversely affect our
results of operations and financial condition.
On November 14, 2008, American Express Company and TRS each
became bank holding companies under the BHC Act and elected to
be treated as financial holding companies under the BHC Act. As
a result of becoming a bank holding company, we are subject to
regulation by the Federal Reserve, including, without
limitation, consolidated capital regulation at the holding
company level, maintenance of certain capital and management
standards in connection with our two U.S. depository
institutions and restrictions on our non-banking activities
under the Federal Reserves regulations.
If we fail to satisfy regulatory requirements applicable to bank
holding companies, our financial condition and results of
operations could be adversely affected.
We are also subject to extensive government regulation and
supervision in jurisdictions around the world, both as a
participant in the financial services industry and otherwise.
Banking regulations are primarily intended to protect
depositors funds, federal deposit insurance funds and the
banking system as a whole, and not for the protection of our
shareholders or creditors. Among other things, as a result of
regulators enforcing existing laws and regulations, we could be
fined, prohibited from engaging in some of our business
activities, subject to limitations or conditions on our business
activities or subjected to new or substantially higher taxes or
other governmental charges in connection with the conduct of our
business or with respect to our employees. There is also the
risk that new laws or regulations or changes in enforcement of
existing laws or regulations applicable to our businesses may be
imposed which could impact the profitability of the
Companys business activities, limit our ability to pursue
business opportunities, require the Company to change certain of
its business practices or alter its relationships with
customers, affect retention of key Company personnel, or expose
the Company to additional costs (including increased compliance
costs). Such changes also may require us to invest significant
management attention and resources to make any necessary changes
and could adversely affect our results of operations and
financial condition.
Please see Supervision and Regulation beginning on
page 38 for more information about the regulation to which
we are subject.
We are
subject to capital adequacy guidelines and, if we fail to meet
these guidelines, our financial condition would be adversely
affected.
Under regulatory capital adequacy guidelines and other
regulatory requirements, the Company, TRS and our subsidiary
banks, Centurion Bank and AEBFSB, must meet guidelines for
capital adequacy and leverage ratios that include quantitative
measures of assets, liabilities and certain off-balance sheet
items, subject to qualitative judgments by regulators about
components, risk weightings and other factors. As discussed
above under Supervision and Regulation Capital
Adequacy, the capital requirements applicable to the
Company and TRS as bank holding companies and our subsidiary
depository institutions are in the process of being
substantially revised, including in connection with our
transition to Basel II and as a result of Basel III
and the requirements of Dodd-Frank. If the Company, TRS or our
subsidiary depository institutions fail to meet current or
future minimum capital, leverage or other financial
requirements, their respective financial conditions would be
materially adversely affected. In light of recent market events,
Dodd-Frank and Basel III, the Company, TRS and our subsidiary
depository institutions will be required to satisfy additional,
more stringent capital adequacy standards than in the past. We
cannot fully predict the final form of, or the effects of, these
regulations. Failure by any of the Company, TRS or a subsidiary
depository institution to maintain its respective status as
well capitalized and well managed, if
unremedied over a period of time, would cause us to lose our
status as a financial holding company and could compromise our
competitive position. For more information on capital adequacy
requirements, please see Supervision and
Regulation Capital Adequacy above.
79
We are
subject to restrictions that limit our ability to pay dividends
and repurchase our capital stock.
We are limited in our ability to pay dividends by our regulators
who could prohibit a dividend that would be considered an unsafe
or unsound banking practice. For example, it is the policy of
the Federal Reserve that bank holding companies should generally
pay dividends on common stock only out of earnings, and only if
prospective earnings retention is consistent with the
organizations expected future needs, asset quality, and
financial condition. Recently issued temporary guidance from the
Federal Reserve states that our dividend policies will be
assessed against, among other things, our ability to achieve
Basel III capital ratio requirements. A company that has
not achieved Basel III capital requirements on a fully
phased-in basis may have difficulty increasing dividends.
While the regulations ultimately applicable to the Company will
be determined by the Federal Reserve, the Company estimates
that, had regulations implementing Basel III been in place
during the fourth quarter of 2010, the Companys capital
ratios under Basel III would have exceeded the minimum
requirements. This estimate could change in the future. While we
expect to meet the Basel III capital requirements,
inclusive of the capital conservation buffer, as phased in by
the Federal Reserve, the regulations ultimately applicable to us
may be substantially different from the Basel III final
framework as published in December 2010. Moreover, the Federal
Reserve will closely scrutinize any dividend payout ratios
exceeding 30% of after-tax net income.
During the fourth quarter of 2010, we repurchased
14 million shares of our common stock through our share
repurchase program. On January 7, 2011, we submitted our
Comprehensive Capital Plan (CCP) to the Federal
Reserve requesting approval to proceed with additional share
repurchases in 2011. The CCP includes an analysis of performance
and capital availability under certain adverse economic
assumptions. We expect a response from the Federal Reserve by
the end of the first quarter. No additional shares are expected
to be repurchased prior to its response. We cannot predict
whether the Federal Reserve will approve additional share
purchases.
For more information on bank holding company dividend
restrictions, please see Supervision and
Regulation General Dividends on
page 46, as well as Financial Review
Share Repurchases and Dividends on page 41 and
Note 23 on page 111 of our 2010 Annual Report to
Shareholders, which information is incorporated herein by
reference.
Banks,
card issuers and card network operators generally are the
subject of increasing global regulatory focus, which may impose
costly new compliance burdens on our Company and lead to
decreased transaction volumes and revenues through our
network.
We are subject to regulations that affect banks and the payments
industry in the United States and many other countries in which
our charge and credit Cards are used and where we conduct
banking and Card activities. In particular, we are subject to
numerous regulations applicable to financial institutions in the
United States and abroad. We are also subject to regulations as
a provider of services to financial institutions. Regulation of
the payments industry has increased significantly in recent
years. For example, we are subject to certain provisions of the
Bank Secrecy Act as amended by the Patriot Act, with regard to
maintaining effective anti-money laundering programs. Increased
regulatory focus in this area could result in additional
obligations or restrictions with respect to the types of
products and services we may offer to consumers, the countries
in which our charge and credit Cards may be used, and the types
of cardholders and merchants who can obtain or accept our charge
and credit Cards. In addition, the member states of the European
Economic Area have now implemented a relatively new European
Union legislative directive, called the Payment Services
Directive, for electronic payment services, including cards,
that puts in place a common legal framework for licensing and
supervision of payment services providers, including card
issuers and merchant acquirers, and for their conduct of
business.
Various regulatory agencies and legislatures are also
considering regulations and legislation covering identity theft,
account management guidelines, disclosure rules, security, and
marketing that would impact us directly, in part due to
increased scrutiny of our underwriting standards. These new
requirements may restrict our ability to issue charge and credit
cards or partner with other financial institutions, which could
decrease
80
our transaction volumes. In some circumstances, new regulations
and legislation could have the effect of limiting our ability to
offer new types of charge or credit cards or restricting our
ability to offer existing Cards, such as stored value cards,
which could materially and adversely reduce our revenues and
revenue growth.
In recent years, regulators in several countries outside the
United States have focused on the fees involved in the operation
of card networks, including interchange fees paid to card
issuers and the fees merchants are charged to accept cards.
Regulators in the United Kingdom, Canada, New Zealand, Poland,
Italy, Switzerland, Hungary, the European Union, Australia,
Brazil, Mexico and Venezuela, among others, have conducted
investigations that are either ongoing, concluded or on appeal.
The interchange fee, which is the collectively set fee paid by
the bankcard merchant acquirer to the card issuing bank in
four party payment networks, like Visa and
MasterCard, is generally the largest component of the merchant
service charge charged to merchants for bankcard debit and
credit card acceptance in these systems. By contrast, the
American Express network does not have interchange fees.
Although the regulators focus has primarily been on Visa
and MasterCard as the dominant card networks and on their
operations on a multilateral basis, antitrust actions and
government regulation relating to merchant pricing could
ultimately affect all networks. Lower interchange
and/or
merchant discount revenue may lead card issuers to look for
other sources of revenue such as higher annual card fees or
interest charges, as well as to reduce costs by scaling back or
eliminating rewards programs.
In the United States, Congress continued to focus on the
interchange issue during 2010. Congress passed Dodd-Frank, which
the President signed into law in July 2010. Dodd-Frank gives the
Federal Reserve the authority to establish rules regarding
interchange fees charged by payment card issuers for
transactions in which a person uses a debit or general-use
prepaid card, and to enforce a new statutory requirement that
such fees be reasonable and proportional to the actual cost of a
transaction to the issuer, with specific allowances for the
costs of fraud prevention, as well as to prohibit exclusive
network routing restrictions for electronic debit transactions.
American Express does not offer a debit card linked to a deposit
account, but does issue various types of prepaid cards.
Reloadable general-use prepaid cards, but not those marketed or
labeled as gift cards or gift certificates, are exempt from the
interchange fee limitations. In contrast to the interchange fee
limitations, all prepaid cards would be subject to the exclusive
network routing restrictions for electronic debit transactions.
In December 2010, the Federal Reserve issued a Notice of
Proposed Rulemaking requesting comments to implement the
interchange fee limitations and exclusive network routing
restrictions. The Federal Reserve must issue final rules on the
exclusive network routing restrictions by July 21, 2011.
The statute does not specify when those rules must take effect.
It is difficult to assess at this time the extent to which the
final regulations, once issued, could adversely impact our
revenues and profitability.
Additionally, Dodd-Frank prohibits payment card networks from
restricting merchants from offering discounts or incentives to
encourage customers to pay with particular forms of payment such
as cash, check, credit or debit card, provided that such offers
do not discriminate on the basis of the network or issuer.
Further, to the extent required by federal law or applicable
state law, the discount or incentive must be offered to all
prospective buyers and must be clearly and conspicuously
disclosed. Dodd-Frank also permits U.S. merchants to
establish minimum purchase amounts of no more than $10 for
credit card purchases, provided that the merchants do not
discriminate between networks or issuers. Federal government
agencies and institutions of higher learning are also permitted
to establish maximum amounts for credit card purchases provided
they do not discriminate between networks or issuers. As a
result of these new laws, customers may be incentivized by
merchants to move away from the use of charge and credit card
products to other forms of payment, such as debit, which could
adversely affect our revenues and profitability.
During the last four years, a number of bills were proposed in
individual state legislatures seeking to impose caps on credit
card interchange fees or to prohibit credit card companies from
charging a merchant discount on the sales tax portion of credit
card purchases. Other proposals were aimed at increasing the
transparency of card network rules for merchants. In addition, a
number of bills were proposed to establish merchant liability
for the costs of a data security breach of a merchants
system or require merchants to adopt technical safeguards to
protect sensitive cardholder payment information. In 2010,
Vermont enacted legislation that permits merchants to set a
minimum dollar value of no more than $10 for acceptance of any
form of
81
payment; permits merchants to provide discounts or other
benefits based on the form of payment (i.e., card, cash, check,
debit card, stored-value card, charge card or credit card); and
permits merchants to accept the cards of a payment system at one
or more of its locations but not at others. This legislation may
serve as a model for other states. In the event that additional
legislative or regulatory activity to limit interchange or
merchant fees continues or increases, or state data security
legislation is adopted, our revenues and profitability could be
adversely affected.
Increased regulatory focus on our Company, such as in connection
with the matters discussed above, may increase our compliance
costs or result in a reduction of transactions processed on our
networks or merchant discount revenues from such transactions,
which could materially and adversely impact our results of
operations.
If we
are not able to protect our intellectual property, and invest
successfully in, and compete at the leading edge of,
technological developments across all our businesses, our
revenue and profitability could be negatively
affected.
Our industry is subject to rapid and significant technological
changes. In order to compete in our industry, we need to
continue to invest in business process and technology advances
across all areas of our business, including in transaction
processing, data management, customer interactions and
communications, travel reservations systems, prepaid products,
alternative payment mechanisms and risk management and
compliance systems. We rely in part on third parties, including
some of our competitors and potential competitors, for the
development of and access to new technologies. We expect that
new technologies applicable to the payments industry will
continue to emerge, and these new technologies may be superior
to, or render obsolete, the technologies we currently use in our
Cards, networks and other services. Because of evolving payments
technologies and the competitive landscape, we may not, among
other things, be successful in increasing or maintaining our
share of online spending and enhancing our Cardmembers
digital experience, which could have an adverse effect on our
revenues and profitability. Our ability to develop, acquire, or
access competitive technologies or business processes on
acceptable terms may be limited by patent rights that third
parties, including competitors and potential competitors, may
assert. In addition, our ability to adopt new technologies that
we develop may be inhibited by a need for industry-wide
standards or by resistance from Cardmembers or merchants to such
changes.
We rely on a variety of measures to protect our intellectual
property and proprietary information, including copyrights,
trademarks, patents and controls on access and distribution.
These measures may not prevent misappropriation or infringement
of our intellectual property or proprietary information and a
resulting loss of competitive advantage. In addition,
competitors or other third parties may allege that our systems,
processes or technologies infringe their intellectual property
rights. Given the complex, rapidly changing and competitive
technological and business environment in which we operate and
the potential risks and uncertainties of intellectual property
related litigation, we cannot assure you that a future assertion
of an infringement claim against us will not cause us to lose
significant revenues, incur significant license, royalty or
technology development expenses, or pay significant monetary
damages.
Regulation
in the areas of privacy and data security could increase our
costs and decrease the number of charge and credit Cards
issued.
We are subject to various regulations related to privacy and
data security/breach, and we could be negatively impacted by
these regulations. For example, in the United States, we are
subject to the safeguards guidelines under the
Gramm-Leach-Bliley Act. The safeguards guidelines require that
each financial institution develop, implement and maintain a
written, comprehensive information security program containing
safeguards that are appropriate to the financial
institutions size and complexity, the nature and scope of
the financial institutions activities and the sensitivity
of any customer information at issue. Broad-ranging data
security laws that affect our business have also been adopted by
various states, such as Massachusetts and Nevada.
Compliance with these laws regarding the protection of customer
and employee data could result in higher compliance and
technology costs for the Company, as well as potentially
significant fines and penalties
82
for non-compliance. Many foreign jurisdictions in which we
operate are also expanding the scope of their data security
requirements and standards, as well as increasing enforcement
activity in this area. In 1995, the European Parliament and
Council passed European Directive 95/46/EC on the protection of
individuals with regard to the processing of personal data and
on the free movement of such data (commonly referred to as the
Data Protection Directive), which obligates the controller of an
individuals personal data to take the necessary technical
and organizational measures to protect personal data. The Data
Protection Directive has been implemented through local laws
regulating data protection in European Union Member States. As
these laws are interpreted throughout the European Union where
we have a significant commercial presence, compliance costs are
increasing, particularly in the context of ensuring that
adequate data security protections and data transfer mechanisms
are in place. In July 2010, we submitted for review by relevant
European data protection authorities our draft binding corporate
rules for processing of data within the American Express group
which, once approved, will enable a more efficient basis on
which to transfer data within our group.
In addition to the foregoing enhanced data security
requirements, various federal banking regulatory agencies, and
as many as 46 states, the District of Columbia, Puerto Rico
and the Virgin Islands, have enacted data breach regulations and
laws requiring varying levels of consumer notification in the
event of a security breach. Data breach laws are also becoming
more prevalent in other parts of the world where we operate,
including Japan, Mexico and Germany. In many countries that have
yet to impose automatic data breach notification requirements,
regulators have increasingly used the threat of significant
sanctions and penalties by data protection authorities to
encourage voluntary notification and discourage data breaches.
Many of these regulations also apply broadly to
retailers/merchants that accept our Cards; thus, to the extent
they experience data security breaches, this presents additional
risks for American Express and our Cardmembers.
In addition, federal legislators and regulators are increasingly
pursuing new guidelines, laws and regulations that, if adopted,
could further restrict how the Company collects, uses, shares
and secures customer information, which could impact some of the
Companys current or planned business initiatives. For
example, a recent FTC report, which applies to a companys
collection and use of customer information both online and
offline, would impose greater transparency, use, disclosure and
consumer choice obligations on the Company, and may ultimately
result in the creation of an online mechanism through which
consumers could opt out of all online tracking for online
behavioral advertising purposes. A companion report by the
United States Department of Commerce (DOC) would
require companies to be more transparent in their online privacy
practices, and recommends the creation of a national data
security/data breach standard. Both the FTC and the DOC are
expected to release final reports by the end of 2011.
Additionally, two draft privacy bills were introduced in the
111th Congress in the summer of 2010, and a number of
federal legislators have either expressed their support for
these draft bills or have indicated their intent to introduce
new bills in the 112th Congress. If adopted, any such
privacy bill could have a significant impact on the
Companys current and planned data privacy and security
practices, could increase our costs of compliance and business
operations and could reduce revenues from certain business
initiatives.
We continue to seek ways to minimize these risks and costs
internally by improving our own data privacy and security
policies and practices, and externally through regular
improvements to the PCI Data Security Standard and by placing
strong contractual obligations on retailers/merchants that
accept our Cards, as well as on our service providers and
business partners, relating to data security and data breach. We
also have undertaken measures to assess the level of access to
customer data by employees and our partners and service
providers, and to ensure that such access is limited to the
least privileged level necessary to perform their job or
function for the Company. Still, increased regulation and
enforcement activity throughout the world in the areas of data
privacy and data security/breach may materially increase our
costs and may decrease the number of our Cards that we issue, or
restrict our ability to fully exploit our closed-loop
capability, which could materially and adversely affect our
profitability. Our failure to comply with the privacy and data
security/breach laws and regulations to which we are subject
could also result in fines, sanctions and damage to our global
reputation and our brand.
83
Our
success is dependent, in part, upon our executive officers and
other key personnel, and the loss of key personnel could
materially adversely affect our business.
Our success depends, in part, on our executive officers and
other key personnel. Our senior management team has significant
industry experience and would be difficult to replace. Our
senior management team is relatively small and we believe we are
in a critical period of competition in the financial services
and payments industry. The market for qualified individuals is
highly competitive, and we may not be able to attract and retain
qualified personnel or candidates to replace or succeed members
of our senior management team or other key personnel. As further
described in Supervision and Regulation
Compensation Practices on pages 52-53, our
compensation practices are subject to review and oversight by
the Federal Reserve and the compensation practices of our
depository institution subsidiaries are subject to review and
oversight by the FDIC and the OTS (and beginning in July 2011,
the OCC). As a large financial and banking institution, we may
be subject to limitations on compensation practices, which may
or may not affect our competitors, by the Federal Reserve, the
FDIC or other regulators worldwide. These limitations, including
limitations on any incentive compensation policies pursuant to
Dodd-Frank, could further affect our ability to attract and
retain our executive officers and other key personnel. The loss
of key personnel could materially adversely affect our business.
Litigation
and regulatory actions could subject us to significant fines,
penalties, judgments and/or requirements resulting in increased
expenses.
Businesses in the credit card industry have historically been
subject to significant legal actions, including class action
lawsuits and patent claims. Many of these actions have included
claims for substantial compensatory or punitive damages. In
addition, we may be involved in various actions or proceedings
brought by governmental regulatory agencies in the event of
noncompliance with laws or regulations, which could subject us
to significant fines, penalties or other requirements resulting
in increased expenses and damage to our global reputation and
our brand.
Business
Risks
Our
operating results may suffer because of substantial and
increasingly intense competition worldwide in the payments
industry.
The payments industry is highly competitive and includes, in
addition to charge, credit and debit card networks and issuers,
cash, credit and ACH, as well as evolving alternative payment
mechanisms, systems and products, such as aggregators (e.g.,
PayPal), wireless payment technologies (including using mobile
telephone networks to carry out transactions), prepaid systems
and systems linked to payment cards, and bank transfer models.
We are the third largest general-purpose charge and credit card
network based on charge volume, behind Visa and MasterCard,
which we believe are larger than we are in most countries. As a
result, other card issuers may be able to benefit from the
strong position and marketing and pricing power of Visa and
MasterCard.
Because of continuing consolidations among banking and financial
services companies and credit card portfolio acquisitions by
major card issuers, there are now a smaller number of
significant issuers. Continuing consolidation in the banking
industry may result in a financial institution with a strong
relationship with us being acquired by an institution that has a
strong relationship with a competitor, resulting in a potential
loss of business for us. The largest competing issuers have
continued to grow, in several cases by acquiring card
portfolios, and also by cross-selling through their retail
branch networks, and competition among all issuers remains
intense. We are also subject to increasing pricing pressure from
our competitors.
In addition, some of our competitors have developed, or may
develop, substantially greater financial and other resources
than we have, may offer a wider range of programs and services
than we offer or may use more effective advertising and
marketing strategies to achieve broader brand recognition or
merchant acceptance than we have. We may not continue to be able
to compete effectively against these threats. Our competitors
may also be more efficient in introducing innovative products,
programs and services than we are. Spending on our Cards could
be impacted by consumer usage of debit cards, as we do not
currently offer a
84
debit card linked to a deposit account, but we do issue various
types of prepaid cards. In fact, the purchase volume and number
of transactions made with debit cards in the United States has
grown more rapidly than credit and charge card transactions.
Internationally, competition remains fierce, and as a result, we
may not be successful in accelerating our growth outside of the
United States through proprietary consumer, small business and
corporate products, GNS partners and alternative payment
vehicles.
New technologies, together with the portability provided by
smartphones and tablets and evolving consumer behavior with
social networking, are rapidly changing the way people interact
with each other and transact business all around the world. In
this connection, traditional and non-traditional competitors
such as mobile telecommunications companies are working to
deliver digital and mobile payment services for both consumers
and merchants.
In the United States, alternative payment vehicles that seek to
redirect customers to payment systems based on ACH continue to
emerge and grow, and existing debit networks also continue to
expand both on-and off-line and are making efforts to develop
online PIN functionality, which could further reduce the
relative use of charge and credit cards online.
To the extent alternative payment mechanisms, systems and
products continue to successfully expand in the online payments
space, our discount revenues and our ability to access
transaction data through our closed-loop network could be
negatively impacted. The Company has recently created an
Enterprise Growth Group to focus on this strategic challenge by
generating alternative sources of revenue on a global basis,
both organically and through acquisitions, in areas such as
online and mobile payments and fee-based services. While
expanding the Enterprise Growth Group is a top priority for the
Company, many of the growth initiatives will involve new areas
for the Company and we may not be successful in executing our
strategy.
Regulators have recently put forward various proposals that may
impact our businesses, including proposals relating to
restrictions on the type of activities in which financial
institutions are permitted to engage and the size of financial
institutions, and proposals to impose taxes or fees on certain
financial institutions. These or similar proposals, which may
not apply to all of our competitors, could impact our ability to
compete effectively.
We
face increasingly intense competitive pressure that may impact
the prices we charge merchants who accept our Cards for payment
for goods and services.
Unlike our competitors in the payments industry that rely on
high revolving credit balances to drive profits, our business
model is focused on Cardmember spending. Discount revenue, which
represents fees charged to merchants when Cardmembers use their
Cards to purchase goods and services on our network, is
primarily driven by billed business volumes and is our largest
single revenue source. In recent years, we have been under
market pressure to reduce merchant discount rates and undertake
other repricing initiatives. In addition, differentiated payment
models from non-traditional players in the alternative payments
space and the regulatory and litigation environment could pose
challenges to our traditional payment model and adversely impact
our average discount rate. As a priority in 2011, we are seeking
to drive greater value to our merchants, which if not
successful, could negatively impact our discount revenue and
financial results. If we continue to experience a decline in the
average merchant discount rate or are unable to sustain merchant
discount rates on our Cards without experiencing overall volume
growth or an increase in merchant coverage, our revenues and
profitability could be materially and adversely affected.
We may
not be successful in our efforts to promote Card usage through
our marketing, promotion and rewards programs or to effectively
control the costs of such programs, both of which may impact our
profitability.
Our business is characterized by the high level of spending by
our Cardmembers. Increasing consumer and business spending and
borrowing on our payment services products, particularly credit
and charge Cards and Travelers Cheques and other prepaid
products, and growth in Card lending balances, depend in part on
our
85
ability to develop and issue new or enhanced Card and prepaid
products and increase revenues from such products. One of the
ways in which we attract new Cardmembers, reduce Cardmember
attrition and seek to capture a greater share of customers
total spending on Cards issued on our network, both in the
United States and in our international operations, is through
our Membership Rewards program, as well as other Cardmember
benefits. We may not be able to cost effectively manage and
expand Cardmember benefits, including containing the growth of
marketing, promotion and rewards expenses and Cardmember
services expenses. In addition, many credit card issuers have
instituted rewards and co-brand programs that are similar to
ours, and issuers may in the future institute programs that are
more attractive to cardmembers than our programs.
During the last several years, we have received quarterly
payments from each of Visa and MasterCard under the agreements
that we entered into with each company to settle claims made
against them in separate antitrust actions. We recognized
$280 million ($172 million after-tax) from Visa in
2010 and 2009, and $600 million ($372 million
after-tax) from MasterCard in 2010 and 2009. Our ability to
continue to invest in marketing, promotion and rewards programs,
as well as our overall profitability, may be negatively impacted
if we are unable to replace the payments provided to us under
our settlements with MasterCard and Visa once the aggregate
settlement amounts have been paid in full through the second and
fourth quarters of 2011, respectively.
Our
brand and reputation are key assets of our Company, and our
business may be affected by how we are perceived in the
marketplace.
Our brand and its attributes are key assets of the Company. Our
ability to attract and retain consumer Cardmembers and corporate
clients is highly dependent upon the external perceptions of our
level of service, trustworthiness, business practices and
financial condition. Negative perceptions or publicity regarding
these matters could damage our reputation among existing and
potential Cardmembers and corporate clients, which could make it
difficult for us to attract new Cardmembers and maintain
existing ones. Adverse developments with respect to our industry
may also, by association, negatively impact our reputation, or
result in greater regulatory or legislative scrutiny or
litigation against us. Although we monitor developments for
areas of potential risk to our reputation and brand, negative
perceptions or publicity could materially and adversely affect
our revenues and profitability.
We may
not be successful in realizing the benefits associated with our
acquisitions and investment activity.
We have recently acquired a number of businesses, including our
acquisitions of Serve, Accertify and Loyalty Partner, which is
pending. We expect to continue to evaluate and enter into
discussions regarding a wide array of potential transactions.
These transactions could be material to our financial condition
and results of operations. The process of integrating an
acquired company, business, or technology has created, and will
continue to create, unforeseen operating difficulties and
expenditures. The areas where we face risks include:
implementation or remediation of controls, procedures, and
policies at the acquired company; diversion of management time
and focus from operating our business to acquisition integration
challenges; coordination of product, engineering, and sales and
marketing functions; transition of operations, users, and
customers onto our existing platforms; cultural challenges
associated with integrating employees from the acquired company
into our organization; retention of employees from the
businesses we acquire; integration of the acquired
companys accounting, management information, human
resource, and other administrative systems; liability for
activities of the acquired company before the acquisition,
including patent and trademark infringement claims, violations
of laws, commercial disputes, tax liabilities, and other known
and unknown liabilities; litigation or other claims in
connection with the acquired company, including claims from
terminated employees, customers, former stockholders, or other
third parties; in the case of foreign acquisitions, the need to
integrate operations across different cultures and languages and
to address the particular economic, currency, political, and
regulatory risks associated with specific countries; and failure
to successfully further develop the acquired technology.
86
Our failure to address these risks or other problems encountered
in connection with our past or future acquisitions and
investments could cause us to fail to realize the anticipated
benefits of such acquisitions or investments, incur
unanticipated liabilities, and harm our business generally.
An
increase in account data breaches and fraudulent activity using
our Cards could lead to reputational damage to our brand and
could reduce the use and acceptance of our charge and credit
Cards.
We and other third parties store Cardmember account information
in connection with our charge and credit Cards. Criminals are
using increasingly sophisticated methods to capture various
types of information relating to Cardmembers accounts,
including Membership Rewards accounts, to engage in illegal
activities such as fraud and identity theft. As outsourcing and
specialization become a more acceptable and common way of doing
business in the payments industry, there are more third parties
involved in processing transactions using our Cards. If data
breaches or fraud levels involving our Cards were to rise, it
could lead to regulatory intervention (such as mandatory card
reissuance), increased concerns of customers relating to the
privacy of their data and reputational and financial damage to
our brand, which could reduce the use and acceptance of our
Cards, and have a material adverse impact on our business.
We
have agreements with business partners in a variety of
industries, including the airline industry, that represent a
significant portion of our business. We are exposed to risks
associated with these industries, including bankruptcies,
restructurings, consolidations and alliances of our partners,
and the possible obligation to make payments to our
partners.
In the ordinary course of our business we enter into different
types of contractual arrangements with business partners in a
variety of industries. For example, we have partnered with
Costco and Delta Air Lines to offer co-branded cards for
consumers and small businesses, and through our Membership
Rewards program we have partnered with businesses in many
industries, including the airline industry, to offer benefits to
Cardmember participants. Under some types of these contractual
arrangements, upon the occurrence of certain triggering events,
we may be obligated to make payments to certain co-brand
partners, merchants, vendors and customers. If we are not able
to effectively manage the triggering events, we could
unexpectedly have to make payments to these partners, which
could have a negative effect on our financial condition and
results of operations. Similarly, we have credit risk to certain
co-brand partners relating to our prepayments for loyalty
program points that will not be fully redeemed for multi-year
periods. We are also exposed to risk from bankruptcies,
restructurings, consolidations and other similar events that may
occur in any industry representing a significant portion of our
billed business, which could negatively impact particular card
products and services (and billed business generally) and our
financial condition and results of operations. For example, we
could be materially impacted if we were obligated to or elected
to reimburse Cardmembers for products and services purchased
from merchants that are bankrupt or have ceased operations.
The airline industry represents a significant portion of our
billed business and in recent years has undergone bankruptcies,
restructurings, consolidations and other similar events. During
2010, there continued to be significant consolidation in the
airline industry, particularly in the United States (e.g.,
United Airlines/Continental Airlines and the pending merger of
Southwest Airlines and AirTran), through mergers
and/or
grants of antitrust immunity to airline alliances and joint
ventures, and this trend could continue. In particular, the
United States Department of Transportation has granted antitrust
immunity to members of the Skyteam, Star and Oneworld Alliances,
enabling the covered airlines to closely coordinate their
cross-regional operations and to launch highly integrated joint
ventures in transatlantic and other markets, including jointly
pricing and managing capacity on covered routes, sharing
revenues and costs, and coordinating sales and corporate
contracts, all outside of the scope of the U.S. antitrust
laws. The European Commission has similarly approved the
Oneworld Alliance, and its review of the other alliances is
continuing. Increasing consolidation and expanded antitrust
immunity could create challenges for our relationships with the
airlines including by reducing our profitability on our airline
business.
Airlines are also some of the most important and valuable
partners in our Membership Rewards program. If a participating
airline merged with an airline that did not participate in
Membership Rewards, the combined airline would have to determine
whether or not to continue participation. Similarly, if one of
our co-brand
87
airline partners merged with an airline that had a competing
co-brand card, the combined airline would have to determine
which co-brand cards it would offer. If an airline determined to
withdraw from Membership Rewards or to cease offering an
American Express co-brand card, whether as the result of a
merger or otherwise, such as our recent announcement that
Continental Airlines will no longer participate in the Airport
Club Access program for Centurion and Platinum Cardmembers or
the Membership Rewards points transfer program as of
October 1, 2011, our business could be adversely affected.
For additional information relating to the general risks related
to the airline industry, see Financial Review
Exposure to Airline Industry on page 60 of our 2010
Annual Report to Shareholders, which is incorporated herein by
reference.
Our
reengineering and other cost control initiatives may not prove
successful, and we may not realize all or a significant portion
of the benefits we intended.
We have regularly undertaken, and are currently undertaking, a
variety of efforts to reengineer our business operations in
order to achieve cost savings and other benefits (including the
reinvestment of such savings in key areas such as marketing,
promotion, rewards and infrastructure), enhance
revenue-generating opportunities and improve our operating
expense to revenue ratio both in the short-term and over time.
These efforts include cost management, structural and strategic
measures such as vendor, process, facilities and operations
consolidation, outsourcing functions (including, among others,
technologies operations), relocating certain functions to lower
cost overseas locations, moving internal and external functions
to the Internet to save costs and planned staff reductions
relating to certain of these reengineering actions. If we do not
successfully achieve these efforts in a timely manner or if we
are not able to capitalize on these efforts, including the
ability of the Global Services Group to generate an annualized
level of gross expense savings of approximately
$500 million by 2012, or if the actions taken ultimately
come at the expense of operational efficiency, we may not
realize all or a significant portion of the benefits we
intended. Failure to achieve these benefits could have a
negative effect on our financial condition and results of
operations.
Our
risk management policies and procedures may not be
effective.
We must effectively manage credit risk related to consumer debt,
business loans, settlement risk with regard to GNS partners,
merchant bankruptcies, the rate of bankruptcies, and other
credit trends that can affect spending on Card products, debt
payments by individual and corporate customers and businesses
that accept our Card products.
Credit risk is the risk of loss from obligor or counterparty
default. We are exposed to both consumer credit risk,
principally from Cardmember receivables and our other consumer
lending activities, and institutional credit risk from
merchants, GNS partners and GCC clients. Third parties may
default on their obligations to us due to bankruptcy, lack of
liquidity, operational failure or other reasons. Country,
regional and political risks are components of credit risk.
Rising delinquencies and rising rates of bankruptcy are often
precursors of future write-offs and may require us to increase
our reserve for loan losses. Higher write-off rates and an
increase in our reserve for loan losses adversely affect our
profitability and the performance of our securitizations, and
may increase our cost of funds.
Although we make estimates to provide for credit losses in our
outstanding portfolio of loans and receivables, these estimates
may not be accurate. In addition, the information we use in
managing our credit risk may be inaccurate or incomplete.
Although we regularly review our credit exposure to specific
clients and counterparties and to specific industries, countries
and regions that we believe may present credit concerns, default
risk may arise from events or circumstances that are difficult
to foresee or detect, such as fraud. We may also fail to receive
full information with respect to the credit risks of our
customers.
We must also effectively manage market risk to which we are
exposed. Market risk represents the loss in value of portfolios
and financial instruments due to adverse changes in market
variables. We are exposed to market risk from interest rates in
our Card business and in our investment portfolios. Changes in
the interest rates at which we borrow and lend money affect the
value of our assets and liabilities. If the rate of interest we
pay on our borrowings increases more than the rate of interest
we earn on our loans, our net interest yield, and consequently
our net income, could fall.
88
We must also accurately estimate the fair value of the assets in
our investment portfolio and, in particular, those investments
that are not readily marketable.
Additionally, we must effectively manage liquidity risk to which
we are exposed. Liquidity risk is defined as the inability to
access cash and equivalents needed to meet business requirements
and satisfy our obligations. If we are unsuccessful in managing
our liquidity risk, we may maintain too much liquidity, which
can be costly and limit financial flexibility, or we may be too
illiquid, which could result in financial distress during a
liquidity event. For additional information regarding our
management of liquidity risk, see Adverse capital and
credit market conditions may significantly affect our ability to
meet liquidity needs, access to capital and cost of
capital above.
Finally, we must also manage the operational risks to which we
are exposed. We consider operational risk to be the risk of not
achieving business objectives due to inadequate or failed
processes or information systems, human error or the external
environment (i.e., natural disasters) including losses due to
failures to comply with laws and regulations. Operational risks
include the risk that we may not comply with specific regulatory
or legal requirements, exposing us to fines
and/or
penalties and possibly brand damage; employee error or
intentional misconduct that results in a material financial
misstatement; or a failure to monitor an outsource
partners compliance with a service level agreement,
resulting in economic harm to us.
Although we have devoted significant resources to develop our
risk management policies and procedures and expect to continue
to do so in the future, our hedging strategies and other risk
management techniques may not be fully effective. See
Financial Review Risk Management on
pages 48-50 of our 2010 Annual Report to Shareholders for a
discussion of the policies and procedures we use to identify,
monitor and manage the risks we assume in conducting our
businesses. Management of credit, market and operational risk
requires, among other things, policies and procedures to record
properly and verify a large number of transactions and events,
and these policies and procedures may not be fully effective.
An
inability to accept or maintain deposits due to market demand or
regulatory constraints could materially adversely affect our
liquidity position and our ability to fund our
business.
As a source of funding, our banking subsidiaries offer deposits
to individuals through brokerage networks as well as directly to
consumers.
As of December 31, 2010, we had approximately
$29.7 billion in total customer deposits. The majority of
the Companys outstanding U.S. retail deposits have
been raised through third-party channels and, as such, are
considered brokered deposits for bank regulatory purposes. As
part of our funding strategy, a majority of the deposits raised
during 2010 were sourced directly by the Company with consumers
through Personal Savings from American Express. Many other
financial services firms are increasing their use of deposit
funding, and as such we may experience increased competition in
the deposit markets, particularly as to brokerage networks. We
cannot predict how this increased competition will affect
deposit renewal rates, costs or availability. If we are required
to offer higher interest rates to attract or maintain deposits,
our funding costs will be adversely impacted.
Our ability to obtain deposit funding and offer competitive
interest rates on deposits also is dependent on capital levels
of our bank subsidiaries. The FDIA generally prohibits a bank,
including our banking subsidiaries, from accepting brokered
deposits or offering interest rates on any deposits
significantly higher than the prevailing rate in its normal
market area or nationally (depending upon where the deposits are
solicited), unless (1) it is well capitalized or
(2) it is adequately capitalized and receives a waiver from
the FDIC. A bank that is less than well capitalized generally
may not pay an interest rate on any deposit, including
direct-to-consumer
deposits, in excess of 75 basis points over the national
rate published by the FDIC unless the FDIC determines that the
bank is operating in a high-rate area. An adequately capitalized
insured depository institution may not accept, renew or roll
over any brokered deposit unless it has applied for and been
granted a waiver of this prohibition by the FDIC.
Undercapitalized depository institutions may not solicit
deposits by offering interest rates that are significantly
higher than the prevailing rates of interest on insured deposits
in such institutions normal market areas or in the market
area in which such deposits would otherwise be accepted. There
are no such restrictions on a bank that is well capitalized
(provided such bank is not subject to a capital maintenance
provision within a written agreement, consent order, order to
cease and
89
desist, capital directive, or prompt corrective action directive
issued by its federal regulator). If a depository
institutions federal regulator determines that it is in an
unsafe or unsound condition or is engaging in unsafe or unsound
banking practices, the regulator may reclassify a well
capitalized institution as adequately capitalized, require an
adequately capitalized institution to comply with certain
restrictions as if it were undercapitalized, and require an
undercapitalized institution take certain actions applicable to
significantly undercapitalized institutions.
While Centurion Bank and AEBFSB were considered well
capitalized for these purposes as of December 31,
2009 and December 31, 2010, there can be no assurance that
they will continue to meet this definition. Basel III, when
implemented by the U.S. banking agencies and fully
phased-in, will require bank holding companies and their bank
subsidiaries to maintain substantially more capital, with a
greater emphasis on common equity. Additionally, our regulators
can adjust the requirements to be well capitalized at any time
and have authority to place limitations on our deposit
businesses, including the interest rate we pay on deposits. An
inability to attract or maintain deposits in the future could
materially adversely affect our liquidity position and our
ability to fund our business.
If our global network systems are disrupted or we are
unable to process transactions efficiently or at all, our
revenue and profitability would be materially reduced.
Our transaction authorization, clearing and settlement systems
may experience service interruptions as a result of fire,
natural disasters, power loss, disruptions in long distance or
local telecommunications access, fraud, terrorism or accident. A
natural disaster or other problem at our facilities could
interrupt our services. Additionally, we rely on third-party
service providers for the timely transmission of information
across our global network. If a service provider fails to
provide the communications capacity or services we require, as a
result of natural disaster, operational disruption, terrorism or
any other reason, the failure could interrupt our services,
adversely affect the perception of our brands reliability
and materially reduce our revenue and profitability.
We
rely on third-party providers of various computer systems and
other services integral to the operations of our businesses.
These third parties may act in ways that could harm our
business.
We operate a service network around the world. In
order to achieve cost and operational efficiencies, we outsource
to third-party vendors many of the computer systems and other
services that are integral to the operations of our global
businesses. A significant amount of this outsourcing occurs in
developing countries. We are subject to the risk that certain
decisions are subject to the control of our third-party service
providers and that these decisions may adversely affect our
activities. In addition, the management of multiple third-party
vendors increases our operational complexity and decreases our
control. It is also possible that the cost efficiencies of
certain outsourcings will decrease as the demand for these
services increases around the world.
Our
business is subject to the effects of weather and natural
disasters.
As previously disclosed, natural disasters, severe weather
conditions and other catastrophic events can have a negative
effect on the Companys business. Because the Company
derives a portion of its revenues from travel-related spending,
its business is sensitive to disruptions in air travel and other
forms of travel caused by such events. Such disruptions can
result in the payment of claims under travel interruption
insurance policies that the Company offers and, if such
disruptions to travel are prolonged, they can materially
adversely affect overall travel-related spending. If the
conditions described above (or similar ones) result in
widespread or lengthy disruptions to travel, they could have a
material adverse effect on our results of operations.
Special
Note About Forward-Looking Statements
We have made various statements in this Report that may
constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may also be made in our other reports
filed with or furnished to the SEC, in our press releases and in
other documents. In addition, from time to time, we, through our
management, may make oral forward-looking statements.
Forward-looking statements are subject to risks and
uncertainties, including those identified above, which could
cause actual results to differ materially from such statements.
The words believe, expect,
90
anticipate, optimistic,
intend, plan, aim,
will, may, should,
could, would, likely and
similar expressions are intended to identify forward-looking
statements. We caution you that the risk factors described above
are not exclusive. There may also be other risks that we are
unable to predict at this time that may cause actual results to
differ materially from those in forward-looking statements.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on
which they are made. We undertake no obligation to update
publicly or revise any forward-looking statements.
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|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not applicable.
Our principal executive offices are in a 51-story,
2.2 million square foot building located in lower
Manhattan. This building, which is on land leased from the
Battery Park City Authority for a term expiring in 2069, is one
of four office buildings in a complex known as the World
Financial Center. We have a 49% ownership interest in the
building and Brookfield Financial Properties owns the remaining
51% interest in the building. We also lease space in the
building from Brookfield.
Other owned or leased principal locations currently include: the
American Express Service Centers in Fort Lauderdale,
Florida; Phoenix, Arizona; Greensboro, North Carolina; and Salt
Lake City, Utah; the American Express Data Centers in Phoenix,
Arizona and in Minneapolis, Minnesota; a multi-building campus
housing the American Express Finance Center in Phoenix, Arizona;
the headquarters for American Express Services Europe Limited in
London, England; the Amex Canada Inc. headquarters in Markham,
Ontario, Canada; and service centers located in Mexico City,
Mexico; Sydney, Australia; Gurgaon, India and Brighton, England.
As part of the Companys decision to consolidate locations
within the Companys global servicing network, a facility
in Greensboro, North Carolina, will be closed, with work
currently handled there being transferred to other locations in
the U.S. Subject to local consultations, the Company also
plans to transfer work currently handled at a Madrid, Spain,
service center to facilities in Brighton, U.K., and Buenos
Aires, Argentina, and service support for the Japanese card
business from Sydney, Australia to Japan.
During 2004 and 2005, we engaged in several sale-leaseback
transactions pursuant to which we sold various owned properties
to third parties and leased back the properties under long-term
net leases whereby each American Express entity that leases back
the property is responsible for all costs and expenses relating
to the property (including maintenance, repair, utilities,
operating expenses and insurance costs) in addition to annual
rent. The sale-leaseback transactions have not materially
impacted our financial results in any year. Gains resulting from
completed sale and leaseback transactions are amortized over the
initial ten-year lease periods. We continue to consider whether
sale-leaseback transactions are appropriate for other properties
that we currently own.
Generally, we lease the premises we occupy in other locations.
We believe that the facilities we own or occupy suit our needs
and are well maintained.
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ITEM 3.
|
LEGAL
PROCEEDINGS
|
The Company and its subsidiaries are involved in a number of
legal and arbitration proceedings, including class actions,
concerning matters arising in connection with the conduct of
their respective business activities. The Company believes it
has meritorious defenses to each of these actions and intends to
defend them vigorously. In the course of its business, the
Company and its subsidiaries are also subject to governmental
examinations, information gathering requests, subpoenas,
inquiries and investigations. The Company believes that it is
not a party to, nor are any of its properties the subject of,
any pending legal, arbitration, regulatory or investigative
proceedings that would have a material adverse effect on the
Companys consolidated financial condition or liquidity.
However, it is possible that the outcome of any such proceeding
could have a material impact on results of operations in any
particular reporting period as the proceedings are resolved.
Certain legal proceedings involving the Company are described
below.
91
For those legal proceedings and governmental examinations
disclosed below as to which a loss is reasonably possible in
future periods, whether in excess of a related accrued liability
or where there is no accrued liability, and for which the
Company is able to estimate a range of possible loss, the
current estimated range is zero to $500 million in excess
of the accrued liability (if any) related to those matters. This
aggregate range represents managements estimate of
possible loss with respect to these matters and is based on
currently available information. This estimated range of
possible loss does not represent the Companys maximum loss
exposure. The legal proceedings and governmental examinations
underlying the estimated range will change from time to time and
actual results may vary significantly from the current estimate.
For additional information, please see Note 24 to our
Consolidated Financial Statements, which can be found on
page 113 of our 2010 Annual Report to Shareholders.
Corporate
Matters
During the last few years as regulatory interest in credit card
network pricing to merchants and related issues has increased,
the Company has responded to many inquiries from banking and
competition authorities throughout the world. In October 2008,
the Company received a Civil Investigative Demand
(CID) from the Antitrust Division of the DOJ.
Pursuant to the CID, the DOJ requested the production of
documents and information regarding the Companys
contractual provisions relating to merchant surcharging and that
prohibit merchants from discriminating against American Express
cards. The Company cooperated with the DOJs request. The
Company had also received a similar civil investigative demand
from the attorney general of the state of Ohio.
On October 4, 2010, the DOJ, along with Attorneys General
from Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio and
Texas, filed a complaint in the U.S. District Court for the
Eastern District of New York against the Company, MasterCard
International Incorporated and Visa, Inc., alleging a violation
of Section 1 of the Sherman Antitrust Act. The complaint
alleges that the defendants policies prohibiting merchants
from steering a customer to use another networks card,
another type of card or another method of payment
(anti-steering and non-discrimination
rules and contractual provisions) violate the antitrust laws.
The complaint alleges that the defendants participate in two
distinct markets, a General Purpose Card network services
market, and a General Purpose Card network services
market for merchants in travel and entertainment
(T&E) businesses. The complaint contends
that each of the defendants has market power in the alleged two
markets. The complaint seeks a judgment permanently enjoining
the defendants from enforcing their anti-steering and
non-discrimination rules and contractual provisions. The
complaint does not seek monetary damages. Concurrent with the
filing of the complaint, Visa and MasterCard announced they had
reached an agreement settling the allegations in the complaint
against them by agreeing to modifications in their rules
prohibiting merchants that accept their cards from steering
customers to use another networks card, another type of
card or another method of payment. American Express response to
the complaint was filed on December 7, 2010. On
December 20, 2010, the complaint filed by the DOJ and
certain state attorneys general was amended to add as plaintiffs
the Attorneys General from Arizona, Hawaii, Idaho, Illinois,
Montana, Nebraska, New Hampshire, Rhode Island, Tennessee, Utah
and Vermont. American Express response to the amended
complaint was filed on January 4, 2011. A hearing has been
scheduled for March 2, 2011 to discuss scheduling and
coordination of the DOJ and state attorneys general litigation
with other cases pending in the Eastern District of New York
against American Express relating to the non-discrimination
provisions in its merchant agreements, which cases are described
below in the section entitled U.S. Card Services and
Global Merchant Services Matters.
On February 20, 2009, a putative class action captioned
Brozovich v. American Express Co., Kenneth I. Chenault
and Daniel T. Henry
, was filed in the United States District
Court for the Southern District of New York. The lawsuit alleged
violations of the federal securities laws in connection with
certain alleged misstatements regarding the credit quality of
the Companys credit card customers. The purported class
covered the period from March 1, 2007 to November 12,
2008. The action sought unspecified damages and costs and fees.
The
Brozovich
action was subsequently voluntarily
dismissed. In March 2009, a putative class action, captioned
Baydale v. American Express Co., Kenneth I. Chenault and
Daniel Henry
, which made similar allegations to those made
in the
Brozovich
action, was filed in the United States
District Court for the Southern District of New York. In October
2009, the plaintiff in the
Baydale
action filed an
Amended Consolidated Class Action Complaint in the action.
The Company filed a motion to dismiss with the Court. On
July 19, 2010, the Court granted the Companys
92
motion to dismiss and dismissed the complaint in its entirety.
The plaintiff has filed a Notice of Appeal with the United
States Court of Appeals for the Second Circuit.
In May 2008, a shareholders derivative suit was filed in
New York State Supreme Court in Manhattan naming American
Express Company and certain current and former directors and
senior executives as defendants. The case, captioned as
City
of Tallahassee Retirement System v. Akerson et al.,
alleges breaches of fiduciary duty arising from knowing
breaches of fiduciary obligations by certain current and former
officers and directors of the Company that have led to the
imposition of deferred criminal charges on a bank that at the
time such charges were entered was owned by American Express, as
well as the Companys payment of approximately
$65 million in penalties to federal and state
regulators related to American Express Bank Limiteds
(AEBL) and TRSs anti-money laundering programs. The
complaint also states that the sale of AEBL took place after
American Express had allowed the value of its banking
business unit to be dramatically impaired on account of the
systemic violations of law and resulting deferred criminal
charges. The complaint seeks monetary damages on behalf of
the Company. The defendants filed a motion to dismiss the
complaint and in October 2009, the Court dismissed the complaint
against all defendants. The plaintiff had filed a Notice of
Appeal of the dismissal, but has since informed the Company that
it does not intend to pursue such appeal.
In December 2008, a putative class action captioned
Obester v. American Express Company, et al.
was
filed in the United States District Court for the Southern
District of New York. The complaint alleges that the defendants
violated certain ERISA obligations by: allowing the investment
of American Express Retirement Savings Plan (Plan)
assets in American Express common stock when American Express
common stock was not a prudent investment; misrepresenting and
failing to disclose material facts to Plan participants in
connection with the administration of the Plan; and breaching
certain fiduciary obligations. Thereafter, three other putative
class actions making allegations similar to those made in the
Obester
matter were filed against the defendants:
Tang v. American Express Company, et al.
, filed on
December 29, 2008 in the United States District Court for
the Southern District of New York,
Miner v. American
Express Company et al.
, filed on February 4, 2009 in
the United States District Court for the Southern District of
New York, and
DiLorenzo v. American Express Company et
al.
, filed on February 10, 2009 in the United States
District Court for the Southern District of New York. American
Express filed a motion to dismiss these actions. In April 2009,
these actions were consolidated into a Consolidated Amended
Complaint, captioned
In re American Express ERISA
Litigation.
Following argument on American Express
motion to dismiss this action, the Court permitted plaintiffs to
file a Second Amended Complaint. In April 2010, American Express
filed a motion to dismiss the Second Amended Complaint. On
November 2, 2010, the District Court dismissed the Second
Amended Complaint in its entirety. On December 2, 2010,
Plaintiffs filed a Notice of Appeal, appealing the case to the
United States Court of Appeals for the Second Circuit. That
appeal is currently pending.
The Company is a defendant in a putative class action captioned
Kaufman v. American Express Travel Related Services
,
which was filed on February 14, 2007, and is pending in the
United States District Court for the Northern District of
Illinois. The allegations in Kaufman relate primarily to monthly
service fee charges in respect of the Companys gift card
products, with the principal claim being that the Companys
gift cards violate consumer protection statutes because
consumers allegedly have difficulty spending small residual
amounts on the gift cards prior to the imposition of monthly
service fees. In January 2009, the Company signed a Memorandum
of Understanding to resolve these claims. Since such time, the
parties have entered into a settlement agreement that was
submitted to the Court for preliminary approval. The proposed
settlement class consists of all purchasers, recipients
and holders of all gift cards issued by American Express from
January 1, 2002 through the date of preliminary approval of
the Settlement, including without limitation, gift cards sold at
physical retail locations, via the internet, or through mall
co-branded programs. Under the terms of the proposed
settlement, in addition to certain non-monetary relief, the
Company would pay $3 million into a settlement fund.
Members of the settlement class would then be entitled to submit
claims against the settlement fund to receive refunds of certain
gift card fees, and any monies remaining in the settlement fund
after payment of all claims would be paid to charity. In
addition, the Company would make available to the settlement
class for a period of time the opportunity to buy gift cards
with no purchase fee. Finally, the Company would be responsible
for paying class counsels reasonable fees and expenses and
certain expenses of administering the class settlement. The
Company is also a defendant in two other putative class actions
making allegations similar to those made in
Kaufman
:
Goodman v. American Express
93
Travel
Related Services
, pending in the United States
District Court for the Eastern District of New York, and
Jarratt v. American Express Company
, filed in
California Superior Court in San Diego and subsequently
removed to the United States District Court for the Southern
District of California. If the court ultimately approves the
proposed settlement in
Kaufman
, all related gift card
claims and actions would also be released. In August 2010, in
response to objections by plaintiffs in certain of the other
pending cases, the
Kaufman
court partially granted and
partially denied approval of the settlement. The Company has
filed a motion for reconsideration of the portion of the
courts decision partially denying approval of the
settlement, and that motion is pending.
Beginning in mid-July 2002, 12 putative class action lawsuits
were filed in the United States District Court for the Southern
District of New York. In October 2002, these cases were
consolidated under the caption
In re American Express Company
Securities Litigation.
These lawsuits allege violations of
the federal securities laws and the common law in connection
with alleged misstatements regarding certain investments in
high-yield bonds and write-downs in the
2000-2001
timeframe. The purported class covers the period from
July 26, 1999 to July 17, 2001. The actions seek
unspecified compensatory damages as well as disgorgement,
punitive damages, attorneys fees and costs, and interest.
On March 31, 2004, the Court granted the Companys
motion to dismiss the lawsuit. Plaintiffs appealed the dismissal
to the United States Court of Appeals for the Second Circuit. In
August 2006, the Court of Appeals, without expressing any views
whatsoever on the merits of the cases, vacated the District
Courts judgment and remanded all claims to the District
Court for further proceedings. Plaintiffs filed an amended
complaint on January 5, 2007. The Company subsequently
filed a motion to dismiss the amended complaint, which motion
was granted in September 2008. Plaintiffs appealed the
dismissal, and in May 2010, the United States Court of Appeals
for the Second Circuit affirmed the dismissal. Plaintiffs filed
for rehearing and rehearing en banc with the Second Circuit in
June 2010, which motions were denied by the Court.
Plaintiffs time to appeal to seek review of the decision
by the U.S. Supreme Court has expired.
U.S. Card
Services and Global Merchant Services Matters
Merchant
Cases
Since July 2003 the Company has been named in a number of
putative class actions in which the plaintiffs allege an
unlawful antitrust tying arrangement between certain of the
Companys charge cards and credit cards in violation of
various state and federal laws. These cases have all been
consolidated in the United States District Court for the
Southern District of New York under the caption:
In re
American Express Merchants Litigation.
A case making
similar allegations was also filed in the Southern District of
New York in July 2004 captioned:
The Marcus
Corporation v. American Express Company et al.
The
Marcus
case is not consolidated. The plaintiffs in these
actions seek injunctive relief and an unspecified amount of
damages. In April 2004, the Company filed a motion to dismiss
all the actions filed prior to the date of its motion. In March
2006, that motion was granted, with the Court finding the claims
of the plaintiffs to be subject to arbitration. Plaintiffs asked
the District Court to reconsider its dismissal. That request was
denied. The plaintiffs appealed the District Courts
arbitration ruling and in January 2009, the United States Court
of Appeals for the Second Circuit reversed the District Court.
The Company filed with the United States Supreme Court a
petition of certiorari from the Second Circuits
arbitration ruling. On May 3, 2010, the Supreme Court
granted the Companys petition, vacated the judgment of the
Second Circuit and remanded the case back to the Second Circuit
for further consideration. The matter remains pending in the
Second Circuit. The Company also filed a motion to dismiss the
action filed by The Marcus Corporation, which was denied in July
2005. In October 2007, The Marcus Corporation filed a motion
seeking certification of a class. In March 2009, the Court
denied the plaintiffs motion for class certification,
without prejudicing their right to remake such a motion upon
resolution of the pending summary judgment motion. In April
2009, the Court denied plaintiffs motion for
reconsideration of the March 2009 order. In September 2008,
American Express moved for summary judgment seeking dismissal of
The Marcus Corporations complaint, and The Marcus
Corporation cross-moved for partial summary judgment on the
issue of liability. A decision on the summary judgment motions
is pending. A case captioned
Hayama Inc. v. American
Express Company et al.
, which makes similar allegations as
those in the actions described above, was filed and remains in
the Superior Court of California, Los Angeles County (filed
December 2003). The Company continues to request that the
California Superior Court that is hearing the
Hayama
action stay such action. To date the
Hayama
action has
been stayed.
94
In February 2009, an amended complaint was filed in
In re
American Express Merchants Litigation
. The amended
complaint contains a single count alleging a violation of
federal antitrust laws through an alleged unlawful tying of:
(a) corporate, small business
and/or
personal charge card services; and (b) Blue, Costco and
standard GNS credit card services. In addition, in February
2009, a new complaint making the same allegations as made in the
amended complaint filed in
In re American Express
Merchants Litigation
was also filed in the United
States District Court for the Southern District of New York.
That new case is captioned
Greenporter LLC and Bar Hama LLC,
on behalf of themselves and all others similarly
situated v. American Express Company and American Express
Travel Related Services Company, Inc.
Proceedings
in the
Greenporter
action and on the amended complaint
filed in
In re American Express Merchants
Litigation
have been held in abeyance pending the
disposition of the motions for summary judgment in the
Marcus
case.
Beginning in August 2005, the Company has been named in a number
of putative class actions alleging that the Companys
anti-steering policies and contractual provisions
violate United States antitrust laws. Those cases were
consolidated in the United States District Court for the
Southern District of New York under the caption
In re
American Express Anti-Steering Rules Antitrust
Litigation
. The plaintiffs complaint in that
consolidated action seeks injunctive relief and unspecified
damages. These plaintiffs agreed that a stay would be imposed
with regard to their respective actions pending the appeal of
the Courts arbitration ruling discussed above. Given the
2009 ruling of the Second Circuit (described above in connection
with
In re American Express Merchants Litigation
),
the stay was lifted, and American Express response to the
complaint was filed in April 2009. The Court entered a
scheduling order on December 28, 2009. In July 2010 the
Court entered an order partially staying the case pending the
Second Circuits arbitration ruling (following the 2010
remand by the Supreme Court described above in connection with
In re American Express Merchants Litigation
). In
June 2010, the attorneys representing the plaintiffs in
In re
American Express Anti-Steering Rules Antitrust
Litigation
filed an action making similar allegations
captioned
National Supermarkets Association v. American
Express and American Express Travel Related Services
. Upon
filing, the plaintiffs designated that case as
related to
In re American Express Anti-Steering
Rules Antitrust Litigation
. By agreement of the
parties, that case has also been partially stayed pending the
Second Circuits arbitration ruling referenced above.
In June 2008, five separate lawsuits were filed against American
Express Company in the United States District Court for the
Eastern District of New York alleging that the Companys
anti-steering provisions in its merchant acceptance
agreements with the merchant plaintiffs violate federal
antitrust laws. As alleged by the plaintiffs, these provisions
prevent merchants from offering consumers incentives to use
alternative forms of payments when consumers wish to use an
American Express-branded card. The five suits were filed by each
of Rite-Aid Corp., CVS Pharmacy Inc., Walgreen Co., Bi-Lo LLC.,
and H.E. Butt Grocery Company. The plaintiff in each action
seeks damages and injunctive relief. American Express filed its
answer to these complaints and also filed a motion to dismiss
these complaints as time barred. The Court denied the
Companys motion to dismiss the complaints in March 2010.
On October 1, 2010, the parties to these actions agreed to
stay all proceedings pending related mediations, and Magistrate
Judge Ramon E. Reyes entered an order staying these actions on
October 18, 2010. The parties have since notified the Court
that those mediations have reached impasses. On January 21,
2011, the following parties filed lawsuits making similar
allegations that the Companys anti-steering
provisions violate antitrust laws: Meijer, Inc., Publix Super
Markets, Inc., Raleys Inc., Supervalu, Inc., The Kroger
Co., Safeway, Inc., Ahold U.S.A., Inc., Albertsons LLC,
Hy-Vee, Inc., and The Great Atlantic & Pacific Tea
Company, Inc.
In November 2010, two putative class action complaints making
allegations similar to those in
In re American Express
Anti-Steering Rules Antitrust Litigation
were filed in
the United States District Court for the Eastern District of New
York by Firefly Air Solutions, LLC d/b/a 128 Café and
Plymouth Oil Corp. d/b/a Liberty Gas Station. In addition, in
December 2010, a putative class action complaint making similar
allegations, and seeking certification of a Wisconsin-only
class, was filed by Treehouse Inc. d/b/a Treehouse
Gift & Home in the United States District Court for
the Western District of Wisconsin. In January 2011, a putative
class complaint, captioned
Il Forno v. American Express
Centurion Bank
, seeking certification of a California-only
class and making allegations similar to those in
In re
American Express Anti-Steering Rules Antitrust
Litigation,
was filed in United States District Court for
the Central District of California.
95
On February 7, 2011, in response to a transfer motion filed
by the plaintiffs in the Plymouth Oil action discussed above,
the United States Judicial Panel on Multi-District Litigation
entered an order centralizing the following actions discussed
above in the Eastern District of New York for coordinated or
consolidated pretrial proceedings before the Honorable Nicholas
G. Garaufis: (a) the putative class action that had been
previously pending in the Southern District of New York
captioned
In re American Express Anti-Steering
Rules Antitrust Litigation
; (b) the putative class
actions already pending in the Eastern District of New York
filed by Firefly Air Solutions, LLC and by Plymouth Oil Corp.;
and (c) the individual merchant suits already pending in
the Eastern District of New York. On February 15, 2011, the
United States Judicial Panel on Multi-District Litigation issued
a conditional transfer order centralizing the related putative
class actions pending in the Central District of California and
Western District of Wisconsin before Judge Garaufis in the
Eastern District of New York. It is expected that this
conditional order will soon become final, and that those actions
will be centralized before Judge Garaufis. A hearing has been
scheduled for March 2, 2011 to discuss scheduling and
coordination of the cases that are the subject of coordinated or
consolidated pretrial proceedings under the Multi-District
Litigation Panel Order and the DOJ and attorneys general
litigation discussed above.
Other
Cases
In September 2010, a putative class action, captioned
Meeks v. American Express Centurion Bank
, was filed
in Fulton County Superior Court, Georgia. In October 2010, the
Company removed the matter to federal court. The complaint
alleges that plaintiff opened an account in 2005 with an
interest rate of prime plus an additional marginal rate of
2.99%. Plaintiff contends that he was promised that the marginal
rate would remain fixed. Plaintiff alleges that beginning in
December 2008 the marginal rate began to increase. Plaintiff
asserts claims for breach of contract, covenant of good faith
and fair dealing, unconscionability, unjust enrichment and
duress. Plaintiff seeks to certify a nationwide class of all
American Express Cardmembers who received unilateral interest
rate increases despite their accounts being in good standing.
Plaintiff has filed a motion to remand the case from federal
court back to state court, and that motion is pending.
In June 2009, a putative class action, captioned
Mesi v.
American Express Centurion Bank
, was filed in the United
States District Court for the Central District of California.
The complaint seeks to certify a class of American Express
Cardmembers with billing addresses in 16 different states
whose interest rates on their outstanding balances were
retroactively increased by the Company. The complaint
seeks, among other things, damages in excess of
$5,000,000 and unspecified injunctive relief. The
complaint has been amended twice by plaintiff. On
December 7, 2009, the Court ordered that the matter be
stayed pending decisions on relevant legal issues in other cases
not involving American Express.
In October 2009, a putative class action, captioned
Lopez, et
al. v. American Express Bank, FSB and American Express
Centurion Bank
, was filed in the United States District
Court for the Central District of California. The complaint
seeks to certify a nationwide class of American Express
Cardmembers whose interest rates were changed from fixed to
variable in or around August 2009 or otherwise increased.
American Express filed a motion to compel arbitration, and
plaintiff has amended their complaint to limit the class to
California residents only. The Company filed a revised motion to
compel arbitration and a motion to dismiss the amended
complaint. Both motions were denied by the Court. Subsequently,
in response to a request by the Company, the Court stayed the
action pending the outcome of a case captioned
AT&T
Mobility v. Concepcion
, which is pending before the
United States Supreme Court and may impact the question of
whether the Companys motion to compel arbitration should
have been granted.
In September 2001,
Hoffman, et al. v. American Express Travel
Related Services Company, et al.
was filed in the Superior
Court of the State of California, Alameda County. Plaintiffs in
that case claim that American Express erroneously charged
Cardmember accounts in connection with its airflight insurance
programs because in certain circumstances customers must request
refunds, as disclosed in materials for the voluntary program. In
January 2006, the Court certified a class of American Express
charge Cardmembers asserting claims for breach of contract and
conversion under New York law, with a subclass of California
residents asserting violations of California
Business & Professions Code §§ 17200
and 17500, and a subclass of New York residents asserting
violation of New York General Business Law § 349.
American Express sought to compel arbitration of the claims of
all non-California residents. The motion to compel arbitration
was
96
denied by the trial court, which decision was affirmed by the
California Court of Appeal on July 6, 2007. The case went
to trial in November 2008 and January to February 2009. American
Express was granted judgment on all counts. The plaintiffs have
filed a notice of appeal; American Express has filed a
protective notice of appeal to preserve certain legal issues.
In addition, a case making the same factual allegations
(purportedly on behalf of a different class of Cardmembers) as
those in the
Hoffman
case is pending in the United States
District Court for the Eastern District of New York, entitled
Law Enforcement Systems v. American Express et al.
That case was stayed pending the trial in the
Hoffman
action. After judgment was rendered for American Express in
Hoffman
, the plaintiff in
Law Enforcement Systems
asked the Court to lift the stay and to allow plaintiff to
obtain certain Cardmember information. The Court denied the
request. No other activity has occurred in that case. Further,
on October 30, 2008, a putative class action on behalf of
American Express credit Cardmembers making the same allegations
as those raised in the
Hoffman
and
Law Enforcement
Systems
cases was filed in the United States District Court
for the Southern District of Florida, captioned
Kass v.
American Express Card Services, Inc., American Express Company
and American Express Travel Related Services
. On
March 11, 2009, the
Kass
Court entered an order
granting the joint motion of the parties to stay the case, and
the Court also administratively closed the case.
In June 2006, a putative class action captioned
Homa v.
American Express Company et al.
was filed in the United
States District Court for the District of New Jersey. The case
alleges, generally, misleading and fraudulent advertising of the
tiered up to 5 percent cash rebates
with the Blue Cash card. The complaint initially sought
certification of a nationwide class consisting of all
persons who applied for and received an American Express Blue
Cash card during the period from September 30, 2003 to the
present and who did not get the rebate or rebates provided for
in the offer. On December 1, 2006, however, plaintiff
filed a First Amended Complaint dropping the nationwide class
claims and asserting claims only on behalf of New Jersey
residents who while so residing in New Jersey, applied for
and received an American Express Blue Cash card during the
period from September 30, 2003 to the present. The
plaintiff seeks unspecified damages and other unspecified relief
that the District Court deems appropriate. In May 2007, the
District Court granted the Companys motion to compel
individual arbitration and dismissed the complaint. Plaintiff
appealed that decision to the United States Court of Appeals for
the Third Circuit, and in February 2009, the Third Circuit
reversed the decision and remanded the case back to the District
Court for further proceedings. In October 2009, a putative class
action captioned
Pagsolingan v. American Express
Company, et al.
was filed in the United States District
Court for the Northern District of California. That case made
allegations that were largely similar to those made in
Homa
, except that
Pagsolingan
alleged multiple
theories of liability and sought to certify a nationwide class
of [a]ll persons who applied for and received an American
Express Blue Cash card during the period from September 30,
2003 to the present and who did not get the rebate or rebates
provided for in the offer. In May 2010, plaintiffs
voluntarily dismissed the
Pagsolingan
case in its
entirety. Subsequently, in response to a request by the Company,
the District Court stayed the
Homa
action pending the
outcome of the case
AT&T Mobility v.
Concepcion
, which is pending before the United States
Supreme Court and may impact the question of whether the
Companys motion to compel arbitration should have been
granted.
In July 2004, a purported class action captioned
Ross, et
al. v. American Express Company, American Express Travel
Related Services and American Express Centurion Bank
was
filed in the United States District Court for the Southern
District of New York. The complaint alleges that American
Express conspired with Visa, MasterCard and Diners Club in the
setting of foreign currency conversion rates and in the
inclusion of arbitration clauses in certain of their cardmember
agreements. The suit seeks injunctive relief and unspecified
damages. The class is defined as all Visa, MasterCard and
Diners Club general-purpose cardholders who used cards issued by
any of the MDL Defendant Banks. American Express
cardholders are not part of the class. In September 2005, the
District Court denied the Companys motion to dismiss the
action and preliminarily certified an injunction class of Visa
and MasterCard cardholders to determine the validity of
Visas and MasterCards cardmember arbitration
clauses. American Express filed a motion for reconsideration
with the District Court, which motion was denied in September
2006. The Company filed an appeal from the District Courts
order denying its motion to compel arbitration. In October 2008,
the United States Court of Appeals
97
for the Second Circuit denied the Companys appeal and
remanded the case to the District Court for further proceedings.
In January 2010, the Court (1) certified a damage class of
all Visa, MasterCard and Diners Club general purpose cardholders
who used cards issued by any of the alleged co-conspiring banks
during the period July 22, 2000 to November 8, 2006,
who were assessed a foreign exchange transaction fee or
surcharge and who have submitted valid claims in
In re
Currency Conversion Antitrust Litigation
, and
(2) denied American Express motion to amend its
answer to add the affirmative defense of release. In June 2010,
the Company filed a motion for summary judgment with the Court,
which seeks dismissal of plaintiffs complaint, and that
motion is pending.
International
Matters
In November 2006, in a matter captioned
Sylvan Adams v.
Amex Bank of Canada
filed in the Superior Court of Quebec,
District of Montreal (originally filed in November 2004), the
Superior Court authorized a class action against Amex Bank of
Canada. The plaintiff alleges that prior to December 2003, Amex
Bank of Canada charged a foreign currency conversion commission
on transactions to purchase goods and services in currencies
other than Canadian dollars and failed to disclose the
commissions in monthly billing statements or solicitations
directed to prospective cardmembers. The class, consisting of
all Cardmembers in Quebec that purchased goods or services in a
foreign currency prior to December 2003, claims reimbursement of
all foreign currency conversion commissions, CDN$1,000 in
punitive damages per class member, interest and fees and costs.
The trial in the
Adams
action commenced, and was
completed, in December 2008 after the conclusion of the trial in
the
Marcotte
action described below. The Superior Court
rendered a judgment in favor of the plaintiffs against Amex Bank
of Canada on June 11, 2009, and awarded damages in the
amount of CDN$11.2 million plus interest on the
non-disclosure claims. In addition, the Superior Court awarded
punitive damages in the amount of CDN$2.2 million. The
judgment has been appealed by Amex Bank of Canada. The appeal is
scheduled to be heard by the Quebec Court of Appeal in September
2011.
In May 2006, in a matter captioned
Marcotte v. Bank of
Montreal et al.
, filed in the Superior Court of Quebec,
District of Montreal (originally filed in April 2003), the
Superior Court authorized a class action against Amex Bank of
Canada, Bank of Montreal, Toronto-Dominion Bank, Royal Bank of
Canada, Canadian Imperial Bank of Commerce, Scotiabank, National
Bank of Canada, Laurentian Bank of Canada and Citibank Canada.
The action alleges that conversion commissions made on foreign
currency transactions are credit charges under the Quebec
Consumer Protection Act (the QCPA) and cannot be charged prior
to the
21-day
grace
period under the QCPA. The class includes all persons holding a
credit card issued by one of the defendants to whom fees were
charged since April 17, 2000, for transactions made in
foreign currency before expiration of the period of 21 days
following the statement of account. The class claims
reimbursement of all foreign currency conversions, CDN$400 per
class member for trouble, inconvenience and punitive damages,
interest and fees and costs. The trial in the
Marcotte
action commenced in September 2008 and was completed in
November. The Superior Court rendered a judgment in favor of the
plaintiffs against Amex Bank of Canada on June 11, 2009,
and awarded damages in the amount of CDN$7.1 million plus
interest on the QCPA claims and individual claims to be made on
the non-disclosure claims. In addition, the Superior Court
awarded punitive damages in the amount of CDN$21.52 per
cardmember. The judgment has been appealed by all banks,
including Amex Bank of Canada. The appeal is scheduled to be
heard by the Quebec Court of Appeal in September 2011.
In November 2010 and December 2010, two motions to authorize
class actions were filed in the Superior Court of Quebec,
District of Montreal, under the class representative names of
Giroux
and
Marcotte
. Both class actions set out
the same allegations as the
Marcotte
class action filed
in 2006 except the timeframe for the new class actions starts as
of January 1, 2008 wherein the
Marcotte
case under
appeal ends as of December 31, 2007. Both class actions are
pending certification as two law firms filed the same class
action. A judge will decide which case will be certified and who
will represent the class going forward.
While the
Marcotte
and
Adams
cases proceeded
before the Superior Court, several class actions filed in the
Province of Quebec remained dormant; however, those actions (set
out below) have recently become active.
98
In November 2006, in a matter captioned
Option Consommateurs
and Benoit Fortin v. Amex Bank of Canada
filed in the
Superior Court of Quebec, District of Montreal (originally filed
in July 2003), the Superior Court authorized a class action
against Amex Bank of Canada. The plaintiff alleges the defendant
violated the QCPA by imposing finance charges on credit card
transactions prior to 21 days following the receipt of the
statement containing the charge. It is alleged that the QCPA
provisions, which require a
21-day
grace
period prior to imposing finance charges, apply to credit cards
issued by Amex Bank of Canada in Quebec and all finance charges
imposed within the 21 day grace period are contrary to the
QCPA. The class seeks reimbursement of all such finance charges,
CDN$200 in punitive damages per class member, interest, fees and
costs. A motion was brought in October 2010 to extend the class
period from July 18, 2000 to August 31, 2010. No
discovery has been scheduled in this matter but one has taken
place in a parallel class action against several banks in late
2010. Further discoveries of a co-defendant will take place in
early 2011. In May 2005, a motion for authorization of a similar
class action was filed in the Superior Court of Quebec, District
of Quebec City captioned as
Option Consommateurs and
Joel-Christian St-Pierre v. Bank of Montreal et al
alleging that Amex unlawfully charged interest 21 days from
the date of the printing of the statement as opposed to the date
of the mailing of the statement. The proposed class seeks
reimbursement of all finance charges imposed, CDN$100 in
punitive damages per class member, interest and fees and costs.
The
St. Pierre
class motion is stayed pending final
judgment in
Marcotte
.
In October 2007, in a matter captioned
Option Consommateurs
and Marylou Corriveau v. Amex Bank of Canada et al.
,
filed in the Superior Court of Quebec, District of Montreal
(originally filed in December 2006), the Superior Court
authorized a class action against Amex Bank of Canada, Canadian
Imperial Bank of Commerce, National Bank of Canada, Royal Bank
of Canada, Bank of Nova Scotia, Banque Laurentienne du Canada,
Presidents Choice Bank, Toronto Dominion Bank, Bank of
Montreal, Citibank Canada, Federation de Caisses Desjardins du
Quebec and MBNA Canada. The action alleges that cash advance
fees for transactions in Canada or abroad cannot be charged
under QCPA. The class includes all persons party to a variable
credit agreement concluded in Quebec for a purpose other than
the operation of a business and who paid the defendants from
October 4, 2001. A motion was granted in October 2010 to
extend the class period from October 4, 2001 to
September 30, 2010. It is alleged the QCPA provisions apply
to credit cards issued by Amex Bank of Canada in Quebec and all
cash advance fees imposed are contrary to the QCPA. The class
seeks reimbursement of all such cash advance fees, CDN$200 in
punitive damages per class member, interest and costs. No
discovery has been scheduled in this matter but one has taken
place in a parallel class action against several banks in late
2010. Further discoveries of a co-defendant will take place in
early 2011.
In October 2007, in a matter captioned
Option Consommateurs
and Serge Lamoureux v. Amex Bank of Canada et al.
,
filed in the Superior Court of Quebec, District of Montreal
(originally filed in December 2006), the Court authorized a
class action against Amex Bank of Canada, Banque du Montreal,
Banque Royale du Canada, Banque Nationale du Canada, Banque
Canadienne Imperiale de Commerce, Citibanque Canada, MBNA Canada
and Banque de Nouvelle-Ecosse. The plaintiff alleges the
defendants violated the QCPA, by unilaterally increasing credit
card limits without consent and charging over limit fees from
January 12, 2001. There are two distinct areas of the
claim. Amex is not part of the first portion of the claim
dealing with the unilateral increase without consent under the
QCPA. Amex is included in the second portion of the claim
permitting Cardmembers to make charges at the point of sale that
exceed their credit limit thereby incurring an over limit fee
for these occurrences contrary to the QCPA. The action alleges
the QCPA provisions apply to credit cards issued by Amex Bank of
Canada in Quebec. A motion was granted in October 2010 to extend
the class period from January 12, 2001 to
September 30, 2010. The class seeks reimbursement of all
over limit fees imposed, CDN$200 in punitive damages per class
member, interest and costs. Discovery of Amex was held in
December 2010.
99
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
(a) Our common stock trades principally on The New York
Stock Exchange under the trading symbol AXP. As of
December 31, 2010, we had 32,776 common shareholders of
record. You can find price and dividend information concerning
our common stock in Note 27 to our Consolidated Financial
Statements, which can be found on page 119 of our 2010
Annual Report to Shareholders, which note is incorporated herein
by reference. For information on dividend restrictions, please
see Financial Review Share Repurchases and
Dividends on page 41 and Note 23 on
page 111 of our 2010 Annual Report to Shareholders, which
information is incorporated herein by reference. You can find
information on securities authorized for issuance under our
equity compensation plans under the captions Executive
Compensation Share Plans, and Executive
Compensation Equity Compensation Plan
Information to be contained in the Companys
definitive 2011 proxy statement for our Annual Meeting of
Shareholders, which is scheduled to be held on May 2, 2011.
The information to be found under such captions is incorporated
herein by reference. Our definitive 2011 proxy statement for our
Annual Meeting of Shareholders is expected to be filed with the
SEC in March 2011 (and, in any event, not later than
120 days after the close of our most recently completed
fiscal year).
Under the Treasurys Capital Purchase Program pursuant to
the Emergency Economic Stabilization Act of 2008, we announced
on January 9, 2009, the receipt of aggregate proceeds of
$3.39 billion from the Treasury in exchange for the sale to
the Treasury of (i) 3,388,890 shares of our Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, par value
$1.66
2
/
3
per share (the Series A Preferred Stock),
having a liquidation preference per share equal to $1,000 and
(ii) a ten-year warrant (the Warrant) to
purchase up to 24,264,129 shares of our common shares at an
initial per share exercise price of $20.95 per share. We
repurchased all of the Series A Preferred Stock in June
2009 and repurchased the Warrant in July 2009. For additional
information about these transactions, please see our Current
Reports on
Form 8-K
filed on January 9, 2009, June 17, 2009 and
July 29, 2009.
(b) Not applicable.
(c) ISSUER PURCHASES OF SECURITIES
The table below sets forth the information with respect to
purchases of the Companys common stock made by or on
behalf of the Company during the quarter ended December 31,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
Total Number
|
|
Number
|
|
|
|
|
|
|
of Shares
|
|
of Shares that
|
|
|
|
|
|
|
Purchased as
|
|
May Yet Be
|
|
|
Total Number
|
|
|
|
Part of Publicly
|
|
Purchased Under
|
|
|
of Shares
|
|
Average Price
|
|
Announced Plans
|
|
Plans or
|
|
|
Purchased
|
|
Paid Per Share
|
|
or Programs(3)
|
|
Programs
|
|
October 1-31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase program(1)
|
|
|
4,555,028
|
|
|
$
|
40.16
|
|
|
|
4,555,028
|
|
|
|
95,463,940
|
|
Employee transactions(2)
|
|
|
(36
|
)
|
|
$
|
35.54
|
|
|
|
N/A
|
|
|
|
N/A
|
|
November 1-30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase program(1)
|
|
|
9,610,800
|
|
|
$
|
42.34
|
|
|
|
9,610,800
|
|
|
|
85,853,140
|
|
Employee transactions(2)
|
|
|
29,770
|
|
|
$
|
42.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
December 1-31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase program(1)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
85,853,140
|
|
Employee transactions(2)
|
|
|
1,004
|
|
|
$
|
43.05
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase program(1)
|
|
|
14,165,828
|
|
|
$
|
41.64
|
|
|
|
14,165,828
|
|
|
|
|
|
Employee transactions(2)
|
|
|
30,738
|
|
|
$
|
42.05
|
|
|
|
N/A
|
|
|
|
N/A
|
|
100
|
|
|
(1)
|
|
As of December 31, 2010, there were approximately
86 million shares of common stock remaining under the
authorization of the Companys Board of Directors. Such
authorization does not have an expiration date, and at present,
there is no intention to modify or otherwise rescind such
authorization. Since the program was first announced in
September 1994, the Company has acquired 684 million shares
of common stock under various Board authorizations to repurchase
up to an aggregate of 770 million shares, including
purchases made under agreements with third parties.
|
|
(2)
|
|
Includes: (a) shares delivered by or deducted from holders
of employee stock options who exercised options (granted under
the Companys incentive compensation plans) in satisfaction
of the exercise price and/or tax withholding obligation of such
holders and (b) restricted shares withheld (under the terms
of grants under the Companys incentive compensation plans)
to offset tax withholding obligations that occur upon vesting
and release of restricted shares. The Companys incentive
compensation plans provide that the value of the shares
delivered or attested to, or withheld, be based on the price of
the Companys common stock on the date the relevant
transaction occurs.
|
|
(3)
|
|
Share purchases under publicly announced programs are made
pursuant to open market purchases or privately negotiated
transactions (including with employee benefit plans) as market
conditions warrant and at prices the Company deems appropriate.
|
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The Consolidated Five-Year Summary of Selected Financial
Data appearing on page 120 of our 2010 Annual Report
to Shareholders is incorporated herein by reference.
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The information set forth under the heading Financial
Review appearing on pages 20-64 of our 2010 Annual
Report to Shareholders is incorporated herein by reference.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The information set forth under the heading Risk
Management appearing on pages 48-50 and in
Note 12 to our Consolidated Financial Statements on
pages 92-95 of our 2010 Annual Report to Shareholders is
incorporated herein by reference.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The Report of Independent Registered Public Accounting
Firm (PricewaterhouseCoopers LLP), the Consolidated
Financial Statements and the Notes to Consolidated
Financial Statements appearing on pages 67-119 of our
2010 Annual Report to Shareholders are incorporated herein by
reference.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
The Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act as of the end of the period covered by
this Report. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of
the end of such period, the Companys disclosure controls
and procedures are effective and designed to ensure that the
information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed,
summarized and reported within the requisite time periods
specified in the applicable rules and forms, and that it is
accumulated and communicated to our management, including
101
our principal executive officer and principal financial officer,
as appropriate, to allow timely decisions regarding required
disclosure.
There have not been any changes in the Companys internal
control over financial reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the Companys fourth quarter
that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over
financial reporting.
Managements Report on Internal Control over
Financial Reporting, which sets forth managements
evaluation of internal control over financial reporting, and the
Report of Independent Registered Public Accounting
Firm on the effectiveness of the Companys internal
control over financial reporting as of December 31, 2010,
appearing on pages 65-66 of our 2010 Annual Report to
Shareholders, are incorporated herein by reference.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
On February 24, 2011, the Board of Directors of the Company
approved an amendment to Section 2.2 of the Companys
By-laws (the Amendment). Section 2.2 was
amended to allow shareholders holding at least 25% of the
outstanding common stock of the Company, determined to be
Net Long Shares (as described in the Amendment), to
request that the Company hold a special meeting of shareholders.
Shareholders requesting the special meeting are required to
disclose certain information, including information required by
the Companys advance notice By-laws, with respect to any
proposed business or director nominations at the special
meeting. Additionally, the shareholders requesting the special
meeting must acknowledge that any reduction in Net Long Shares
held by the requesting shareholders acts as a revocation of the
meeting request to the extent of the reduction and agree to
inform the Company following any reduction in Net Long Shares
held by the requesting shareholders. The requesting shareholders
are required to update the disclosure required by the Amendment
as of the record date for the special meeting (and, in the case
of documentation of their share ownership, as of a date no later
than five business days before the scheduled date of the special
meeting).
The Amendment enumerates certain instances in which a special
meeting need not be called, including because the request for
the special meeting: is contrary to the By-laws; is not an
appropriate subject for shareholder action; is made less than
90 days prior to the anniversary date of the preceding
annual meeting; relates to a substantially similar item (other
than election or removal of directors) that was voted on in the
past year; relates to the election or removal of directors and a
meeting at which directors were elected or removed was held
within the past 90 days; relates to a substantially similar
item, including election or removal of directors, that will be
voted on at an annual or special meeting to be held within
120 days; or was made in violation of the proxy rules.
The foregoing description of the Amendment does not purport to
be complete and is qualified in its entirety by reference to the
amended By-laws which are attached hereto as Exhibit 3.5
and incorporated by reference herein.
PART III
|
|
ITEMS 10,
11, 12 and 13.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE; EXECUTIVE
COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
We expect to file with the SEC, in March 2011 (and, in any
event, not later than 120 days after the close of our last
fiscal year), a definitive proxy statement, pursuant to SEC
Regulation 14A in connection with our
102
Annual Meeting of Shareholders to be held May 2, 2011,
which involves the election of directors. The following
information to be included in such proxy statement is
incorporated herein by reference:
|
|
|
|
|
information included under the caption Corporate
Governance Independence of Directors
|
|
|
|
information included in the table under the caption Board
Meetings Membership on Board Committees
|
|
|
|
information under the captions Corporate
Governance Compensation and Benefits
Committee Compensation Committee Interlocks and
Insider Participation and Report of the Compensation
and Benefits Committee
|
|
|
|
information included under the caption Corporate
Governance Audit and Risk Committee
|
|
|
|
information included under the caption Compensation of
Directors
|
|
|
|
information included under the caption Ownership of Our
Common Shares
|
|
|
|
information included under the caption
Item 1 Election of Directors
|
|
|
|
information included under the caption Executive
Compensation
|
|
|
|
information under the caption Certain Relationships and
Transactions
|
|
|
|
information under the caption Section 16(a)
Beneficial Ownership Reporting Compliance.
|
In addition, the information regarding executive officers called
for by Item 401(b) of
Regulation S-K
may be found under the caption Executive Officers of the
Company in this Report.
We have adopted a set of Corporate Governance Principles, which
together with the charters of the five standing committees of
the Board of Directors (Audit and Risk; Compensation and
Benefits; Innovation and Technology; Nominating and Governance;
and Public Responsibility), our Code of Conduct (which
constitutes the Companys code of ethics), and the Code of
Business Conduct for the Members of the Board of Directors,
provide the framework for the governance of the Company. A
complete copy of our Corporate Governance Principles, the
charters of each of the Board committees, the Code of Conduct
(which applies not only to our Chief Executive Officer, Chief
Financial Officer and Comptroller, but also to all other
employees of the Company) and the Code of Business Conduct for
the Members of the Board of Directors may be found by clicking
on the Corporate Governance link found on our
Investor Relations Web site at
http://ir.americanexpress.com.
You may also access our Investor Relations Web site through the
Companys main Web site at www.americanexpress.com by
clicking on the About American Express link, which
is located at the bottom of the Companys homepage.
(Information from such sites is not incorporated by reference
into this Report.) You may also obtain free copies of these
materials by writing to our Secretary at the Companys
headquarters.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information set forth under the heading
Item 2 Ratification of the Appointment of
Independent Registered Public Accounting Firm Audit
Fees; Audit-Related Fees;
Tax Fees; All Other
Fees; and Policy on Pre-Approval of
Services Provided by Independent Registered Public Accounting
Firm, which will appear in the Companys definitive
proxy statement in connection with our Annual Meeting of
Shareholders to be held May 2, 2011, is incorporated herein
by reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a)
103
1.
Financial Statements
:
The financial statements filed as a part of this Report are
listed on
page F-1
hereof under Index to Financial Statements, which is
incorporated herein by reference.
2.
Financial Statement Schedules
:
All schedules are omitted since the required information is
either not applicable, not deemed material, or shown in the
respective financial statements or in notes thereto.
3.
Exhibits
:
The list of exhibits required to be filed as exhibits to this
Report is listed on pages
E-1
through
E-4
hereof
under Exhibit Index, which is incorporated
herein by reference.
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN EXPRESS COMPANY
Daniel T. Henry
Executive Vice President and
Chief Financial Officer
February 25, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Company and in the capacities and on the date
indicated.
|
|
|
|
|
|
/s/
Kenneth
I. Chenault
Kenneth
I. Chenault
Chairman, Chief Executive Officer and
Director
|
|
/s/
Jan
Leschly
Jan
Leschly
Director
|
|
|
|
/s/
Daniel
T. Henry
Daniel
T. Henry
Executive Vice President and
Chief Financial Officer
|
|
/s/
Richard
C. Levin
Richard
C. Levin
Director
|
|
|
|
/s/
Joan
C. Amble
Joan
C. Amble
Executive Vice President and
Comptroller
|
|
/s/
Richard
A. McGinn
Richard
A. McGinn
Director
|
|
|
|
/s/
Daniel
F. Akerson
Daniel
F. Akerson
Director
|
|
/s/
Edward
D. Miller
Edward
D. Miller
Director
|
|
|
|
/s/
Charlene
Barshefsky
Charlene
Barshefsky
Director
|
|
/s/
Steven
S Reinemund
Steven
S Reinemund
Director
|
|
|
|
/s/
Ursula
M. Burns
Ursula
M. Burns
Director
|
|
/s/
Robert
D. Walter
Robert
D. Walter
Director
|
|
|
|
/s/
Peter
Chernin
Peter
Chernin
Director
|
|
/s/
Ronald
A. Williams
Ronald
A. Williams
Director
|
|
|
|
/s/
Theodore
J. Leonsis
Theodore
J. Leonsis
Director
|
|
|
February 25, 2011
105
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Report
|
|
|
|
|
to Shareholders
|
|
|
Form 10-K
|
|
(Page)
|
|
American Express Company and Subsidiaries:
|
|
|
|
|
|
|
|
|
Data incorporated by reference from 2010 Annual Report to
Shareholders:
|
|
|
|
|
|
|
|
|
Managements report on internal control over financial
reporting
|
|
|
|
|
|
|
65
|
|
Report of independent registered public accounting firm
(PricewaterhouseCoopers LLP)
|
|
|
|
|
|
|
66
|
|
Consolidated statements of income for each of the three years in
the period ended December 31, 2010
|
|
|
|
|
|
|
68
|
|
Consolidated balance sheets at December 31, 2010 and 2009
|
|
|
|
|
|
|
69
|
|
Consolidated statements of cash flows for each of the three
years in the period ended December 31, 2010
|
|
|
|
|
|
|
70
|
|
Consolidated statements of shareholders equity for each of
the three years in the period ended December 31, 2010
|
|
|
|
|
|
|
71
|
|
Notes to consolidated financial statements
|
|
|
|
|
|
|
72
|
|
Consent of independent registered public accounting firm
|
|
|
F-2
|
|
|
|
|
|
Schedules:
|
|
|
|
|
|
|
|
|
All schedules for American Express Company and subsidiaries have
been omitted since the required information is not present or
not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
respective financial statements or notes thereto. Refer to
Notes 5 and 26 to the Consolidated Financial Statements in
our 2010 Annual Report to Shareholders for information on
accounts receivable reserves, loan reserves and condensed
financial information of the Parent Company only, respectively.
* * *
The Consolidated Financial Statements of American Express
Company (including the report of independent registered public
accounting firm) listed in the above index, which are included
in our 2010 Annual Report to Shareholders, are hereby
incorporated by reference. With the exception of the pages
listed in the above index, unless otherwise incorporated by
reference elsewhere in this Report, our 2010 Annual Report to
Shareholders is not to be deemed filed as part of this report.
F-1
Exhibit 23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the
Registration Statements
(Form S-8
No. 2-46918,
No. 2-59230,
No. 2-64285,
No. 2-73954,
No. 2-89680,
No. 33-01771,
No. 33-02980,
No. 33-28721,
No. 33-33552,
No. 33-36442,
No. 33-48629,
No. 33-62124,
No. 33-65008,
No. 33-53801,
No. 333-12683,
No. 333-41779,
No. 333-52699,
No. 333-73111,
No. 333-38238,
No. 333-98479;
and
No. 333-142710;
Form S-3
No. 2-89469,
No. 33-43268,
No. 33-50997,
No. 333-32525,
No. 333-45445,
No. 333-47085,
No. 333-55761,
No. 333-51828,
No. 333-113768,
No. 333-117835,
No. 333-138032
and
333-162791)
of American Express Company of our report dated
February 25, 2011, relating to the consolidated financial
statements and the effectiveness of internal control over
financial reporting, which appears in the 2010 Annual Report to
Shareholders, which is incorporated by reference in this Annual
Report on
Form 10-K.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 25, 2011
F-2
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report.
The exhibit numbers preceded by an asterisk (*) indicate
exhibits electronically filed herewith. All other exhibit
numbers indicate exhibits previously filed and are hereby
incorporated herein by reference. Exhibits numbered 10.1 through
10.34, 10.38, 10.39, 10.41, 10.42 and 10.44 through 10.46 are
management contracts or compensatory plans or arrangements.
|
|
|
|
|
|
3
|
.1
|
|
Companys Restated Certificate of Incorporation
(incorporated by reference to Exhibit 4.1 of the
Companys Registration Statement on
Form S-3,
dated July 31, 1997 (Commission File
No. 333-32525)).
|
|
3
|
.2
|
|
Companys Certificate of Amendment of the Certificate of
Incorporation (incorporated by reference to Exhibit 3.1 of
the Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended March 31, 2000).
|
|
3
|
.3
|
|
Companys Certificate of Amendment of the Certificate of
Incorporation (incorporated by reference to Exhibit 3.3 of
the Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended March 31, 2008).
|
|
3
|
.4
|
|
Companys Certificate of Amendment of the Certificate of
Incorporation (incorporated by reference to Exhibit 3.1 of
the Companys Current Report on
Form 8-K
(Commission File
No. 1-7657),
dated January 7, 2009 (filed January 9, 2009)).
|
|
*3
|
.5
|
|
Companys By-Laws, as amended through February 24,
2011.
|
|
4
|
.1
|
|
The instruments defining the rights of holders of long-term debt
securities of the Company and its subsidiaries are omitted
pursuant to Section(b)(4)(iii)(A) of Item 601 of
Regulation S-K.
The Company hereby agrees to furnish copies of these instruments
to the SEC upon request.
|
|
4
|
.2
|
|
Form of Global Note for $1,250,000,000 principal amount of
7.25% Notes due May 20, 2014 (incorporated by
reference to Exhibit 4.1 of the Companys Current
Report on
Form 8-K
(Commission File
No. 1-7657)
dated May 19, 2009).
|
|
4
|
.3
|
|
Form of Global Note for $1,750,000,000 principal amount of
8.125% Notes due May 20, 2019 (incorporated by
reference to Exhibit 4.2 of the Companys Current
Report on
Form 8-K
(Commission File
No. 1-7657)
dated May 19, 2009).
|
|
10
|
.1
|
|
American Express Company 1998 Incentive Compensation Plan, as
amended through July 25, 2005 (incorporated by reference to
Exhibit 10.4 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2005).
|
|
10
|
.2
|
|
American Express Company 1998 Incentive Compensation Plan Master
Agreement, dated April 27, 1998 (for awards made prior to
January 22, 2007) (incorporated by reference to
Exhibit 10.1 of the Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended September 30, 2004).
|
|
10
|
.3
|
|
Amendment of American Express Company 1998 Incentive
Compensation Plan Master Agreement, dated April 27, 1998
(for awards made prior to January 22, 2007) (incorporated
by reference to Exhibit 10.1 of the Companys
Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended March 31, 2000).
|
|
10
|
.4
|
|
American Express Company 1998 Incentive Compensation Plan Master
Agreement, dated January 22, 2007 (for awards made on or
after such date) (as amended and restated effective
January 1, 2009) (incorporated by reference to
Exhibit 10.4 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2008).
|
|
10
|
.5
|
|
Form of award agreement for executive officers in connection
with Portfolio Grants under the American Express Company 1998
Incentive Compensation Plan, as amended (for awards made after
January 22, 2007) (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
(Commission File
No. 1-7657),
dated January 22, 2007 (filed January 26, 2007)).
|
|
10
|
.6
|
|
Section 409A Amendments to form of award agreement for
Portfolio Grants made under the American Express Company 1998
Incentive Compensation Plan, as amended (for awards made after
January 22, 2007) (incorporated by reference to
Exhibit 10.6 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2008).
|
E-1
|
|
|
|
|
|
10
|
.7
|
|
American Express Company 2007 Incentive Compensation Plan
(incorporated by reference to Exhibit 10.1 of the
Companys Current Report on
Form 8-K
(Commission File
No. 1-7657),
dated April 23, 2007 (filed April 27, 2007)).
|
|
*10
|
.8
|
|
American Express Company 2007 Incentive Compensation Plan Master
Agreement (as amended and restated effective January 1,
2011).
|
|
10
|
.9
|
|
Form of award agreement for executive officers in connection
with Portfolio Grants under the American Express Company 2007
Incentive Compensation Plan (incorporated by reference to
Exhibit 10.13 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2007).
|
|
10
|
.10
|
|
Section 409A Amendments to form of award agreement for
Portfolio Grants made under the American Express Company 2007
Incentive Compensation Plan (incorporated by reference to
Exhibit 10.10 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2008).
|
|
10
|
.11
|
|
Form of award agreement for executive officers in connection
with Performance Grant awards (a/k/a Incentive Awards) under the
American Express Company 2007 Incentive Compensation Plan (as
amended and restated effective January 1, 2009)
(incorporated by reference to Exhibit 10.11 of the
Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2008).
|
|
10
|
.12
|
|
American Express Company Deferred Compensation Plan for
Directors and Advisors, as amended through January 1, 2009
(incorporated by reference to Exhibit 10.13 of the
Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2008).
|
|
10
|
.13
|
|
American Express Company 2007
Pay-for-Performance
Deferral Program Document (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
(Commission File
No. 1-7657),
dated November 20, 2006 (filed November 22, 2006)).
|
|
10
|
.14
|
|
Description of amendments to 1994 2006
Pay-for-Performance
Deferral Programs (incorporated by reference to
Exhibit 10.13 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2006).
|
|
10
|
.15
|
|
American Express Company 2006
Pay-for-Performance
Deferral Program Guide (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
(Commission File
No. 1-7657),
dated November 21, 2005 (filed November 23, 2005)).
|
|
10
|
.16
|
|
American Express Company 2005
Pay-for-Performance
Deferral Program Guide (incorporated by reference to
Exhibit 10.10 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2004).
|
|
10
|
.17
|
|
Description of American Express Company
Pay-for-Performance
Deferral Program (incorporated by reference to Exhibit 10.2
of the Companys Current Report on
Form 8-K
(Commission File No. l-7657), dated November 22, 2004
(filed January 28, 2005)).
|
|
10
|
.18
|
|
Amendment to the Pre-2008 Nonqualified Deferred Compensation
Plans of American Express Company (incorporated by reference to
Exhibit 10.19 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2008).
|
|
10
|
.19
|
|
American Express Company Retirement Plan for Non-Employee
Directors, as amended (incorporated by reference to
Exhibit 10.12 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 1988).
|
|
10
|
.20
|
|
Certificate of Amendment of the American Express Company
Retirement Plan for Non-Employee Directors dated March 21,
1996 (incorporated by reference to Exhibit 10.11 of the
Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 1995).
|
|
10
|
.21
|
|
American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the
Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the fiscal year ended December 31, 1991).
|
|
10
|
.22
|
|
Amendment to American Express Company Key Executive Life
Insurance Plan (incorporated by reference to Exhibit 10.3
of the Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended September 30, 1994).
|
E-2
|
|
|
|
|
|
10
|
.23
|
|
Amendment to American Express Company Key Executive Life
Insurance Plan, effective as of January 22, 2007
(incorporated by reference to Exhibit 10.22 of the
Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2006).
|
|
*10
|
.24
|
|
Amendment to American Express Company Key Executive Life
Insurance Plan, effective as of January 1, 2011.
|
|
10
|
.25
|
|
American Express Key Employee Charitable Award Program for
Education (incorporated by reference to Exhibit 10.13 of
the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 1990).
|
|
10
|
.26
|
|
American Express Directors Charitable Award Program
(incorporated by reference to Exhibit 10.14 of the
Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 1990).
|
|
10
|
.27
|
|
American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.20 of the
Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 1988).
|
|
10
|
.28
|
|
Amendment to American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.4 of the
Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended September 30, 1994).
|
|
10
|
.29
|
|
American Express Company 1993 Directors Stock Option
Plan, as amended (incorporated by reference to
Exhibit 10.11 of the Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended March 31, 2000).
|
|
*10
|
.30
|
|
American Express Senior Executive Severance Plan, effective
January 1, 1994 (as amended and restated through
January 1, 2011).
|
|
10
|
.31
|
|
Amendments of (i) the American Express Supplemental
Retirement Plan, (ii) the American Express Salary/Bonus
Deferral Plan and (iii) the American Express Key Executive
Life Insurance Plan (incorporated by reference to
Exhibit 10.37 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 1997).
|
|
10
|
.32
|
|
American Express Retirement Restoration Plan (as amended and
restated effective January 1, 2011) (incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
(Commission File
No. 1-7657)
dated October 27, 2010 (filed November 2, 2010).
|
|
10
|
.33
|
|
American Express Directors Stock Plan (incorporated by
reference to Exhibit 4.4 of the Companys Registration
Statement on
Form S-8,
dated December 9, 1997 (Commission File
No. 333-41779)).
|
|
*10
|
.34
|
|
American Express Annual Incentive Award Plan (as amended and
restated effective January 1, 2011).
|
|
10
|
.35
|
|
Agreement dated February 27, 1995 between the Company and
Berkshire Hathaway Inc. (incorporated by reference to
Exhibit 10.43 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 1994).
|
|
10
|
.36
|
|
Agreement dated July 20, 1995 between the Company and
Berkshire Hathaway Inc. and its subsidiaries (incorporated by
reference to Exhibit 10.1 of the Companys Quarterly
Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended September 30, 1995).
|
|
10
|
.37
|
|
Amendment dated September 8, 2000 to the agreement dated
February 27, 1995 between the Company and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 99.3 of
the Companys Current Report on
Form 8-K
(Commission File
No. 1-7657)
dated January 22, 2001).
|
|
10
|
.38
|
|
Description of a special grant of a stock option and restricted
stock award to Kenneth I. Chenault, the Companys President
and Chief Operating Officer (incorporated by reference to
Exhibit 10.2 of the Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended June 30, 1999).
|
|
10
|
.39
|
|
American Express Company 2003 Share Equivalent Unit Plan
for Directors, as amended and restated, effective
January 1, 2009 (incorporated by reference to
Exhibit 10.40 of the Companys Annual Report on
Form 10-K
(Commission File
No. 1-7657)
for the year ended December 31, 2008).
|
E-3
|
|
|
|
|
|
10
|
.40
|
|
Tax Allocation Agreement, dated as of September 30, 2005,
by and between American Express Company and Ameriprise
Financial, Inc. (incorporated by reference to Exhibit 10.2
of the Companys Current Report on
Form 8-K
(Commission File
No. 1-7657),
dated October 6, 2005).
|
|
10
|
.41
|
|
Form of award agreement for executive officers in connection
with Portfolio Grant
2009-2010
under the American Express Company 2007 Incentive Compensation
Plan (incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended March 31, 2009).
|
|
10
|
.42
|
|
Letter Agreement, dated October 2, 2009, between the
Company and Alfred F. Kelly, Jr. (incorporated by reference to
Exhibit 10.1 of the Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended September 30, 2009).
|
|
10
|
.43
|
|
Time Sharing Agreement, dated May 27, 2010, by and between
National Express Company and Kenneth I. Chenault (incorporated
by reference to Exhibit 10.1 of the Companys
Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended June 30, 2010).
|
|
10
|
.44
|
|
Consulting Services Agreement, effective July 19, 2010, by
and between American Express Company and Theodore J. Leonsis
(incorporated by reference to Exhibit 10.2 of the
Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended June 30, 2010).
|
|
10
|
.45
|
|
Description of Compensation Payable to Non-Management Directors
(incorporated by reference to Exhibit 10.3 of the
Companys Quarterly Report on
Form 10-Q
(Commission File
No. 1-7657)
for the quarter ended June 30, 2010).
|
|
10
|
.46
|
|
Companys Retirement Restoration Plan (f/k/a Supplemental
Retirement Plan) (as amended and restated effective as of
January 1, 2011) (incorporated by reference to
Exhibit 10.1 of the Companys Report on
Form 8-K
(Commission File
No. 1-7657),
dated October 27, 2010 (filed November 2, 2010)).
|
|
*12
|
|
|
Computation in Support of Ratio of Earnings to Fixed Charges.
|
|
*13
|
|
|
Portions of the Companys 2010 Annual Report to
Shareholders that are incorporated herein by reference.
|
|
*21
|
|
|
Subsidiaries of the Company.
|
|
*23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP (contained on
page F-2
of this Annual Report on
Form 10-K).
|
|
*31
|
.1
|
|
Certification of Kenneth I. Chenault, Chief Executive Officer,
pursuant to
Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended.
|
|
*31
|
.2
|
|
Certification of Daniel T. Henry, Chief Financial Officer,
pursuant to
Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended.
|
|
*32
|
.1
|
|
Certification of Kenneth I. Chenault, Chief Executive Officer,
and Daniel T. Henry, Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101
|
.INS
|
|
XBRL Instance Document**
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema Document**
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document**
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document**
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document**
|
|
101
|
.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document**
|
|
|
|
**
|
|
These interactive data files are furnished and deemed not filed
or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, as
amended, are deemed not filed for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, and otherwise
are not subject to liability under those sections.
|
E-4
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
For the fiscal year ended December 31, 2010
|
|
Commission File No. 1-7657
|
American Express
Company
(Exact name of Company as
specified in charter)
EXHIBITS
For the fiscal year ended December
31, 2010
Exhibit
13
2010
FINANCIAL RESULTS
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
FINANCIAL
REVIEW
The financial section of American Express Companys (the
Company) Annual Report consists of this Financial Review, the
Consolidated Financial Statements and the Notes to the
Consolidated Financial Statements. The following discussion is
designed to provide perspective and understanding regarding the
Companys consolidated financial condition and results of
operations. Certain key terms are defined in the Glossary of
Selected Terminology, which begins on page 61.
This Financial Review and the Notes to Consolidated Financial
Statements have been adjusted to exclude discontinued operations
unless otherwise noted.
EXECUTIVE
OVERVIEW
American Express is a global service company that provides
customers with access to products, insights and experiences that
enrich lives and build business success. The Companys
principal products and services are charge and credit payment
card products and travel-related services offered to consumers
and businesses around the world. The Companys range of
products and services include:
|
|
|
charge and credit card products;
|
|
|
expense management products and services;
|
|
|
consumer and business travel services;
|
|
|
stored value products such as Travelers Cheques and other
prepaid products;
|
|
|
network services;
|
|
|
merchant acquisition and processing,
point-of-sale,
servicing and settlement, and marketing and information products
and services for merchants; and
|
|
|
fee services, including market and trend analyses and related
consulting services, fraud prevention services, and the design
of customized customer loyalty and rewards programs.
|
The Companys products and services are sold globally to
diverse customer groups, including consumers, small businesses,
mid-sized
companies and large corporations. These products and services
are sold through various channels, including direct mail,
on-line applications, targeted direct and third-party sales
forces, and direct response advertising.
The Company has also recently created an Enterprise Growth Group
to focus on generating alternative sources of revenue on a
global basis, both organically and through acquisitions, in
areas such as online and mobile payments and fee-based services.
The Companys products and services generate the following
types of revenue for the Company:
|
|
|
Discount revenue, which is the Companys largest revenue
source, represents fees charged to merchants when cardmembers
use their cards to purchase goods and services on the
Companys network;
|
|
|
Net card fees, which represent revenue earned for annual charge
card memberships;
|
|
|
Travel commissions and fees, which are earned by charging a
transaction or management fee for airline or other
travel-related transactions;
|
|
|
Other commissions and fees, which are earned on foreign exchange
conversions and card-related fees and assessments;
|
|
|
Other revenue, which represents insurance premiums earned from
cardmember travel and other insurance programs, revenues arising
from contracts with Global Network Services (GNS) partners
(including royalties and signing fees), publishing revenues and
other miscellaneous revenue and fees; and
|
|
|
Interest and fees on loans, which principally represents
interest income earned on outstanding balances, and card fees
related to the cardmember loans portfolio.
|
In addition to funding and operating costs associated with these
types of revenue, other major expense categories are related to
marketing and reward programs that add new cardmembers and
promote cardmember loyalty and spending, and provisions for
anticipated cardmember credit and fraud losses.
Historically, the Company sought to achieve three financial
targets, on average and over time:
|
|
|
Revenues net of interest expense growth of at least
8 percent;
|
|
|
Earnings per share (EPS) growth of 12 to 15 percent; and
|
|
|
Return on average equity (ROE) of 33 to 36 percent.
|
In addition, assuming achievement of such financial targets, the
Company sought to return at least 65 percent of the capital
it generates to shareholders as a dividend or through the
repurchase of common stock.
The Company met or exceeded these targets for most of the past
decade. However, during 2008 and 2009, its performance fell
short of the targets due to the effects of the continuing global
economic downturn. The Companys share repurchase program
was suspended in 2008 and, as a result, the amount of capital
generated that has been returned to shareholders has been below
the levels achieved earlier in the decade. Refer to Share
Repurchases and Dividends below for further discussion of the
Companys share repurchase activity.
The Company is retaining its on average and over time revenue
and earnings growth targets. However, evolving market,
regulatory and debt investor expectations will likely cause the
Company, as well as other financial institutions, to maintain in
future years a higher level of capital than they have
historically maintained. These higher capital requirements would
in turn lead, all other things being equal, to lower future ROE
than the Company has historically targeted. In addition, the
Company recognizes it may need to maintain higher capital levels
to support acquisitions that can augment its business growth. In
combination, these factors have led the
20
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
Company to revise its on average and over time ROE financial
target to 25 percent or more.
In establishing the revised ROE target, the Company has assumed
that it will target a 10 percent Tier 1 Common ratio.
The actual future capital requirements applicable to the Company
are uncertain and will not be known until further guidance is
provided in connection with certain initiatives, such as
Basel III and the implementation of regulations under the
recent United States financial reform legislation. International
and United States banking regulators could also increase the
capital ratio levels at which banks would be deemed to be
well capitalized. Refer to Capital Strategy below.
The revised ROE target also assumes the Company would need to
maintain capital to finance moderate-sized acquisitions,
although the actual magnitude of these transactions cannot be
determined at this time. If the Company achieves its EPS target
as well as the revised ROE target, it would seek to return, on
average and over time, at least 50 percent of the capital
it generates to shareholders as a dividend or through the
repurchase of common stock rather than the 65 percent level
referred to above.
Certain of the statements in this Annual Report are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Refer to the
Forward-Looking Statements section below.
BANK
HOLDING COMPANY
The Company is a bank holding company under the Bank Holding
Company Act of 1956 and the Federal Reserve Board (Federal
Reserve) is the Companys primary federal regulator. As
such, the Company is subject to the Federal Reserves
regulations, policies and minimum capital standards.
CURRENT
ECONOMIC ENVIRONMENT/OUTLOOK
The Companys results for 2010 reflected strong spending
growth and improved credit performance. Throughout the year
cardmember spending volumes grew both in the United States and
internationally, and across all of the Companys
businesses. Cardmember spending levels in 2010 reached record
levels by the end of the year.
During 2010, the Company continued to see a sharp divergence
between the positive growth rates in customer spending on credit
cards and lower borrowing levels, due in part to changing
consumer behavior and the Companys strategic (e.g.,
additional focus on charge and co-brand products) and
risk-related actions. While the offsetting influences of
stronger billings growth and lower loan balances challenged
overall revenue growth, the
year-over-year
benefits from improving credit trends have provided an ability
to invest in the business at significant levels and also
generate strong earnings. Some of these investments are focused
on near-term metrics, while others are initiatives focused on
the medium to long-term success of the Company. These
investments are reflected not only in marketing and other
operating expenses, but also involve using the Companys
strong capital base for acquisitions such as Accertify and
Loyalty Partner, which were announced during the fourth quarter
of 2010. Refer to Acquisitions below.
The improving credit trends contributed to a significant
reduction in loan and receivable write-offs and in loss reserve
levels over the course of 2010 when compared to 2009. Despite
the reduction in loss reserve levels, reserve coverage ratios
remain strong. It is expected that the
year-over-year
benefits from improving credit trends will decrease over the
course of 2011. While the Company invested at historically high
levels in 2010, it intends to maintain the flexibility to scale
back on investments as business conditions change and the
benefits realized from improving credit trends lessen.
Net interest yield declined over the course of 2010. The lower
yield reflects higher payment rates and lower revolving levels,
and the implementation of elements of the Credit Card
Accountability Responsibility and Disclosure Act of 2009 (the
CARD Act), which were partially offset by the
benefit of certain repricing initiatives effective during 2009
and 2010. The Company expects the net interest yield in the US
Consumer business to decline, moving closer to historic levels,
but this remains subject to uncertainties such as cardmember
behavior and the requirement under the CARD Act to periodically
reevaluate annual percentage rate (APR) increases.
Despite improvement in parts of the economic environment,
challenges clearly remain for the Company, both in the United
States and in many other key regions. These challenges include
weak job creation, volatile consumer confidence, uncertain
consumer behavior, an uncertain housing market, and the
regulatory and legislative environment, including the uncertain
impact of the CARD Act, of the recently enacted Dodd-Frank Wall
Street Reform and Consumer Protection Act and of the proceeding
against the Company recently brought by the Department of
Justice (DOJ) and certain state attorneys general alleging a
violation of the U.S. antitrust laws. In addition, during
2011 the Company will stop receiving quarterly Visa and
MasterCard litigation settlement payments, and
year-over-year
comparisons will be more difficult in light of the strong 2010
results. Refer to Certain Legislative, Regulatory and
Other Developments, Other Information
Legal Proceedings and Risk Factors below.
21
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
REENGINEERING
INITIATIVES
On January 19, 2011, the Company announced that it was
undertaking various reengineering initiatives resulting in
charges aggregating approximately $113 million pretax
(approximately $74 million after-tax), which were recorded
in the fourth quarter of 2010. The charges for the reengineering
initiatives include a fourth quarter restructuring charge in the
amount of approximately $98 million pretax (approximately
$63 million after-tax) relating to employee severance
obligations and other employee-related costs.
The $98 million restructuring charge is pursuant to a plan,
approved by the Companys management in December 2010, that
resulted in a consolidation of facilities within the
Companys global servicing network due to reduced service
volumes as a greater number of routine transactions have
migrated to online and mobile channels. In addition, the Company
expects to record further restructuring charges in one or more
quarterly periods during 2011 relating to these restructuring
activities in the aggregate amount of approximately
$60 million to $80 million pretax (approximately
$38 million to $51 million after-tax). The total
expected additional charges include approximately
$25 million to $35 million in costs associated with
additional employee compensation and approximately
$35 million to $45 million in other costs principally
relating to the termination of certain real property leases.
The reengineering activities, in total, are expected to result
in the elimination of approximately 3,500 jobs (including
approximately 3,200 jobs relating to the above noted
restructuring charge). However, overall staffing levels are
expected to decrease only by approximately 550 positions on a
net basis (including 400 positions related to specific
restructuring activities), as new employees are hired at the
locations to which work is being transferred.
Substantially all of these reengineering activities are expected
to be completed by the end of the fourth quarter of 2011.
The Company also announced that it expects the reengineering
charges recorded in the fourth quarter of 2010 and to be
recorded during 2011 to result in annualized cost savings to the
Company of approximately $70 million pretax, starting in
2012. The Company announced that it intends to reinvest a
portion of such savings into new servicing capabilities and
other business building initiatives.
During 2008 and 2009, the Company undertook major reengineering
initiatives that were expected to produce significant cost
benefits in 2009. These initiatives included reducing staffing
levels resulting in lower compensation expenses and reducing
certain operating costs for marketing and other business
building initiatives. As the Company has previously disclosed,
benefits related to better than initially forecasted credit and
business trends for 2009 were utilized to increase spending on
marketing and other business-building initiatives during the
second half of 2009, reducing the expected reengineering
benefits.
ACQUISITIONS
During the course of the year, the Company purchased Accertify
(November 10, 2010) and Revolution Money
(January 15, 2010) for a total consideration of
$151 million and $305 million, respectively. Accertify
is an on-line fraud solution provider and Revolution Money is a
provider of secure
person-to-person
payment services through an internet-based platform. These
acquisitions did not have a significant impact on either the
Companys consolidated results of operations or the
segments in which they are reflected for the year ended
December 31, 2010.
On March 28, 2008, the Company purchased Corporate Payment
Services (CPS), General Electric Companys commercial card
and corporate purchasing business unit.
The following table summarizes the assets acquired and
liabilities assumed for these acquisitions as of the acquisition
dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Revolution
|
|
|
Payment
|
|
(Millions)
|
|
Accertify
|
|
|
Money
|
|
|
Services
|
|
|
Goodwill
|
|
$
|
131
|
|
|
$
|
184
|
|
|
$
|
818
|
|
Definite-lived intangible assets
|
|
|
15
|
|
|
|
119
|
|
|
|
232
|
|
Other assets
|
|
|
11
|
|
|
|
7
|
|
|
|
1,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
157
|
|
|
|
310
|
|
|
|
2,309
|
|
Total liabilities
|
|
|
6
|
|
|
|
5
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
151
|
|
|
$
|
305
|
|
|
$
|
2,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable operating segment
|
|
|
GNMS
|
|
|
|
Corporate
& Other
|
|
|
|
GCS
|
(a)
|
|
|
|
|
|
(a)
|
|
An insignificant portion of the
receivables and intangible assets are also allocated to the USCS
reportable operating segment.
|
On December 16, 2010, the Company announced an agreement to
acquire Loyalty Partner, a leading marketing services company
known for the loyalty programs it operates in Germany, Poland
and India. The purchase, which has received regulatory approval,
is expected to close in the first quarter of 2011. The
transaction, which values Loyalty Partner at approximately
$660 million (subject to currency movement and other
adjustments), consists of an upfront cash purchase price of
approximately $566 million and an additional
$94 million equity interest that the Company will acquire
over the next five years at a value based on business
performance.
DISCONTINUED
OPERATIONS
For the applicable periods, the operating results, assets and
liabilities, and cash flows of American Express International
Deposit Company (AEIDC), which was sold to Standard Chartered in
the third quarter of 2009, have been removed from the
Corporate & Other segment and reported separately
within the discontinued operations captions on the
Companys Consolidated Financial Statements. Refer to
Note 2 to the Consolidated Financial Statements for further
discussion of the Companys discontinued operations.
22
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
FINANCIAL
SUMMARY
A summary of the Companys recent financial performance
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
Percent
|
|
|
(Millions, except per share
|
|
|
|
|
|
|
|
Increase
|
|
|
amounts and ratio data)
|
|
2010
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
Total revenues net of interest expense
|
|
$
|
27,819
|
|
|
$
|
24,523
|
|
|
|
13
|
|
%
|
Provisions for losses
|
|
$
|
2,207
|
|
|
$
|
5,313
|
|
|
|
(58
|
)
|
%
|
Expenses
|
|
$
|
19,648
|
|
|
$
|
16,369
|
|
|
|
20
|
|
%
|
Income from continuing operations
|
|
$
|
4,057
|
|
|
$
|
2,137
|
|
|
|
90
|
|
%
|
Net income
|
|
$
|
4,057
|
|
|
$
|
2,130
|
|
|
|
90
|
|
%
|
Earnings per common share from continuing operations
diluted
(a)
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
|
#
|
|
|
Earnings per common share
diluted
(a)
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
|
#
|
|
|
Return on average
equity
(b)
|
|
|
27.5
|
%
|
|
|
14.6
|
%
|
|
|
|
|
|
Return on average tangible common
equity
(c)
|
|
|
35.1
|
%
|
|
|
17.6
|
%
|
|
|
|
|
|
|
|
|
|
|
#
|
|
Denotes a variance of more than
100 percent.
|
|
(a)
|
|
Earnings per common share from
continuing operations diluted and Earnings per
common share diluted were both reduced by the impact
of (i) accelerated preferred dividend accretion of
$212 million for the year ended December 31, 2009, due
to the repurchase of $3.39 billion of preferred shares
issued as part of the Capital Purchase Program (CPP),
(ii) preferred share dividends and related accretion of
$94 million for the year ended December 31, 2009, and
(iii) earnings allocated to participating share awards and
other items of $51 million and $22 million for the
years ended December 31, 2010 and 2009, respectively.
|
(b)
|
|
ROE is calculated by dividing
(i) one-year period net income ($4.1 billion and
$2.1 billion for 2010 and 2009, respectively), by
(ii) one-year average total shareholders equity
($14.8 billion and $14.6 billion for 2010 and 2009,
respectively).
|
(c)
|
|
Return on average tangible common
equity is computed in the same manner as ROE except the
computation of average tangible common equity excludes from
average total shareholders equity average goodwill and
other intangibles of $3.3 billion and $3.0 billion as
of December 31, 2010 and 2009, respectively. The Company
believes that return on average tangible common equity is a
useful measure of profitability of its business.
|
See Consolidated Results of Operations, beginning on
page 31, for discussion of the Companys results.
Upon adoption of new accounting standards related to transfers
of financial assets and consolidation of variable interest
entities (VIEs) effective on January 1, 2010 (new GAAP
effective January 1, 2010), the Company was required to
change its accounting for the American Express Credit Account
Master Trust (the Lending Trust), a previously unconsolidated
VIE which is now consolidated. Prior period results have not
been revised for the change in accounting for the Lending Trust.
Refer to Note 1 and Note 7 for further discussion.
The Company follows U.S. generally accepted accounting
principles (GAAP). For periods ended on or prior to
December 31, 2009, the Companys non-securitized
cardmember loans and related debt performance information on a
GAAP basis was referred to as the owned basis
presentation. For such periods, the Company also provided
information on a non-GAAP managed basis. This
information assumes, in the Consolidated Selected Statistical
Information and U.S. Card Services (USCS) segment, there
have been no cardmember loans securitization transactions. Upon
adoption of new GAAP effective January 1, 2010, both the
Companys securitized and non-securitized cardmember loans
are included in the consolidated financial statements. As a
result, the Companys 2010 GAAP presentations and managed
basis presentations prior to 2010 are generally comparable.
Refer to Cardmember Loan Portfolio Presentation on
page 54.
Certain reclassifications of prior year amounts have been made
to conform to the current presentation.
23
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
CRITICAL
ACCOUNTING POLICIES
Refer to Note 1 to the Consolidated Financial Statements
for a summary of the Companys significant accounting
policies referenced, as applicable, to other notes. The
following chart provides information about five critical
accounting policies that are important to the Consolidated
Financial Statements and that require significant management
assumptions and judgments.
RESERVES
FOR CARDMEMBER LOSSES
|
|
|
|
|
|
|
|
|
|
Effect if Actual Results Differ
|
Description
|
|
Assumptions/Approach Used
|
|
from Assumptions
|
|
Reserves for cardmember losses relating to cardmember loans and
receivables represent managements best estimate of the
losses inherent in the Companys outstanding portfolio of
loans and receivables.
|
|
Reserves for cardmember loans and receivables losses are primarily based upon models that analyze portfolio performance and reflect managements judgment regarding overall reserve adequacy. The analytic models take into account several factors, including average losses and recoveries over an appropriate historical period. Management considers whether to adjust the analytic models for specific factors such as increased risk in certain portfolios, impact of risk management initiatives on portfolio performance and concentration of credit risk based on factors such as tenure, industry or geographic regions. In addition, management may increase or decrease the reserves for losses on cardmember loans for other external environmental factors including leading economic and market indicators such as the unemployment rate, Gross Domestic Product (GDP), home price indices, non-farm payrolls, personal consumption expenditures index, consumer confidence index, purchasing managers index, bankruptcy filings and the legal and regulatory environment. Due to the short-term nature of cardmember receivables, the impact of the other external environmental factors on the inherent losses within the cardmember receivable portfolio is not significant. As part of this evaluation process, management also considers various reserve coverage metrics, such as reserves as a percentage of past due amounts, reserves as a percentage of cardmember loans and receivables, and net write-off coverage.
Cardmember loans and receivables are written off when management deems amounts to be uncollectible and is generally determined by the number of days past due. Cardmember loans and receivables are generally written off no later than 180 days past due.
Cardmember loans and receivables in bankruptcy or owed by deceased individuals are written off upon notification.
Recoveries of both cardmember loans and receivables are recognized on a cash basis.
|
|
To the extent historical credit experience updated for emerging market trends in credit is not indicative of future performance, actual losses could differ significantly from managements judgments and expectations, resulting in either higher or lower future provisions for losses, as applicable.
As of December 31, 2010, an increase (decrease) in write-offs equivalent to 20 basis points of cardmember loan and receivable balances at such date would increase (decrease) the provision for cardmember losses by approximately $196 million. This sensitivity analysis does not represent managements expectations for write-offs but is provided as a hypothetical scenario to assess the sensitivity of the provision for cardmember losses to changes in key inputs.
The process of determining the reserve for cardmember losses requires a high degree of judgment. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.
|
|
|
24
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
RESERVES
FOR MEMBERSHIP REWARDS COSTS
|
|
|
|
|
|
|
|
|
|
Effect if Actual Results Differ
|
Description
|
|
Assumptions/Approach Used
|
|
from Assumptions
|
|
The Membership Rewards program is the largest card-based rewards program in the industry. Eligible cardmembers can earn points for purchases charged on many card products. Many of these card products offer the ability to earn bonus points for certain types of purchases. Membership Rewards points are redeemable for a broad variety of rewards including travel, entertainment, retail certificates and merchandise.
Points typically do not expire and there is no limit on the number of points a cardmember may earn. A large majority of spending earns points under the program. While cardmember spend, redemption rates, and the related expense have increased, the Company believes it has historically benefited through higher revenues, lower cardmember attrition and credit losses and more timely payments.
The Company establishes balance sheet liabilities that represent the estimated future cost of points earned to date that are expected to be ultimately redeemed. These liabilities reflect managements judgment regarding overall adequacy. The provision for the cost of Membership Rewards is included in marketing, promotion, rewards and cardmember services expenses.
|
|
A weighted-average cost per point redeemed during the previous 12 months, adjusted as appropriate for recent changes in redemption costs, is used to approximate future redemption costs and is affected by the mix of rewards redeemed. Management uses models to estimate ultimate redemption rates based on historical redemption statistics, card product type, year of program enrollment, enrollment tenure and card spend levels. These models incorporate sophisticated statistical and actuarial techniques to estimate ultimate redemption rates of points earned to date by current cardmembers given historical redemption trends and projected future redemption behavior.
The global ultimate redemption rate assumption that drives the Companys balance sheet reserves for expected redemptions by current participants is 91 percent. The Company continually evaluates its reserve methodology and assumptions based on developments in redemption patterns, cost per point redeemed, contract changes and other factors.
|
|
The reserve for the estimated cost of points expected to be redeemed is impacted over time by enrollment levels, the number of points earned and redeemed, and the weighted-average cost per point, which is influenced by redemption choices made by cardmembers, reward offerings by partners and other Membership Rewards program changes. The reserve is most sensitive to changes in the estimated ultimate redemption rate. This rate is based on the expectation that a large majority of all points earned will eventually be redeemed.
As of December 31, 2010, if the ultimate redemption rate of current enrollees increased by 100 basis points, the balance sheet reserve and corresponding provision for the cost of Membership Rewards would each increase by approximately $283 million. Similarly, if the effective weighted-average cost per point increased by 1 basis point, the balance sheet reserve and corresponding provision for the cost of Membership Rewards would each increase by approximately $60 million.
|
|
|
25
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
FAIR
VALUE MEASUREMENT
|
|
|
|
|
|
|
|
|
Effect if Actual Results Differ
|
Description
|
|
Assumptions/Approach Used
|
|
from Assumptions
|
|
The Company holds investment securities and derivative
instruments. These financial instruments are reflected at fair
value on the Companys Consolidated Balance Sheets.
Management makes significant assumptions and judgments when
estimating fair value for these financial instruments.
|
|
In accordance with fair value measurement and disclosure
guidance, the objective of a fair value measurement is to
determine the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date (an exit price). The
disclosure guidance establishes a three-level hierarchy of
inputs to valuation techniques used to measure fair value. The
fair value hierarchy gives the highest priority to the
measurement of fair value based on unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1),
followed by the measurement of fair value based on pricing
models with significant observable inputs (Level 2), with the
lowest priority given to the measurement of fair value based on
pricing models with significant unobservable inputs (Level 3).
|
|
|
|
|
|
|
|
Investment Securities
The Companys investment securities are predominantly comprised of fixed-income securities issued by states and municipalities as well as the U.S. Government and Agencies (e.g., Fannie Mae, Freddie Mac or Ginnie Mae). The investment securities are classified as
available-for-sale
with changes in fair value recorded in accumulated other comprehensive (loss) income within shareholders equity on the Companys Consolidated Balance Sheets.
|
|
Investment Securities
The fair market values for the Companys investment securities are obtained primarily from pricing services engaged by the Company, and the Company receives one price for each security. The fair values provided by the pricing services are estimated using pricing models where the inputs to those models are based on observable market inputs. The inputs to the valuation techniques applied by the pricing services vary depending on the type of security being priced but are typically benchmark yields, benchmark security prices, credit spreads, prepayment speeds, reported trades and broker-dealer quotes, all with reasonable levels of transparency. The pricing services did not apply any adjustments to the pricing models used. In addition, the Company did not apply any adjustments to prices received from the pricing services. The Company reaffirms its understanding of the valuation techniques used by its pricing services at least annually. In addition, the Company corroborates the prices provided by its pricing services to test their reasonableness by comparing their prices to valuations from different pricing sources as well as comparing prices to the sale prices received from sold securities. As of December 31, 2010, all of the Companys investment securities are classified in either Level 1 or Level 2 of the fair value hierarchy. Refer to Note 3 to the Companys Consolidated Financial Statements.
|
|
Investment Securities
In the measurement of fair value for the Companys
investment securities, even though the underlying inputs used in
the pricing models are directly observable from active markets
or recent trades of similar securities in inactive markets, the
pricing models do entail a certain amount of subjectivity and
therefore differing judgments in how the underlying inputs are
modeled could result in different estimates of fair value.
|
|
|
26
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
FAIR
VALUE MEASUREMENT (CONTINUED)
|
|
|
|
|
|
|
|
|
Effect if Actual Results Differ
|
Description
|
|
Assumptions/Approach Used
|
|
from Assumptions
|
|
|
|
Other-Than-Temporary
Impairment
Realized losses are recognized when management determines that a decline in fair value is
other-than-temporary.
Such determination requires judgment regarding the amount and timing of recovery. The Company reviews and evaluates its investment securities, at least quarterly, and more often as market conditions may require, to identify investment securities that have indications of
other-than-temporary
impairments. The determination of
other-than-temporary
impairment is a subjective process, requiring the use of judgments and assumptions. Accordingly, the Company considers several factors when evaluating debt securities for
other-than-temporary
impairment, including the determination of the extent to which the decline in fair value of the security is due to increased default risk for the specific issuer or market interest rate risk. With respect to increased default risk, the Company assesses the collectibility of principal and interest payments by monitoring issuers credit ratings, related changes to those ratings, specific credit events associated with the individual issuers as well as the credit ratings of a financial guarantor, where applicable, and the extent to which amortized cost exceeds fair value and the duration and size of that difference. With respect to market interest rate risk, including benchmark interest rates and credit spreads, the Company assesses whether it has the intent to sell the investment securities, and whether it is more likely than not that the Company will not be required to sell the investment securities before recovery of any unrealized losses. Refer to Note 6 to the Companys Consolidated Financial Statements.
|
|
Other-Than-Temporary Impairment
In determining whether any of the Companys investment securities are other-than-temporarily impaired, a change in facts and circumstances could lead to a change in management judgment around the Companys view on collectibility and credit quality of the issuer, or the Companys intent to sell the investment securities, and whether it is more likely than not that the Company will not be required to sell the investment securities before recovery of any unrealized losses. Therefore, it is at least reasonably possible that a change in estimate will occur in the near term relating to other-than-temporary impairment. This could result in the Company recording an other-than-temporary impairment loss through earnings with a corresponding offset to accumulated other comprehensive (loss) income. As of December 31, 2010, the Company had approximately $0.4 billion in gross unrealized losses in its investment securities portfolio which were deemed not to be other-than-temporarily impaired.
|
|
|
|
|
|
Defined Benefit Pension Plan Assets
Defined benefit pension plan (the Plan) assets are measured at fair value, changes in which are included in the determination of the Plans net funded status which is reported in other liabilities on the Companys Consolidated Balance Sheets.
|
|
Defined Benefit Pension Plan Assets
The fair value measurements for the Plan assets align with those described under investment securities above. Refer to Note 21 to the Companys Consolidated Financial Statements.
|
|
Defined Benefit Pension Plan Assets
The fair value measurements for the Plan assets contain a
similar amount of subjectivity as described under investment
securities above, and therefore differing judgments in how the
underlying inputs are modeled could result in different
estimates of fair value.
|
|
|
27
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
FAIR
VALUE MEASUREMENT (CONTINUED)
|
|
|
|
|
|
|
|
|
Effect if Actual Results Differ
|
Description
|
|
Assumptions/Approach Used
|
|
from Assumptions
|
|
|
|
|
|
|
Derivative Instruments
The Companys primary derivative instruments include interest rate swaps, foreign currency forward agreements and cross-currency swaps. Derivative instruments are reported at fair value in other assets and other liabilities on the Companys Consolidated Balance Sheets. Changes in fair value are recorded in accumulated other comprehensive (loss) income, and/or in the Consolidated Statements of Income, depending on (i) the documentation and designation of the derivative instrument, and (ii) if the derivative instrument is in a hedging relationship, its effectiveness in offsetting the changes in the designated risk being hedged.
|
|
Derivative Instruments
The fair value of the Companys derivative instruments is estimated by using either a third-party valuation service that uses proprietary pricing models, or by internal pricing models. The pricing models do not contain a high level of subjectivity as the valuation techniques used do not require significant judgment and inputs to those models are readily observable from actively quoted markets. The pricing models used are consistently applied and reflect the contractual terms of the derivatives, including the period of maturity, and market-based parameters such as interest rates, foreign exchange rates, equity indices or prices, and volatility.
Credit valuation adjustments are necessary when the market parameters, such as a benchmark curve, used to value the derivative instruments are not indicative of the credit quality of the Company or its counterparties. The Company considers the counterparty credit risk by applying an observable forecasted default rate to the current exposure.
The Company manages derivative instrument counterparty credit risk by considering the current exposure, which is the replacement cost of contracts on the measurement date, as well as estimating the maximum potential value of the contracts over the next 12 months, considering such factors as the volatility of the underlying or reference index. To mitigate derivative instrument credit risk, counterparties are required to be pre-approved and rated as investment grade.
The Companys derivative instruments are classified in Level 2 of the fair value hierarchy. Refer to Notes 3 and 12 to the Companys Consolidated Financial Statements.
|
|
Derivative Instruments
In the measurement of fair value for the Companys derivative instruments, although the underlying inputs used in the pricing models are readily observable from actively quoted markets, the pricing models do entail a certain amount of subjectivity and therefore, differing judgments in how the underlying inputs are modeled could result in different estimates of fair value. In addition, any necessary credit valuation adjustments are based on observable default rates. A change in facts and circumstances could lead to a change in management judgment about counterparty credit quality, which could result in the Company recognizing an additional counterparty credit valuation adjustment. As of December 31, 2010, the credit and nonperformance risks associated with the Companys derivative instrument counterparties were not significant.
|
|
|
28
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
GOODWILL
|
|
|
|
|
|
|
|
|
|
Effect if Actual Results Differ
|
Description
|
|
Assumptions/Approach Used
|
|
from Assumptions
|
|
Goodwill represents the excess of acquisition cost of an acquired company over the fair value of assets acquired and liabilities assumed. In accordance with GAAP, goodwill is not amortized but is tested for impairment at the reporting unit level annually at June 30 and between annual tests if events or circumstances arise, such as adverse changes in the business climate, that would more likely than not reduce the fair value of the reporting unit below its carrying value.
The Company assigns goodwill to its reporting units for the purpose of impairment testing. A reporting unit is defined as either an operating segment or a business one level below an operating segment for which discrete financial information is available that management regularly reviews.
The goodwill impairment test utilizes a two-step approach. The first step identifies whether there is potential impairment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, the second step of the impairment test is required to measure the amount of any impairment loss.
|
|
Goodwill impairment testing involves management judgment, requiring an assessment of whether the carrying value of the reporting unit can be supported by its fair value using widely accepted valuation techniques, such as the market approach (earnings multiples or transaction multiples for the industry in which the reporting unit operates) or the income approach (discounted cash flow methods). The fair values of the reporting units were determined using a combination of valuation techniques consistent with the market approach and the income approach.
When preparing discounted cash flow models under the income approach, the Company estimates future cash flows using the reporting units internal five year forecast and a terminal value calculated using a growth rate that management believes is appropriate in light of current and expected future economic conditions. The Company then applies a discount rate to discount these future cash flows to arrive at a net present value amount, which represents the estimated fair value of the reporting unit. The discount rate applied approximates the expected cost of equity financing, determined using a capital asset pricing model. The model generates an appropriate discount rate using internal and external inputs to value future cash flows based on the time value of money and the price for bearing the uncertainty inherent in an investment. The Company believes the resulting rate, 11.8 percent, appropriately reflects the risks and uncertainties in the financial markets generally and in the Companys internally developed forecasts.
|
|
The Company has approximately $2.6 billion of goodwill as of
December 31, 2010. The fair value of each of the Companys
reporting units is above its carrying value; accordingly, the
Company has concluded its goodwill is not impaired at December
31, 2010. The Company could be exposed to increased risk of
goodwill impairment if future operating results or macroeconomic
conditions differ significantly from managements current
assumptions.
|
|
|
29
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
INCOME
TAXES
|
|
|
|
|
|
|
|
|
|
Effect if Actual Results Differ
|
Description
|
|
Assumptions/Approach Used
|
|
from Assumptions
|
|
The Company is subject to the income tax laws of the United
States, its states and municipalities and those of the foreign
jurisdictions in which the Company operates. These tax laws are
complex, and the manner in which they apply to the
taxpayers facts is sometimes open to interpretation. In
establishing a provision for income tax expense, the Company
must make judgments about the application of these inherently
complex tax laws.
|
|
|
|
|
|
|
|
|
|
Unrecognized Tax Benefits
The Company establishes a liability for unrecognized tax benefits, which are the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized in the financial statements.
|
|
Unrecognized Tax Benefits
In establishing a liability for an unrecognized tax benefit, assumptions may be made in determining whether a tax position is more likely than not to be sustained upon examination by the taxing authority and also in determining the ultimate amount that is likely to be realized. A tax position is recognized only when, based on managements judgment regarding the application of income tax laws, it is more likely than not that the tax position will be sustained upon examination. The amount of tax benefit recognized is based on the Companys assessment of the most likely outcome on ultimate settlement with the taxing authority. This measurement is based on many factors, including whether a tax dispute may be settled through negotiation with the taxing authority or is only subject to review in the courts. As new information becomes available, the Company evaluates its tax positions, and adjusts its unrecognized tax benefits, as appropriate.
|
|
Unrecognized Tax Benefits
If the tax benefit ultimately realized differs from the amount previously recognized in the income tax provision, the Company recognizes an adjustment of the unrecognized tax benefit through the income tax provision.
|
|
|
|
|
|
Deferred Taxes
Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using the enacted tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is established when management determines that it is more likely than not that all or some portion of the benefit of the deferred tax asset will not be realized.
|
|
Deferred Taxes
Since deferred taxes measure the future tax effects of items recognized in the financial statements, certain estimates and assumptions are required to determine whether it is more likely than not that all or some portion of the benefit of a deferred tax asset will not be realized. In making this assessment, management analyzes and estimates the impact of future taxable income, reversing temporary differences and available tax planning strategies. These assessments are performed quarterly, taking into account any new information.
|
|
Deferred Taxes
Should a change in facts or circumstances lead to a change in judgment about the ultimate realizability of a deferred tax asset, the Company records or adjusts the related valuation allowance in the period that the change in facts or circumstances occurs, along with a corresponding increase or decrease to the income tax provision.
|
|
|
30
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
AMERICAN
EXPRESS COMPANY CONSOLIDATED RESULTS OF OPERATIONS
Refer to Glossary of Selected Terminology for the
definitions of certain key terms and related information
appearing in the tables below.
SUMMARY
OF THE COMPANYS
FINANCIAL
PERFORMANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Millions, except per share
|
|
|
|
|
|
|
|
|
|
amounts and ratio data)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total revenues net of interest expense
|
|
$
|
27,819
|
|
|
$
|
24,523
|
|
|
$
|
28,365
|
|
Provisions for losses
|
|
$
|
2,207
|
|
|
$
|
5,313
|
|
|
$
|
5,798
|
|
Expenses
|
|
$
|
19,648
|
|
|
$
|
16,369
|
|
|
$
|
18,986
|
|
Income from continuing operations
|
|
$
|
4,057
|
|
|
$
|
2,137
|
|
|
$
|
2,871
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
2,130
|
|
|
$
|
2,699
|
|
Earnings per common share from continuing operations
diluted
(a)
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
$
|
2.47
|
|
Earnings per common share
diluted
(a)
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
$
|
2.32
|
|
Return on average
equity
(b)
|
|
|
27.5
|
%
|
|
|
14.6
|
%
|
|
|
22.3
|
%
|
Return on average tangible common
equity
(c)
|
|
|
35.1
|
%
|
|
|
17.6
|
%
|
|
|
28.0
|
%
|
|
|
|
|
|
(a)
|
|
Earnings per common share from
continuing operations diluted and Earnings per
common share diluted were both reduced by the impact
of (i) accelerated preferred dividend accretion of
$212 million for the year ended December 31, 2009, due
to the repurchase of $3.39 billion of preferred shares
issued as part of the Capital Purchase Program (CPP),
(ii) preferred share dividends and related accretion of
$94 million for the year ended December 31, 2009, and
(iii) earnings allocated to participating share awards and
other items of $51 million, $22 million and
$15 million for the years ended December 31, 2010,
2009 and 2008, respectively.
|
(b)
|
|
ROE is calculated by dividing
(i) one-year period net income ($4.1 billion,
$2.1 billion and $2.7 billion for 2010, 2009 and 2008,
respectively) by (ii) one-year average total
shareholders equity ($14.8 billion,
$14.6 billion and $12.1 billion for 2010, 2009 and
2008, respectively).
|
(c)
|
|
Return on average tangible common
equity is computed in the same manner as ROE except the
computation of average tangible common equity excludes from
average total shareholders equity average goodwill and
other intangibles of $3.3 billion, $3.0 billion and
$2.5 billion as of December 31, 2010, 2009 and 2008,
respectively.
|
SELECTED
STATISTICAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Billions, except percentages
|
|
|
|
|
|
|
|
|
|
and where indicated)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Card billed business:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
479.3
|
|
|
$
|
423.7
|
|
|
$
|
471.1
|
|
Outside the United States
|
|
|
234.0
|
|
|
|
196.1
|
|
|
|
212.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
713.3
|
|
|
$
|
619.8
|
|
|
$
|
683.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
cards-in-force
(millions)
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
48.9
|
|
|
|
48.9
|
|
|
|
54.0
|
|
Outside the United States
|
|
|
42.1
|
|
|
|
39.0
|
|
|
|
38.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
91.0
|
|
|
|
87.9
|
|
|
|
92.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
cards-in-force
(millions)
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
37.9
|
|
|
|
38.2
|
|
|
|
42.0
|
|
Outside the United States
|
|
|
37.4
|
|
|
|
34.3
|
|
|
|
33.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
75.3
|
|
|
|
72.5
|
|
|
|
75.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average discount rate
|
|
|
2.55
|
%
|
|
|
2.54
|
%
|
|
|
2.55
|
%
|
Average basic cardmember
spending
(dollars)
(b)
|
|
$
|
13,259
|
|
|
$
|
11,213
|
|
|
$
|
12,025
|
|
Average fee per card
(dollars)
(b)
|
|
$
|
38
|
|
|
$
|
36
|
|
|
$
|
34
|
|
Average fee per card adjusted
(dollars)
(b)
|
|
$
|
41
|
|
|
$
|
40
|
|
|
$
|
39
|
|
|
|
|
|
|
(a)
|
|
As previously discussed, in the
third quarter of 2010 the definition of
cards-in-force
was changed for certain retail co-brand cards in GNS. The change
caused a reduction of 1.6 million to reported
cards-in-force
in the third quarter.
|
(b)
|
|
Average basic cardmember spending
and average fee per card are computed from proprietary card
activities only. Average fee per card is computed based on net
card fees, including the amortization of deferred direct
acquisition costs, plus card fees included in interest and fees
on loans (including related amortization of deferred direct
acquisition costs), divided by average worldwide proprietary
cards-in-force.
The card fees related to cardmember loans included in interest
and fees on loans were $220 million, $186 million and
$146 million for the years ended December 31, 2010,
2009 and 2008, respectively. The adjusted average fee per card
is computed in the same manner, but excludes amortization of
deferred direct acquisition costs (a portion of which is charge
card related and included in net card fees and a portion of
which is lending related and included in interest and fees on
loans). The amount of amortization excluded was
$207 million, $243 million and $320 million for
the years ended December 31, 2010, 2009 and 2008,
respectively. The Company presents adjusted average fee per card
because management believes that this metric presents a useful
indicator of card fee pricing across a range of its proprietary
card products.
|
31
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
AMERICAN
EXPRESS COMPANY
SELECTED
STATISTICAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Billions, except percentages and where indicated)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Worldwide cardmember
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
$
|
37.3
|
|
|
$
|
33.7
|
|
|
$
|
33.0
|
|
Loss reserves
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
546
|
|
|
$
|
810
|
|
|
$
|
1,149
|
|
Provision for losses on
authorized
transactions
(a)
|
|
|
439
|
|
|
|
773
|
|
|
|
1,363
|
|
Net
write-offs
(b)
|
|
|
(598
|
)
|
|
|
(1,131
|
)
|
|
|
(1,552
|
)
|
Other
|
|
|
(1
|
)
|
|
|
94
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
386
|
|
|
$
|
546
|
|
|
$
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of receivables
|
|
|
1.0
|
%
|
|
|
1.6
|
%
|
|
|
2.5
|
%
|
Net write-off rate USCS
|
|
|
1.6
|
%
|
|
|
3.8
|
%
|
|
|
3.6
|
%
|
30 days past due as a % of total USCS
|
|
|
1.5
|
%
|
|
|
1.8
|
%
|
|
|
3.7
|
%
|
Net loss ratio as a % of charge
volume
ICS/GCS
(b)(c)
|
|
|
0.16
|
%
|
|
|
0.25
|
%
|
|
|
0.17
|
%
|
90 days past billing as a % of
total ICS/GCS
(b)
|
|
|
0.9
|
%
|
|
|
1.6
|
%
|
|
|
2.84
|
%
|
Worldwide cardmember
loans GAAP basis
portfolio
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
60.9
|
|
|
$
|
32.8
|
|
|
$
|
42.2
|
|
30 days past due as a % of total
|
|
|
2.1
|
%
|
|
|
3.6
|
%
|
|
|
4.4
|
%
|
Loss reserves
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,268
|
|
|
$
|
2,570
|
|
|
$
|
1,831
|
|
Adoption of new GAAP
consolidation
standard
(e)
|
|
|
2,531
|
|
|
|
|
|
|
|
|
|
Provision for losses on
authorized transactions
|
|
|
1,445
|
|
|
|
4,209
|
|
|
|
4,106
|
|
Net write-offs principal
|
|
|
(3,260
|
)
|
|
|
(2,949
|
)
|
|
|
(2,643
|
)
|
Write-offs interest and fees
|
|
|
(359
|
)
|
|
|
(448
|
)
|
|
|
(580
|
)
|
Other
|
|
|
21
|
|
|
|
(114
|
)
|
|
|
(144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,646
|
|
|
$
|
3,268
|
|
|
$
|
2,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Reserves principal
|
|
$
|
3,551
|
|
|
$
|
3,172
|
|
|
$
|
2,379
|
|
Ending Reserves interest and fees
|
|
$
|
95
|
|
|
$
|
96
|
|
|
$
|
191
|
|
% of loans
|
|
|
6.0
|
%
|
|
|
10.0
|
%
|
|
|
6.1
|
%
|
% of past due
|
|
|
287
|
%
|
|
|
279
|
%
|
|
|
137
|
%
|
Average loans
|
|
$
|
58.4
|
|
|
$
|
34.8
|
|
|
$
|
47.6
|
|
Net write-off rate
|
|
|
5.6
|
%
|
|
|
8.5
|
%
|
|
|
5.5
|
%
|
Net interest income divided by average
loans
(f)(g)
|
|
|
8.3
|
%
|
|
|
9.0
|
%
|
|
|
7.7
|
%
|
Net interest yield on cardmember
loans
(f)
|
|
|
9.7
|
%
|
|
|
10.1
|
%
|
|
|
8.6
|
%
|
Worldwide cardmember
loans Managed basis
portfolio
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
60.9
|
|
|
$
|
61.8
|
|
|
$
|
72.0
|
|
30 days past due as a % of total
|
|
|
2.1
|
%
|
|
|
3.6
|
%
|
|
|
4.6
|
%
|
Net write-offs principal
(millions)
|
|
$
|
3,260
|
|
|
$
|
5,366
|
|
|
$
|
4,065
|
|
Average loans
|
|
$
|
58.4
|
|
|
$
|
63.8
|
|
|
$
|
75.0
|
|
Net write-off rate
|
|
|
5.6
|
%
|
|
|
8.4
|
%
|
|
|
5.4
|
%
|
Net interest yield on cardmember
loans
(f)
|
|
|
9.7
|
%
|
|
|
10.4
|
%
|
|
|
9.1
|
%
|
|
|
|
|
|
(a)
|
|
Represents loss provisions for
cardmember receivables consisting of principal (resulting from
authorized transactions) and fee reserve components. Adjustments
to cardmember receivables resulting from unauthorized
transactions have been reclassified from this line to
Other for all periods presented.
|
(b)
|
|
Effective January 1, 2010, the
Company revised the time period in which past due cardmember
receivables in International Card Services and Global Commercial
Services are written off to when they are 180 days past due
or earlier, consistent with applicable bank regulatory guidance
and the write-off methodology adopted for U.S. Card Services in
the fourth quarter of 2008. Previously, receivables were written
off when they were 360 days past billing or earlier.
Therefore, the net write-offs for the first quarter of 2010
included net write-offs of approximately $60 million for
International Card Services and approximately $48 million
for Global Commercial Services resulting from this write-off
methodology change, which increased the net loss ratios and
decreased the 90 days past billing metrics for these
segments, but did not have a substantial impact on provisions
for losses.
|
(c)
|
|
Beginning with the first quarter of
2010, the Company has revised the net loss ratio to exclude net
write-offs related to unauthorized transactions, consistent with
the methodology for calculation of the net write-off rate for
U.S. Card Services. The metrics for prior periods have not been
revised for this change as it was deemed immaterial.
|
(d)
|
|
Refer to Cardmember Loan
Portfolio Presentation on page 54 for discussion of
the GAAP and non-GAAP presentation of the Companys U.S.
loan portfolio.
|
(e)
|
|
Reflects the new GAAP effective
January 1, 2010, which resulted in the consolidation of the
American Express Credit Account Master Trust (the Lending
Trust), reflecting $29.0 billion of additional cardmember
loans along with a $2.5 billion loan loss reserve on the
Companys balance sheets.
|
(f)
|
|
See below for calculations of net
interest yield on cardmember loans, a non-GAAP measure, and net
interest income divided by average loans, a GAAP measure.
Management believes net interest yield on cardmember loans is
useful to investors because it provides a measure of
profitability of the Companys cardmember loan portfolio.
|
(g)
|
|
This calculation includes elements
of total interest income and total interest expense that are not
attributable to the cardmember loan portfolio, and thus is not
representative of net interest yield on cardmember loans. The
calculation includes interest income and interest expense
attributable to investment securities and other interest-bearing
deposits as well as to cardmember loans, and interest expense
attributable to other activities, including cardmember
receivables.
|
32
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
CALCULATION
OF NET INTEREST YIELD ON CARDMEMBER
LOANS
(a)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Calculation based on 2010 and
2009
GAAP information:
(b)
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
4,869
|
|
|
$
|
3,124
|
|
Average loans
(billions)
|
|
$
|
58.4
|
|
|
$
|
34.8
|
|
Adjusted net interest income
|
|
$
|
5,629
|
|
|
$
|
3,540
|
|
Adjusted average loans
(billions)
|
|
$
|
58.3
|
|
|
$
|
34.9
|
|
Net interest income divided by average
loans
(c)
|
|
|
8.3
|
%
|
|
|
9.0
|
%
|
Net interest yield on cardmember loans
|
|
|
9.7
|
%
|
|
|
10.1
|
%
|
Calculation based on 2010 and
2009
managed information:
(b)
|
|
|
|
|
|
|
|
|
Net interest
income
(b)
|
|
$
|
4,869
|
|
|
$
|
5,977
|
|
Average loans
(billions)
|
|
$
|
58.4
|
|
|
$
|
63.8
|
|
Adjusted net interest income
|
|
$
|
5,629
|
|
|
$
|
6,646
|
|
Adjusted average loans
(billions)
|
|
$
|
58.3
|
|
|
$
|
63.9
|
|
Net interest yield on cardmember loans
|
|
|
9.7
|
%
|
|
|
10.4
|
%
|
|
|
|
|
|
(a)
|
|
Beginning in the first quarter of
2010, the Company changed the manner in which it allocates
interest expense and capital to its reportable operating
segments. The change reflects modifications in allocation
methodology that the Company believes to more accurately reflect
the funding and capital characteristics of its segments. The
change to interest allocation impacted the consolidated net
interest yield on cardmember loans. Accordingly, the net
interest yields for periods prior to the first quarter of 2010
have been revised for this change.
|
(b)
|
|
Refer to Cardmember Loan
Portfolio Presentation on page 54 for discussion of
GAAP and non-GAAP presentation of the Companys U.S. loan
portfolio.
|
(c)
|
|
Refer to Consolidated Results
of Operations Selected Statistical
Information, footnote (g) on page 32.
|
The following discussions regarding Consolidated Results of
Operations and Consolidated Liquidity and Capital Resources are
presented on a basis consistent with GAAP unless otherwise noted.
CONSOLIDATED
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2010
The Companys 2010 consolidated income from continuing
operations increased $1.9 billion or 90 percent to
$4.1 billion and diluted EPS from continuing operations
increased by $1.81 to $3.35. Consolidated income from continuing
operations for 2009 decreased $734 million or
26 percent from 2008 and diluted EPS from continuing
operations for 2009 declined $0.93 or 38 percent from 2008.
Consolidated net income for December 31, 2010, 2009 and
2008 was $4.1 billion, $2.1 billion and
$2.7 billion, respectively. Net income included losses from
discontinued operations of nil, $7 million and
$172 million for 2010, 2009 and 2008, respectively.
The Companys total revenues net of interest expense and
total expenses increased by approximately 13 percent and
20 percent, respectively, while total provisions for losses
decreased by 58 percent in 2010. Assuming no changes in
foreign currency exchange rates from 2009 to 2010, total
revenues net of interest expense and total expenses increased
approximately 12 percent and 19 percent, respectively,
while provisions for losses decreased approximately
59 percent in
2010
1
.
The Companys total revenues net of interest expense,
provisions for losses and total expenses decreased by
approximately 14 percent, 8 percent and
14 percent, respectively, in 2009. Assuming no changes in
foreign currency exchange rates from 2008 to 2009, total
revenues net of interest expense, provisions for losses and
total expenses decreased approximately 12 percent,
7 percent and 12 percent, respectively, in
2009
1
.
Currency rate changes had a minimal impact on the growth rates
in 2008.
Results from continuing operations for 2010 included:
|
|
|
A $127 million ($83 million after-tax) net charge for
costs related to the Companys reengineering initiatives.
|
Results from continuing operations for 2009 included:
|
|
|
A $180 million ($113 million after-tax) benefit in the
third quarter related to the accounting for a net investment in
the Companys consolidated foreign subsidiaries. See also
Business Segment Results Corporate & Other
below for further discussion;
|
|
|
A $211 million ($135 million after-tax) gain in the
second quarter of 2009 on the sale of 50 percent of the
Companys equity holdings of Industrial and Commercial Bank
of China (ICBC); and
|
|
|
A $190 million ($125 million after-tax) net charge
related to the Companys reengineering initiatives.
|
Results from continuing operations for 2008 included:
|
|
|
A $600 million ($374 million after-tax) addition to
U.S. lending credit reserves reflecting a deterioration of
credit indicators in the second quarter of 2008;
|
|
|
A $449 million ($291 million after-tax) net charge,
primarily reflecting the restructuring costs related to the
Companys reengineering initiatives in the fourth quarter
of 2008;
|
|
|
A $220 million ($138 million after-tax) reduction to
the fair market value of the Companys interest-only strip;
and
|
|
|
A $106 million ($66 million after-tax) charge in the
fourth quarter of 2008 to increase the Companys Membership
Rewards liability, in connection with the Companys
extension of its partnership arrangements with Delta.
|
1
These
currency rate adjustments assume a constant exchange rate
between periods for purposes of currency translation into U.S.
dollars (i.e., assumes the foreign exchange rates used to
determine results for the current year apply to the
corresponding year-earlier period against which such results are
being compared). Management believes that this presentation is
helpful to investors by making it easier to compare the
Companys performance from one period to another without
the variability caused by fluctuations in currency exchange
rates.
33
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
Total
Revenues Net of Interest Expense
Consolidated total revenues net of interest expense for 2010 of
$27.8 billion were up $3.3 billion or 13 percent
from 2009. The increase in total revenues net of interest
expense primarily reflects new GAAP effective January 1,
2010, which caused the reporting of write-offs related to
securitized loans to move from securitization income, net in
2009 to provisions for cardmember loan losses in 2010. In
addition, total revenues net of interest expense reflects higher
discount revenues, increased other commissions and fees, greater
travel commissions and fees, and higher net interest income,
partially offset by lower other revenue, and reduced net card
fees. Consolidated total revenues net of interest expense for
2009 of $24.5 billion were down $3.8 billion or
14 percent from 2008, due to lower discount revenue, lower
total interest income, reduced securitization income, net, lower
other commissions and fees, reduced travel commissions and fees,
and decreased other revenues, partially offset by lower total
interest expense.
Discount revenue for 2010 increased $1.7 billion or
13 percent as compared to 2009 to $15.1 billion as a
result of a 15 percent increase in worldwide billed
business and a slightly higher discount rate. The lower revenue
growth versus total billed business growth reflects the
relatively faster billed business growth rate of 28 percent
related to GNS, where discount revenue is shared with card
issuing partners, and higher contra-revenues, including
cash-back rewards costs and corporate incentive payments. The
15 percent increase in worldwide billed business in 2010
reflected an increase in proprietary billed business of
13 percent. The average discount rate was 2.55 percent
and 2.54 percent for 2010 and 2009, respectively. Over
time, certain repricing initiatives, changes in the mix of
business and volume-related pricing discounts and investments
will likely result in some erosion of the average discount rate.
U.S. billed business and billed business outside the United
States were up 13 percent and 19 percent,
respectively, in 2010. The increase in billed business within
the United States reflected an increase in average spending per
proprietary basic card, partially offset by a slight decrease in
basic
cards-in-force.
The increase in billed business outside the United States
reflected an increase in average spending per proprietary basic
card and basic
cards-in-force.
The table below summarizes selected statistics for billed
business and average spend:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Percentage Increase
|
|
|
|
|
|
Percentage Increase
|
|
|
|
|
|
|
(Decrease) Assuming
|
|
|
|
|
|
(Decrease) Assuming
|
|
|
|
|
|
|
No Changes in
|
|
|
|
|
|
No Changes in
|
|
|
|
Percentage Increase
|
|
|
Foreign Exchange
|
|
|
Percentage Increase
|
|
|
Foreign Exchange
|
|
|
|
(Decrease)
|
|
|
Rates
(a)
|
|
|
(Decrease)
|
|
|
Rates
(a)
|
|
|
Worldwide
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
15
|
%
|
|
|
14
|
%
|
|
|
(9
|
)%
|
|
|
(7
|
)%
|
Proprietary billed business
|
|
|
13
|
|
|
|
13
|
|
|
|
(11
|
)
|
|
|
(9
|
)
|
GNS billed
business
(c)
|
|
|
28
|
|
|
|
24
|
|
|
|
7
|
|
|
|
11
|
|
Average spending per proprietary basic card
|
|
|
18
|
|
|
|
17
|
|
|
|
(7
|
)
|
|
|
(5
|
)
|
Basic
cards-in-force
|
|
|
4
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
United
States
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
13
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
Average spending per proprietary basic card
|
|
|
18
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
Basic
cards-in-force
|
|
|
(1
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
Proprietary consumer card billed
business
(d)
|
|
|
12
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
Proprietary small business billed
business
(d)
|
|
|
11
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
Proprietary Corporate Services billed
business
(e)
|
|
|
19
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
Outside the United
States
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed business
|
|
|
19
|
|
|
|
15
|
|
|
|
(8
|
)
|
|
|
(1
|
)
|
Average spending per proprietary basic card
|
|
|
20
|
|
|
|
16
|
|
|
|
(9
|
)
|
|
|
(3
|
)
|
Basic
cards-in-force
|
|
|
9
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Proprietary consumer and small business billed
business
(f)
|
|
|
14
|
|
|
|
9
|
|
|
|
(10
|
)
|
|
|
(4
|
)
|
Proprietary Corporate Services billed
business
(e)
|
|
|
20
|
|
|
|
18
|
|
|
|
(19
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
(a)
|
|
Refer to footnote 1 on page 33
relating to changes in foreign exchange rates.
|
(b)
|
|
Captions in the table above not
designated as proprietary or GNS include
both proprietary and GNS data.
|
(c)
|
|
Included in the Global Network
segment.
|
(d)
|
|
Included in the USCS segment.
|
(e)
|
|
Included in the GCS segment.
|
(f)
|
|
Included in the ICS segment.
|
34
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
Assuming no changes in foreign exchange rates, total billed
business outside the United States grew 22 percent in Asia
Pacific, 18 percent in Latin America, 10 percent in
Europe and 9 percent in Canada.
During 2009, discount revenue decreased $1.6 billion or
11 percent to $13.4 billion compared to 2008 as a
result of a 9 percent decrease in worldwide billed
business. The greater decrease in discount revenue compared to
billed business primarily reflected growth in billed business
related to GNS where the Company shares the discount rate with
card issuing partners, as well as a slight decline in the
average discount rate. The 9 percent decrease in worldwide
billed business in 2009 reflected a decline in proprietary
billed business of 11 percent, offset by a 7 percent
increase in billed business related to GNS.
Net card fees in 2010 decreased 2 percent, partially due to
a non-renewal reserve adjustment in the prior year. Net card
fees in 2009 remained unchanged compared to 2008 as the decline
in total proprietary
cards-in-force
was offset by an increase in the average fee per card.
Travel commissions and fees increased $185 million or
12 percent to $1.8 billion in 2010 compared to 2009,
primarily reflecting a 19 percent increase in worldwide
travel sales, partially offset by a lower sales revenue rate.
Travel commissions and fees decreased $416 million or
21 percent to $1.6 billion in 2009 compared to 2008,
primarily reflecting a 28 percent decrease in worldwide
travel sales, partially offset by higher sales commission and
fee rates.
Other commissions and fees increased $253 million or
14 percent to $2.0 billion in 2010 compared to 2009,
driven primarily by new GAAP effective January 1, 2010
where fees related to securitized receivables are now recognized
as other commissions and fees. These fees were previously
reported in securitization income, net. The increase also
reflects greater foreign currency conversion revenues related to
higher spending, partially offset by lower delinquency fees in
the non-securitized cardmember loan portfolio. Other commissions
and fees decreased $529 million or 23 percent to
$1.8 billion in 2009 compared to 2008, due to lower
delinquency fees reflecting decreased owned loan balances and
the impacts of various customer assistance programs, in addition
to reduced spending-related foreign currency conversion revenues.
Securitization income, net decreased $400 million to nil in
2010 compared to 2009, as the Company no longer reports
securitization income, net, in accordance with new GAAP
effective January 1, 2010. Securitization income, net
decreased $670 million or 63 percent to
$400 million in 2009 compared to 2008, primarily due to
lower excess spread, net, driven by increased write-offs and a
decrease in interest income on cardmember loans and fee
revenues. These unfavorable impacts were partially offset by a
decrease in interest expense due to lower coupon rates paid on
variable-rate investor certificates, as well as a favorable fair
value adjustment of the interest-only strip.
Other revenues in 2010 decreased $160 million or
8 percent to $1.9 billion compared to 2009, primarily
reflecting the $211 million gain on the sale of
50 percent of the Companys equity holdings in ICBC in
2009, lower insurance premium revenues and higher partner
investments which appear as a contra-other revenue, partially
offset by higher GNS partner-related royalty revenues, greater
merchant fee-related revenue and higher publishing revenue.
Other revenues in 2009 decreased $70 million or
3 percent to $2.1 billion compared to 2008, primarily
reflecting decreased revenues from CPS, due to the migration of
clients to the American Express network and lower publishing
revenues, partially offset by the ICBC gain.
Interest income increased $2.0 billion or 37 percent
to $7.3 billion in 2010 compared to 2009. Interest and fees
on loans increased $2.3 billion or 52 percent, driven
by an increase in the average loan balance resulting from the
consolidation of securitized receivables in accordance with new
GAAP effective January 1, 2010. Interest income related to
securitized receivables is reported in securitization income,
net in prior periods, but is now reported in interest and fees
on loans. The increase related to this consolidation was
partially offset by a lower yield on cardmember loans,
reflecting higher payment rates and lower revolving levels, and
the implementation of elements of the CARD Act. These reductions
to yield were partially offset by the benefit of certain
repricing initiatives effective during 2009 and 2010. Interest
and dividends on investment securities decreased
$361 million or 45 percent, primarily reflecting the
elimination of interest on retained securities driven by new
GAAP effective January 1, 2010 and lower short-term
investment levels. Interest income from deposits with banks and
other increased $7 million or 12 percent primarily due
to higher average deposit balances versus the prior year.
Interest income decreased $1.9 billion or 26 percent
to $5.3 billion in 2009 compared to 2008. Interest and fees
on loans decreased $1.7 billion or 27 percent due to
decline in the average owned loan balance, reduced market
interest rates and the impact of various customer assistance
programs, partially offset by the benefit of certain repricing
initiatives. Interest and dividends on investment securities
increased $33 million or 4 percent, primarily
reflecting increased investment levels partially offset by
reduced investment yields. Interest income from deposits with
banks and other decreased $212 million or 78 percent,
primarily due to a reduced yield and a lower balance of deposits
in other banks.
Interest expense increased $216 million or 10 percent
to $2.4 billion in 2010 compared to 2009. Interest expense
related to deposits increased $121 million or
28 percent, as higher customer balances were partially
offset by a lower cost of funds. Interest expense related to
short-term borrowings decreased $34 million or
92 percent, reflecting lower commercial paper levels versus
the prior year and a lower cost of funds. Interest expense
related to long-term debt and other increased $129 million
or 7 percent, reflecting the consolidation of long-term
debt associated with securitized loans previously held
off-balance sheet in accordance with
35
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
new GAAP effective January 1, 2010. Interest expense
related to this debt was reported in securitization income, net
in prior periods, but is now reported in long-term debt and
other interest expense. The increase was partially offset by
lower average long-term debt. Interest expense decreased
$1.3 billion or 38 percent to $2.2 billion in
2009 compared to 2008. Interest expense related to deposits
decreased $29 million or 6 percent, primarily due to a
lower cost of funds which more than offset increased balances.
Interest expense related to short-term borrowings decreased
$446 million or 92 percent, due to significantly lower
short-term debt levels and a lower cost of funds. Interest
expense related to long-term debt and other decreased
$873 million or 33 percent, primarily reflecting a
lower cost of funds driven by reduced market rates on variably
priced debt, as well as a lower average balance of long-term
debt outstanding.
Provisions
for Losses
Provisions for losses of $2.2 billion in 2010 decreased
$3.1 billion or 58 percent, compared to 2009. Charge
card provisions for losses decreased $262 million or
31 percent, driven by lower reserve requirements, due to
improved credit performance, partially offset by higher
receivables. Cardmember loans provisions for losses decreased
$2.7 billion or 64 percent, primarily reflecting lower
reserve requirements during the year, due to improving credit
performance, partially offset by an increase related to the
inclusion of the 2010 expense for written-off securitized loans,
which in 2009 was reported in securitization income, net. Other
provisions for losses decreased $105 million or
55 percent primarily reflecting lower merchant-related
debit balances.
Provisions for losses of $5.3 billion in 2009 decreased
$485 million or 8 percent compared to 2008. Charge
card provisions for losses decreased $506 million or
37 percent, primarily driven by improved credit
performance. Cardmember loans provisions for losses increased
$35 million or 1 percent, primarily due to a higher
cardmember reserve level due to the challenging credit
environment, partially offset by a lower owned-loan balance.
Expenses
Consolidated expenses for 2010 were $19.6 billion, up
$3.2 billion or 20 percent from $16.4 billion in
2009. The increase in 2010 reflected greater marketing and
promotion expenses, increased cardmember rewards expense, higher
salaries and employee benefits, greater professional services
expenses, higher other, net expenses, and increased cardmember
services expenses, partially offset by lower occupancy and
equipment expense and lower communications expense. Consolidated
expenses for 2009 were $16.4 billion, down
$2.6 billion or 14 percent from $19.0 billion in
2008. The decrease in 2009 was primarily driven by lower other,
net expenses, reduced salaries and employee benefits expenses,
lower marketing and promotion expense and decreased cardmember
rewards expense, partially offset by greater cardmember services
expense. Consolidated expenses in 2010, 2009 and 2008 also
included $127 million, $190 million and
$449 million, respectively, of reengineering costs, of
which $96 million, $185 million and $417 million,
respectively, represent restructuring charges.
Marketing and promotion expenses increased $1.2 billion or
60 percent to $3.1 billion in 2010 from
$1.9 billion in 2009, as improved credit and billings
trends led to increased investment levels in 2010. Marketing and
promotion expenses decreased $516 million or
21 percent to $1.9 billion in 2009 from
$2.4 billion in 2008, due to lower spending levels in the
first three quarters of 2009, partially offset by higher expense
in the fourth quarter of 2009.
Cardmember rewards expenses increased $993 million or
25 percent to $5.0 billion in 2010 from
$4.0 billion in 2009, reflecting higher rewards-related
spending volumes and co-brand expense, and a benefit in the
third quarter of 2009 relating to the adoption of a more
restrictive redemption policy for accounts 30 days past
due. Cardmember rewards expenses decreased $353 million or
8 percent to $4.0 billion in 2009 from
$4.4 billion in 2008, reflecting lower rewards-related
spending volumes, partially offset by higher redemption rates
and costs in Membership Rewards and higher costs with relatively
lower declines in co-brand spending volumes.
Salaries and employee benefits expenses increased
$486 million or 10 percent to $5.6 billion in
2010 from $5.1 billion in 2009, reflecting a 2 percent
increase in total employee count, merit increases for existing
employees, higher benefit-related costs, including the impact of
reinstating certain benefits that were temporarily suspended
during the recession, higher management incentive compensation
expense and greater volume-related sales incentives, partially
offset by lower net reengineering costs in 2010 versus 2009.
Salaries and employee benefits expenses decreased
$1.0 billion or 17 percent to $5.1 billion in
2009 from $6.1 billion in 2008, reflecting lower employee
levels and costs related to the Companys reengineering
initiatives, as well as the restructuring charge in the fourth
quarter of 2008.
Professional services expenses in 2010 increased
$398 million or 17 percent compared to 2009,
reflecting higher technology development expenditures, greater
legal costs, and higher third-party merchant sales force
commissions, partially offset by lower credit and collection
agency costs. Professional services expenses in 2009 compared to
2008 remained flat.
Other, net expenses in 2010 increased $218 million or
9 percent to $2.6 billion compared to 2009, reflecting
the $180 million ($113 million after-tax) benefit in
the third quarter of 2009 related to the accounting for a net
investment in the Companys consolidated foreign
subsidiaries, as well as higher investments in business building
initiatives and higher travel and entertainment costs in 2010,
partially offset by lower postage and telephone-related costs
and a charge of $63 million in 2009 for certain property
exits. Other, net expenses in 2009 decreased $708 million
or 23 percent to $2.4 billion compared to 2008,
reflecting the full
36
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
year of settlement payments from MasterCard in 2009 versus two
quarters in 2008, a $180 million third quarter benefit
related to the accounting for a net investment in the
Companys consolidated foreign subsidiaries (as discussed
further in Business Segment Results
Corporate & Other below), a $59 million benefit
in the second quarter of 2009 from the completion of certain
account reconciliations related to prior periods, and lower
travel and entertainment and other expenses due to the
Companys reengineering activities. These were partially
offset by a $9 million favorable impact in the fourth
quarter of 2008 related to fair value hedge ineffectiveness.
Income
Taxes
The effective tax rate was 32 percent in 2010 compared to
25 percent in 2009 and 20 percent in 2008. The tax
rates in all years reflect the level of pretax income in
relation to recurring permanent tax benefits.
Discontinued
Operations
Loss from discontinued operations, net of tax, was nil,
$7 million and $172 million in 2010, 2009 and 2008,
respectively. Loss from discontinued operations, net of tax,
primarily reflected AEIDC and AEB results from operations,
including AEIDCs $15 million ($10 million
after-tax) and $275 million ($179 million after-tax)
of losses related to
mark-to-market
adjustments and sales within the AEIDC investment portfolio in
2009 and 2008, respectively.
CASH
FLOWS
Cash
Flows from Operating Activities
Cash flows from operating activities primarily include net
income adjusted for (i) non-cash items included in net
income, including the provision for losses, depreciation and
amortization, deferred taxes, and stock-based compensation and
(ii) changes in the balances of operating assets and
liabilities, which can vary significantly in the normal course
of business due to the amount and timing of various payments.
For the year ended December 31, 2010, net cash provided by
operating activities of $9.3 billion increased
$3.0 billion compared to $6.3 billion in 2009. The
increase was primarily due to higher net income in 2010,
increases in non-cash expenses for deferred taxes, acquisition
costs and increases in accounts payable and other liabilities in
2010, partially offset by lower provisions for losses and an
increase in other assets in 2010.
For the year ended December 31, 2009, net cash provided by
operating activities of $6.3 billion decreased
$1.5 billion compared to $7.8 billion in 2008. The
decrease was primarily due to a decrease in deferred taxes,
acquisition costs and other, fluctuations in the Companys
other receivables, accounts payable and other liabilities, as
well as a reduction in income from continuing operations,
partially offset by changes in other assets.
Cash
Flows from Investing Activities
The Companys investing activities primarily include
funding cardmember loans and receivables, securitizations of
cardmember loans and receivables, and the Companys
available-for-sale
investment portfolio.
For the year ended December 31, 2010, net cash used in
investing activities of $1.2 billion decreased
$5.6 billion compared to net cash used in investing
activities of $6.8 billion in 2009, primarily due to higher
maturity and redemption of investments and lower purchases of
investments, partially offset by increases in cardmember loans
and receivables.
For the year ended December 31, 2009, net cash used in
investing activities was $6.8 billion, compared to net cash
provided by investing activities of $7.6 billion in 2008.
The
year-over-year
change was primarily due to lower proceeds from cardmember loan
securitizations, decreased maturities and redemptions of
investments, and an increase in restricted cash required for
related securitization activities.
Cash
Flows from Financing Activities
The Companys financing activities primarily include
issuing and repaying debt, taking customer deposits, paying
dividends and repurchasing its common and preferred shares.
For the year ended December 31, 2010, net cash used in
financing activities of $8.1 billion increased
$3.5 billion compared to $4.6 billion in 2009, due to
a reduced level of growth in customer deposits during 2010 as
compared to 2009 and an increase in principal payments of
long-term debt, partially offset by a net increase in short-term
borrowings in 2010 and the repayment of preferred shares in 2009.
For the year ended December 31, 2009, net cash used in
financing activities of $4.6 billion decreased
$5.8 billion compared to $10.4 billion in 2008,
primarily due to an increase in customer deposits in 2009 and a
reduction in cash used in financing activities attributable to
discontinued operations from 2008 to 2009.
37
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
CERTAIN
LEGISLATIVE, REGULATORY AND OTHER DEVELOPMENTS
As a participant in the financial services industry, the Company
is subject to a wide array of regulations applicable to its
businesses. The Company, as a bank holding company and a
financial holding company, is subject to the supervision of the
Federal Reserve. As such, the Company is subject to the Federal
Reserves regulations and policies, including its
regulatory capital requirements. In addition, the extreme
disruptions in the capital markets that commenced in mid-2007
and the resulting instability and failure of numerous financial
institutions have led to a number of changes in the financial
services industry, including significant additional regulation
and the formation of additional regulatory bodies. The
Companys conversion to a bank holding company in the
fourth quarter of 2008 has increased the scope of its regulatory
oversight and its compliance program. In addition, although the
long-term impact on the Company of much of the recent and
pending legislative and regulatory initiatives remains
uncertain, the Company expects that compliance requirements and
expenditures will continue to rise for financial services firms,
including the Company, as the legislation and rules become
effective over the course of the next several years.
The CARD
Act
In May 2009, the U.S. Congress passed, and the President of
the United States signed into law, legislation, known as the
CARD Act, to fundamentally reform credit card billing practices,
pricing and disclosure requirements. This legislation
accelerated the effective date and expanded the scope of
amendments to the rules regarding Unfair or Deceptive Acts or
Practices (UDAP) and Truth in Lending Act that restrict certain
credit and charge card practices and require expanded
disclosures to consumers, which were adopted in December 2008 by
federal bank regulators in the United States. Together, the
legislation and the regulatory amendments include, among other
matters, rules relating to the imposition by card issuers of
interest rate increases on outstanding balances and the
allocation of payments in respect of outstanding balances with
different interest rates. Certain other provisions of the CARD
Act require penalty fees to be reasonable and proportional in
relation to the circumstances for which such fees are levied and
require issuers to evaluate past interest rate increases twice
per year to determine whether it is appropriate to reduce such
increases.
The Company has made changes to its product terms and practices
that are designed to mitigate the impact on Company revenue of
the changes required by the CARD Act and the regulatory
amendments. These changes include instituting product-specific
increases in pricing on purchases and cash advances, modifying
the criteria pursuant to which the penalty rate of interest is
imposed on a cardmember and assessing late fees on certain
charge products at an earlier date than previously assessed.
Although the Company believes its actions to mitigate the impact
of the CARD Act have, to date, been largely effective (as
evidenced in part by the net interest yield for its
U.S. lending portfolio), the impacts of certain other
provisions of the CARD Act are still subject to some uncertainty
(such as the requirement to periodically reevaluate APR
increases). Accordingly, in the event the actions undertaken by
the Company to date to offset the impact of the new legislation
and regulations are not ultimately effective, they could have a
material adverse effect on the Companys results of
operations, including its revenue and net income.
Dodd-Frank
Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Reform Act)
In July 2010, President Obama signed into law the Dodd-Frank
Reform Act. The Dodd-Frank Reform Act is comprehensive in scope
and contains a wide array of provisions intending to govern the
practices and oversight of financial institutions and other
participants in the financial markets. Among other matters, the
law creates a new independent Consumer Financial Protection
Bureau, which will regulate consumer credit across the
U.S. economy. The Bureau will have broad rulemaking
authority over providers of credit, savings, payment and other
consumer financial products and services with respect to certain
federal consumer financial laws. Moreover, the Bureau will have
examination and enforcement authority with respect to certain
federal consumer financial laws for some providers of consumer
financial products and services, including the Company and its
insured depository institution subsidiaries. The Bureau will be
directed to prohibit unfair, deceptive or abusive
practices, and to ensure that all consumers have access to fair,
transparent and competitive markets for consumer financial
products and services.
Under the Dodd-Frank Reform Act, the Federal Reserve is
authorized to regulate interchange fees paid to banks on debit
card and certain general-use prepaid card transactions to ensure
that they are reasonable and proportional to the
cost of processing individual transactions, and to prohibit
debit and general-use prepaid card networks and issuers from
requiring transactions to be processed on a single payment
network. The Company does not offer a debit card linked to a
deposit account, but does issue various types of prepaid cards.
The Dodd-Frank Reform Act also prohibits credit/debit networks
from restricting a merchant from offering discounts or
incentives to customers in order to encourage them to use a
particular form of payment, or from restricting a merchant from
setting certain minimum and maximum transaction amounts for
credit cards, as long as any such discounts or incentives or any
minimum or maximum transaction amounts do not discriminate among
issuers or networks and comply with applicable federal or state
disclosure requirements.
The Dodd-Frank Reform Act also authorizes the Federal Reserve to
establish heightened capital, leverage and liquidity standards,
risk management requirements, concentration limits on credit
exposures, mandatory resolution plans (so-called living
wills) and stress tests for, among others, large bank
holding companies, such as the Company, that have greater than
38
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
$50 billion in assets. In addition, certain derivative
transactions will be required to be centrally cleared, which may
create or increase collateral posting requirements for the
Company.
Many provisions of the Dodd-Frank Reform Act require the
adoption of rules for implementation. In addition, the
Dodd-Frank Reform Act mandates multiple studies, which could
result in additional legislative or regulatory action. These new
rules and studies will be implemented and undertaken over a
period of several years. Accordingly, the ultimate consequences
of the Dodd-Frank Reform Act and its implementing regulations on
the Companys business, results of operations and financial
condition are uncertain at this time.
Other
Legislative and Regulatory Initiatives
The credit and charge card sector also faces continuing scrutiny
in connection with the fees merchants pay to accept cards.
Although investigations into the way bankcard network members
collectively set the interchange (that is, the fee
paid by the bankcard merchant acquirer to the card issuing bank
in four party payment networks, like Visa and
MasterCard) had largely been a subject of regulators outside the
United States, legislation was previously introduced in Congress
designed to give merchants antitrust immunity to negotiate
interchange collectively with card networks and to regulate
certain card network practices. Although, unlike the Visa and
MasterCard networks, the American Express network does not
collectively set fees, antitrust actions and government
regulation relating to merchant pricing could ultimately affect
all networks.
In addition to the provisions of the Dodd-Frank Reform Act
regarding merchants ability to offer discounts or
incentives to encourage customers use of a particular form
of payment, a number of U.S. states are also considering
legislation that would prohibit card networks from imposing
conditions, restrictions or penalties on a merchant if the
merchant, among other things, (i) provides a discount to a
customer for using one form of payment versus another or one
type of credit or charge card versus another, (ii) imposes
a minimum dollar requirement on customers with respect to the
use of credit or charge cards or (iii) chooses to accept
credit and charge cards at some of its locations but not at
others. Such legislation has recently been enacted in Vermont,
and similar legislation has been introduced in other states.
Also, other countries in which the Company operates have been
considering and in some cases adopting similar legislation and
rules that would impose changes on certain practices of card
issuers and bankcard networks.
Any or all of the above changes to the legal and regulatory
environment in which the Company operates could have a material
adverse effect on the Companys results of operations.
Refer to Consolidated Capital Resources and
Liquidity for a discussion of the series of international
capital and liquidity standards published by the Basel Committee
on Banking Supervision.
CONSOLIDATED
CAPITAL RESOURCES AND LIQUIDITY
The Companys balance sheet management objectives are to
maintain:
|
|
|
A solid and flexible equity capital profile;
|
|
|
A broad, deep and diverse set of funding sources to finance its
assets and meet operating requirements; and
|
|
|
Liquidity programs that enable the Company to continuously meet
expected future financing obligations and business requirements,
even in the event it is unable to raise new funds under its
regular funding programs.
|
CAPITAL
STRATEGY
The Companys objective is to retain sufficient levels of
capital generated through earnings and other sources to maintain
a solid equity capital base and to provide flexibility to
satisfy future business growth. The Company believes capital
allocated to growing businesses with a return on risk-adjusted
equity in excess of its costs will generate shareholder value.
The level and composition of the Companys consolidated
capital position are determined through the Companys
internal capital adequacy assessment process (ICAAP), which
reflects its business activities, as well as marketplace
conditions and credit rating agency requirements. They are also
influenced by subsidiary capital requirements. The Company, as a
bank holding company, is also subject to regulatory requirements
administered by the U.S. federal banking agencies. The
Federal Reserve has established specific capital adequacy
guidelines that involve quantitative measures of assets,
liabilities and certain off-balance sheet items.
The Company currently calculates and reports its capital ratios
under the measurement standards commonly referred to as
Basel I. In June 2004, the Basel Committee published new
international guidelines for determining regulatory capital
(Basel II). In December 2007, the U.S. bank regulatory
agencies jointly adopted a final rule based on Basel II.
The Dodd-Frank Reform Act and a series of international capital
and liquidity standards known as Basel III published by the
Basel Committee on Banking Supervision (commonly referred to as
Basel) will in the future change these current quantitative
measures. In general, these changes will involve, for the U.S.
banking industry as a whole, a reduction in the types of
instruments deemed to be capital along with an increase in the
amount of capital that assets, liabilities and certain
off-balance sheet items require. These changes will generally
serve to reduce reported capital ratios compared to current
capital guidelines. The specific U.S. guidelines supporting
the new standards and the proposed Basel III capital
standards have not been finalized, but are generally expected to
be issued within the next 12 months. In addition to these
measurement changes, international and United States banking
regulators could increase the ratio levels at which banks would
be deemed to be well capitalized.
39
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
The following table presents the regulatory risk-based capital
ratios and leverage ratio for the Company and its significant
banking subsidiaries, as well as additional ratios widely
utilized in the market place, as of the fourth quarter of 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-
|
|
|
|
|
|
|
Capitalized
|
|
|
|
|
|
|
Ratio
|
|
|
Actual
|
|
|
Risk-Based Capital
|
|
|
|
|
|
|
|
|
Tier 1
|
|
|
6
|
%
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
11.1
|
%
|
Centurion Bank
|
|
|
|
|
|
|
18.3
|
%
|
FSB
|
|
|
|
|
|
|
16.3
|
%
|
Total
|
|
|
10
|
%
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
13.1
|
%
|
Centurion Bank
|
|
|
|
|
|
|
19.5
|
%
|
FSB
(a)
|
|
|
|
|
|
|
18.8
|
%
|
Tier 1 Leverage
|
|
|
5
|
%
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
9.3
|
%
|
Centurion Bank
|
|
|
|
|
|
|
19.4
|
%
|
FSB
|
|
|
|
|
|
|
16.1
|
%
|
Tier 1 Common Risk-Based
|
|
|
|
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
11.1
|
%
|
Common Equity to Risk-
Weighted Assets
|
|
|
|
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
13.7
|
%
|
Tangible Common Equity to
Risk-Weighted Assets
|
|
|
|
|
|
|
|
|
American Express Company
|
|
|
|
|
|
|
10.7
|
%
|
|
|
|
|
|
(a)
|
|
Refer to Note 23 to the
Consolidated Financial Statements for further discussion of
FSBs Total capital ratio.
|
On December 16, 2010, the Basel Committee on Banking
Supervision issued the Basel III rules text, which presents
details of global regulatory standards on bank capital adequacy
and liquidity agreed to by Governors and Heads of Supervision,
and endorsed by the G20 Leaders at their November 2010 summit.
Basel III, when implemented by the U.S. banking agencies
and fully phased-in, will require bank holding companies and
their bank subsidiaries to maintain substantially more capital,
with a greater emphasis on common equity. While final
implementation of the rules related to capital ratios will be
determined by the Federal Reserve, the Company estimates that
had the new rules been in place during the fourth quarter of
2010, the reported Tier 1 risk-based capital and
Tier 1 common risk-based ratios would decline by
approximately 50 basis points. In addition, the impact of
the new rules on the reported Tier 1 leverage ratio would
be a decline of approximately 150 basis points.
The following provides definitions for the Companys
regulatory risk-based capital ratios and leverage ratio, all of
which are calculated as per standard regulatory guidance:
Risk-Weighted Assets
Assets are weighted
for risk according to a formula used by the Federal Reserve to
conform to capital adequacy guidelines. On and off-balance sheet
items are weighted for risk, with off-balance sheet items
converted to balance sheet equivalents, using risk conversion
factors, before being allocated a risk-adjusted weight. The
off-balance sheet items comprise a minimal part of the overall
calculation. Risk-weighted assets as of December 31, 2010
were $118.3 billion.
Tier 1 Risk-Based Capital Ratio
The
Tier 1 capital ratio is calculated as Tier 1 capital
divided by risk-weighted assets. Tier 1 capital is the sum
of common shareholders equity, certain perpetual preferred
stock (not applicable to the Company), and noncontrolling
interests in consolidated subsidiaries, adjusted for ineligible
goodwill and intangible assets, as well as certain other
comprehensive income items as follows: net unrealized
gains/losses on securities and derivatives, and net unrealized
pension and other postretirement benefit losses, all net of tax.
Tier 1 capital as of December 31, 2010 was
$13.1 billion. This ratio is commonly used by regulatory
agencies to assess a financial institutions financial
strength and is the primary form of capital used to absorb
losses beyond current loss accrual estimates.
Total Risk-Based Capital Ratio
The total
risk-based capital ratio is calculated as the sum of Tier 1
capital and Tier 2 capital, divided by risk-weighted
assets. Tier 2 capital is the sum of the allowance for
receivable and loan losses (limited to 1.25 percent of
risk-weighted assets) and 45 percent of the unrealized
gains on equity securities, plus a $750 million
subordinated hybrid security, for which the Company received
approval from the Federal Reserve Board for treatment as
Tier 2 capital. Tier 2 capital as of December 31,
2010 was $2.4 billion.
Tier 1 Leverage Ratio
The
Tier 1 leverage ratio is calculated by dividing Tier 1
capital by the Companys average total consolidated assets
for the most recent quarter. Average consolidated assets as of
December 31, 2010 were $141.3 billion.
The following provides definitions for capital ratios widely
used in the marketplace, although they may be calculated
differently by different companies.
Tier 1 Common Risk-Based Capital Ratio
The Tier 1 common risk-based capital ratio is
calculated as Tier 1 common capital divided by risk
weighted assets. As of December 31, 2010, the Tier 1
common capital was $13.1 billion and is calculated as
Tier 1 capital less (a) certain noncontrolling
interests (applicable but immaterial for the Company),
(b) qualifying perpetual preferred stock and (c) trust
preferred securities. Items (b) and (c) are not
applicable for the Company. While this was not one of the
required risk-based capital ratios for regulatory reporting
purposes, it was submitted to the Federal Reserve on
January 7, 2011 as part of its 2011 Capital Plan Review.
Common Equity and Tangible Common Equity to Risk-Weighted
Assets Ratios
Common equity equals the
Companys shareholders equity of $16.2 billion
as of December 31, 2010, and tangible common equity equals
common equity, less goodwill and other intangibles of
$3.6 billion. Management believes presenting the ratio of
tangible common equity to risk-weighted assets is a useful
measure of evaluating the strength of the Companys capital
position.
40
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
The Company seeks to maintain capital levels and ratios in
excess of the minimum regulatory requirements; failure to
maintain minimum capital levels could affect the Companys
status as a financial holding company and cause the respective
regulatory agencies to take actions that could limit the
Companys business operations.
The Companys primary source of equity capital has been
through the generation of net income. Historically, capital
generated through net income and other sources, such as the
exercise of stock options by employees, has exceeded the growth
in its capital requirements. To the extent capital has exceeded
business, regulatory and rating agency requirements, the Company
has returned excess capital to shareholders through its regular
common dividend and share repurchase program.
The Company maintains certain flexibility to shift capital
across its businesses as appropriate. For example, the Company
may infuse additional capital into subsidiaries to maintain
capital at targeted levels in consideration of debt ratings and
regulatory requirements. These infused amounts can affect the
capital profile and liquidity levels for American Express
Parent Company (Parent Company).
U.S.
DEPARTMENT OF TREASURY CAPITAL PURCHASE PROGRAM
On January 9, 2009, under the United States Department of
the Treasury (Treasury Department) Capital Purchase Program
(CPP), the Company issued to the Treasury Department for
aggregate proceeds of $3.39 billion:
(1) 3.39 million shares of Fixed Rate (5 percent)
Cumulative Perpetual Preferred Shares, Series A, and
(2) a ten-year warrant (the Warrant) for the Treasury
Department to purchase up to 24 million common shares at an
exercise price of $20.95 per share. The Company repurchased the
Preferred Shares from the Treasury Department at par on
June 17, 2009, and repurchased the Warrant for
$340 million on July 29, 2009. Refer to Note 14
to the Consolidated Financial Statements for further discussion
of this program.
SHARE
REPURCHASES AND DIVIDENDS
The Company has a share repurchase program to return excess
capital to shareholders. These share repurchases reduce shares
outstanding and offset, in whole or part, the issuance of new
shares as part of employee compensation plans.
During the fourth quarter of 2010, the Company repurchased
14 million shares through the share repurchase program. On
January 7, 2011 the Company submitted its Comprehensive
Capital Plan (CCP) to the Federal Reserve requesting approval to
proceed with additional share repurchases in 2011. The CCP
includes an analysis of performance and capital availability
under certain adverse economic assumptions. The CCP was
submitted to the Federal Reserve pursuant to the Federal
Reserves guidance on dividends and capital distributions,
most recently updated in November 2010, and discussed further
below in Regulatory Matters and Capital
Adequacy Bank Holding Company Dividend
Restrictions. The Company expects a response from the
Federal Reserve by the end of the first quarter. The Company
cannot predict whether the Federal Reserve will approve
additional share repurchases. No additional shares are expected
to be repurchased prior to its response. No shares were
repurchased during 2009 as share repurchases were suspended
during the first quarter of 2008 in light of the challenging
global economic environment and limitations while under the CPP.
On a cumulative basis, since 1994, the Company has distributed
64 percent of capital generated through share repurchases
and dividends.
During 2010, the Company returned $1.5 billion in dividends
and share repurchases to shareholders, which represents
approximately 30 percent of total capital generated.
FUNDING
STRATEGY
The Companys principal funding objective is to maintain
broad and well-diversified funding sources to allow it to meet
its maturing obligations, cost-effectively finance current and
future asset growth in its global businesses as well as to
maintain a strong liquidity profile. The diversity of funding
sources by type of debt instrument, by maturity and by investor
base, among other factors, provides additional insulation from
the impact of disruptions in any one type of debt, maturity or
investor. The mix of the Companys funding in any period
will seek to achieve cost-efficiency consistent with both
maintaining diversified sources and achieving its liquidity
objectives. The Companys funding strategy and activities
are integrated into its asset-liability management activities.
The Company has in place a Funding Policy covering American
Express Company and all of its subsidiaries.
The Companys proprietary card businesses are the primary
asset-generating businesses, with significant assets in both
domestic and international cardmember receivable and lending
activities. The Companys financing needs are in large part
a consequence of its proprietary card-issuing businesses and the
maintenance of a liquidity position to support all of its
business activities, such as merchant payments. The Company
generally pays merchants for card transactions prior to
reimbursement by cardmembers and therefore funds the merchant
payments during the period cardmember loans and receivables are
outstanding. The Company also has additional financing needs
associated with general corporate purposes, including
acquisition activities.
41
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
FUNDING
PROGRAMS AND ACTIVITIES
The Company meets its funding needs through a variety of
sources, including debt instruments such as direct and
third-party distributed deposits, senior unsecured debentures,
asset securitizations, securitized borrowings through a conduit
facility and long-term committed bank borrowing facilities in
certain
non-U.S. regions.
The following discussion includes information on both a GAAP and
managed basis. The managed basis presentation includes debt
issued in connection with the Companys lending
securitization activities, which were off-balance sheet. The
adoption of new GAAP effective on January 1, 2010 resulted
in accounting for both the Companys securitized and
non-securitized cardmember loans in the Consolidated Financial
Statements. As a result, the Companys 2010 GAAP
presentations and managed basis presentations prior to 2010 are
generally comparable. Prior period Consolidated Financial
Statements have not been revised for this accounting change. For
a discussion of managed basis and managements rationale
for such presentation, refer to U.S. Card
Services Cardmember Loan Portfolio
Presentation below.
The Company had the following consolidated debt, on both a GAAP
and managed basis, and customer deposits outstanding as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
3.4
|
|
|
$
|
2.3
|
|
Long-term debt
|
|
|
66.4
|
|
|
|
52.3
|
|
|
|
|
|
|
|
|
|
|
Total debt (GAAP basis)
|
|
|
69.8
|
|
|
|
54.6
|
|
Off-balance sheet securitizations
|
|
|
|
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
Total debt (managed basis)
|
|
|
69.8
|
|
|
|
82.9
|
|
Customer deposits
|
|
|
29.7
|
|
|
|
26.3
|
|
|
|
|
|
|
|
|
|
|
Total debt (managed) and customer deposits
|
|
$
|
99.5
|
|
|
$
|
109.2
|
|
|
|
The Company seeks to raise funds to meet all of its financing
needs, including seasonal and other working capital needs, while
also seeking to maintain sufficient cash and readily-marketable
securities that are easily convertible to cash, in order to meet
the scheduled maturities of all long-term borrowings on a
consolidated basis for a
12-month
period. The Company has $8.9 billion of unsecured long-term
debt, $5.3 billion of asset securitizations and
$5.6 billion of long-term deposits that will mature during
2011. See Liquidity Management section for more
details.
The Companys equity capital and funding strategies are
designed, among other things, to maintain appropriate and stable
unsecured debt ratings from the major credit rating agencies,
Moodys Investor Services (Moodys),
Standard & Poors (S&P), Fitch Ratings
(Fitch) and Dominion Bond Rating Services (DBRS). Such ratings
help to support the Companys access to cost effective
unsecured funding as part of its overall financing programs.
Ratings for the Companys ABS activities are evaluated
separately.
|
|
|
|
|
|
|
|
|
|
Credit
|
|
|
|
Short-Term
|
|
Long-Term
|
|
|
Agency
|
|
Entity Rated
|
|
Ratings
|
|
Ratings
|
|
Outlook
|
|
|
|
|
|
|
|
|
|
|
DBRS
|
|
All rated entities
|
|
R-1
|
|
A
|
|
Stable
|
|
|
|
|
(middle)
|
|
(high)
|
|
|
Fitch
|
|
All rated entities
|
|
F1
|
|
A+
|
|
Stable
|
Moodys
|
|
TRS and rated operating subsidiaries
|
|
Prime-1
|
|
A2
|
|
Negative
(a)
|
Moodys
|
|
American Express Company
|
|
Prime-2
|
|
A3
|
|
Negative
|
S&P
|
|
All rated entities
|
|
A-2
|
|
BBB+
|
|
Stable
|
|
|
|
|
|
(a)
|
|
In November 2010, Moodys
revised its ratings outlook for TRS and rated operating
subsidiaries from Stable to Negative.
|
Downgrades in the Companys unsecured debt or asset
securitization programs securities ratings could result in
higher interest expense on the Companys unsecured debt and
asset securitizations, as well as higher fees related to
borrowings under its unused lines of credit. In addition to
increased funding costs, declines in credit ratings could reduce
the Companys borrowing capacity in the unsecured debt and
asset securitization capital markets. The Company believes the
change in its funding mix, which now includes an increasing
proportion of FDIC-insured (as defined below) U.S. retail
deposits, should reduce the impact that credit rating downgrades
would have on the Companys funding capacity and costs.
Downgrades to certain of the Companys unsecured debt
ratings that have occurred over the last several years have not
caused a permanent increase in the Companys borrowing
costs or a reduction in its borrowing capacity.
SHORT-TERM
FUNDING PROGRAMS
Short-term borrowings, such as commercial paper, are defined as
any debt or time deposit with an original maturity of
12 months or less. The Companys short-term funding
programs are used primarily to meet working capital needs, such
as managing seasonal variations in receivables balances.
Short-term borrowings were fairly stable throughout 2010;
however, the Company did reflect an increase in short-term
borrowings in November and December 2010, due to the
reclassification of certain book overdraft balances (i.e.,
primarily due to timing differences arising in the ordinary
course of business). The amount of short-term borrowings issued
in the future will depend on the Companys funding
strategy, its needs and market conditions.
42
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
The Company had the following short-term borrowings outstanding
as of December 31:
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
2010
|
|
|
2009
|
|
|
Credco commercial paper
|
|
$
|
0.6
|
|
|
$
|
1.0
|
|
Other short-term borrowings
|
|
|
2.8
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3.4
|
|
|
$
|
2.3
|
|
|
|
Refer to Note 10 to the Consolidated Financial Statements
for further description of these borrowings.
The Companys short-term borrowings as a percentage of
total debt as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Short-term borrowings as a percentage of total
debt (GAAP basis)
|
|
|
4.9
|
%
|
|
|
4.3
|
%
|
|
|
As of December 31, 2010, the Company had $0.6 billion
of commercial paper outstanding. Average commercial paper
outstanding was $0.9 billion and $2.0 billion in 2010
and 2009, respectively.
American Express Credit Corporations (Credco) total
back-up
liquidity coverage, which includes its undrawn committed bank
facilities, was in excess of 100 percent of its net
short-term borrowings as of December 31, 2010 and 2009. The
undrawn committed bank credit facilities were $5.7 billion
as of December 31, 2010.
DEPOSIT
PROGRAMS
The Company offers deposits within its American Express
Centurion Bank and American Express Bank, FSB subsidiaries
(together, the Banks). These funds are currently
insured up to $250,000 per account through the Federal Deposit
Insurance Corporation (FDIC). The Companys ability to
obtain deposit funding and offer competitive interest rates is
dependent on the Banks capital levels. During the second
quarter of 2009, the Company, through FSB, launched a direct
deposit-taking program, Personal Savings from American Express,
to supplement its distribution of deposit products through
third-party distribution channels. This program makes
FDIC-insured certificates of deposit (CDs) and high-yield
savings account products available directly to consumers.
During 2010, within U.S. retail deposits the Company
focused on continuing to grow both the number of accounts and
the total balances outstanding on savings accounts and CDs that
were sourced directly with consumers through Personal Savings
from American Express. These accounts and balances grew during
the year and financed the maturities of CDs issued through
third-party distribution channels.
The Company held the following deposits as of December 31,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
2010
|
|
|
2009
|
|
|
U.S. retail deposits:
|
|
|
|
|
|
|
|
|
Savings accounts Direct
|
|
$
|
7.7
|
|
|
$
|
2.0
|
|
Certificates of
deposit:
(a)
|
|
|
|
|
|
|
|
|
Direct
|
|
|
1.1
|
|
|
|
0.3
|
|
Third party
|
|
|
11.4
|
|
|
|
14.8
|
|
Sweep accounts Third party
|
|
|
8.9
|
|
|
|
8.5
|
|
Other deposits
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Total customer deposits
|
|
$
|
29.7
|
|
|
$
|
26.3
|
|
|
|
|
|
|
(a)
|
|
The average remaining maturity and
average rate at issuance on the total portfolio of U.S. retail
CDs, issued through direct and third-party programs, were
19.2 months and 2.5 percent, respectively.
|
LONG-TERM
DEBT PROGRAMS
During 2010, the Company and its subsidiaries issued debt and
asset securitizations with maturities ranging from 2 to
5 years. These amounts included approximately
$0.9 billion of AAA-rated lending securitization
certificates and $2.4 billion of unsecured debt across a
variety of maturities and markets. During the year, the Company
retained approximately $0.3 billion of subordinated
securities, as the pricing and yields for these securities were
not attractive compared to other sources of financing available
to the Company.
The Companys 2010 offerings are presented as follows:
|
|
|
|
|
|
|
(Billions)
|
|
Amount
|
|
|
American Express Credit Corporation:
|
|
|
|
|
Fixed Rate Senior Note (2.75% coupon)
|
|
$
|
2.0
|
|
Bank Credit Facilities
Borrowings
(a)
|
|
|
0.4
|
|
American Express Issuance
Trust
(b)
|
|
|
|
|
Floating Rate Senior Notes held by
Conduit
(c)
|
|
|
2.5
|
|
American Express Credit Account Master
Trust
(d)
|
|
|
|
|
Floating Rate Senior Notes
(1-month
LIBOR plus 25 basis points)
|
|
|
0.9
|
|
Floating Rate Subordinated Notes
(1-month
LIBOR plus 102 basis points on average)
|
|
|
0.1
|
|
|
|
|
|
|
Total
|
|
$
|
5.9
|
|
|
|
|
|
|
(a)
|
|
Interest accrues at
1-month
Australian Bank Bill Swap Bid rate plus 29 basis points.
|
(b)
|
|
Issuances from the Charge Trust do
not include $0.2 billion of subordinated securities
retained by American Express during the year.
|
(c)
|
|
The Secured Borrowing Capacity
section below provides further details about this issuance.
|
(d)
|
|
Issuances from the Lending Trust do
not include $0.1 billion of subordinated securities
retained by American Express during the year.
|
43
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
ASSET
SECURITIZATION PROGRAMS
The Company periodically securitizes cardmember receivables and
loans arising from its card business, as the securitization
market provides the Company with cost-effective funding.
Securitization of cardmember receivables and loans is
accomplished through the transfer of those assets to a trust,
which in turn issues certificates or notes (securities)
collateralized by the transferred assets to third-party
investors. The proceeds from issuance are distributed to the
Company, through its wholly owned subsidiaries, as consideration
for the transferred assets.
The receivables and loans being securitized are reported as
owned assets on the Companys Consolidated Balance Sheets
and the related securities issued to third-party investors are
reported as long-term debt. Notes 1 and 7 to the
Consolidated Financial Statements provide a description of the
adoption of new GAAP effective January 1, 2010 and the
impact on the Companys accounting for its securitization
activities.
Under the respective terms of the securitization trust
agreements, the occurrence of certain events could result in
payment of trust expenses, establishment of reserve funds, or in
a worst-case scenario, early amortization of investor
certificates. As of December 31, 2010, no triggering events
have occurred that would have resulted in the funding of reserve
accounts or early amortization.
The ability of issuers of asset-backed securities to obtain
necessary credit ratings for their issuances has historically
been based, in part, on qualification under the FDICs safe
harbor rule for assets transferred in securitizations. In 2009
and 2010, the FDIC issued a series of changes to its safe harbor
rule, with its new final rule for its securitization safe
harbor, issued in 2010, requiring issuers to comply with a new
set of requirements in order to qualify for the safe harbor.
Issuances out of the Lending Trust are grandfathered under the
new FDIC final rule. The trust for the Companys cardmember
charge receivable securitization (the Charge Trust) does not
satisfy the criteria required to be covered by the FDICs
new safe harbor rule, nor did it meet the requirements to be
covered by the safe harbor rule existing prior to 2009. It was
structured and continues to be structured such that the
financial assets transferred to the Charge Trust would not be
deemed to be property of the originating banks in the event the
FDIC is appointed as a receiver or conservator of the
originating banks. The Company has received confirmation from
Moodys, S&P and Fitch, which rate issuances from the
Charge Trust, that they will continue to rate issuances from the
trust in the same manner as they have historically, even though
they do not satisfy the requirements to be covered by the
FDICs safe harbor rule. Nevertheless, one or more of the
rating agencies may ultimately conclude that in the absence of
compliance with the safe harbor rule, the highest rating a
Charge Trust security could receive would be based on the
originating banks unsecured debt rating. If one or more
rating agencies come to this conclusion, it could adversely
impact the Companys capacity and cost of using its Charge
Trust as a source of funding for its business.
LIQUIDITY
MANAGEMENT
The Companys liquidity objective is to maintain access to
a diverse set of cash, readily-marketable securities and
contingent sources of liquidity, such that the Company can
continuously meet expected future financing obligations and
business requirements, even in the event it is unable to raise
new funds under its regular funding programs. The Company has in
place a Liquidity Risk Policy that sets out the Companys
approach to managing liquidity risk on an enterprise-wide basis.
The Company incurs and accepts liquidity risk arising in the
normal course of offering its products and services. The
liquidity risks that the Company is exposed to can arise from a
variety of sources, and thus its liquidity management strategy
includes a variety of parameters, assessments and guidelines,
including but not limited to:
|
|
|
Maintaining a diversified set of funding sources (refer to
Funding Strategy section for more details);
|
|
|
Maintaining unencumbered liquid assets and off-balance sheet
liquidity sources; and
|
|
|
Projecting cash inflows and outflows from a variety of sources
and under a variety of scenarios, including contingent liquidity
exposures such as unused cardmember lines of credit and
collateral requirements for derivative transactions.
|
The Companys current liquidity target is to have adequate
liquidity in the form of excess cash and readily-marketable
securities that are easily convertible into cash to satisfy all
maturing long-term funding obligations for a
12-month
period. In addition to its cash and readily-marketable
securities, the Company maintains a variety of contingent
liquidity resources, such as access to secured borrowings
through its conduit facility and the Federal Reserve discount
window as well as committed bank credit facilities.
44
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
As of December 31, 2010, the Companys excess cash and
readily-marketable securities available to fund long-term
maturities were as follows:
|
|
|
|
|
|
|
(Billions)
|
|
Total
|
|
|
Cash
|
|
$
|
20.3
|
(a)
|
Readily-marketable securities
|
|
|
7.1
|
(b)
|
|
|
|
|
|
Cash and readily-marketable securities
|
|
|
27.4
|
|
Less:
|
|
|
|
|
Operating cash
|
|
|
6.5
|
(c)
|
Short-term obligations outstanding
|
|
|
0.6
|
(d)
|
|
|
|
|
|
Cash and readily-marketable securities available to fund
maturities
|
|
$
|
20.3
|
|
|
|
|
|
|
(a)
|
|
Includes $16.7 billion of cash
and cash equivalents and $3.6 billion held in other assets
on the Consolidated Balance Sheet for certain forthcoming
asset-backed securitization maturities in the first quarter of
2011.
|
(b)
|
|
Consists of certain
available-for-sale
investment securities (U.S. Treasury and agency securities, and
government-guaranteed debt) that are considered highly liquid.
|
(c)
|
|
Cash on hand for
day-to-day
operations.
|
(d)
|
|
Consists of commercial paper and
U.S. retail CDs with original maturities of three and six months.
|
The upcoming approximate maturities of the Companys
long-term unsecured debt, debt issued in connection with
asset-backed securitizations and long-term certificates of
deposit are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
Debt Maturities
|
|
|
|
Unsecured
|
|
|
Asset-Backed
|
|
|
Certificates of
|
|
|
|
|
2011 Quarters Ending:
|
|
Debt
|
|
|
Securitizations
|
|
|
Deposit
|
|
|
Total
|
|
|
March 31
|
|
$
|
|
|
|
$
|
3.2
|
|
|
$
|
2.0
|
|
|
$
|
5.2
|
|
June 30
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
1.6
|
|
|
|
4.5
|
|
September 30
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
1.9
|
|
December 31
|
|
|
6.9
|
|
|
|
|
|
|
|
1.3
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8.9
|
|
|
$
|
5.3
|
|
|
$
|
5.6
|
|
|
$
|
19.8
|
|
|
|
The Companys financing needs for 2011 are expected to
arise from these debt and deposit maturities as well as changes
in business needs, including changes in outstanding cardmember
loans and receivables as well as acquisition activities.
The Company considers various factors in determining the amount
of liquidity it maintains, such as economic and financial market
conditions, seasonality in business operations, growth in its
businesses, potential acquisitions or dispositions, the cost and
availability of alternative liquidity sources, and regulatory
and credit rating agency considerations.
The yield the Company receives on its cash and
readily-marketable securities is, generally, less than the
interest expense on the sources of funding for these balances.
Thus, the Company incurs substantial net interest costs on these
amounts.
The level of net interest costs will be dependent on the size of
its cash and readily-marketable securities holdings, as well as
the difference between its cost of funding these amounts and
their investment yields.
Securitized
Borrowing Capacity
During December 2010, the Company entered into a
$3 billion,
3-year
committed, revolving, secured financing facility sponsored by
and with liquidity backup provided by a syndicate of banks. The
facility gives the Company the right to sell up to
$3 billion face amount of eligible notes issued from the
Charge Trust at any time through December 16, 2013. The
purchasers commitments to fund any unfunded amounts under
this facility are subject to the terms and conditions of, among
other things, a purchase agreement among certain subsidiaries,
the note purchasers and certain other parties. This facility
will be used in the ordinary course of business to fund seasonal
working capital needs, as well as further enhance the
Companys contingent funding resources. The borrowing cost
of the facility includes a fixed facility fee. In addition, the
drawn balance incurs a weighted average cost of funds to the
participating banks plus 25 basis points. On
December 16, 2010, the Company drew $2.5 billion from
the facility, which was still outstanding as of
December 31, 2010. The Company incurred an interest cost on
the drawn amount that was equal to the weighted average cost of
funds, which was approximately
1-month
LIBOR, plus 25 basis points.
Federal
Reserve Discount Window
The Banks are insured depository institutions that have the
capability of borrowing from the Federal Reserve Bank of
San Francisco, subject to the amount of qualifying
collateral that they pledge. The Federal Reserve has indicated
that both credit and charge card receivables are a form of
qualifying collateral for secured borrowing made through the
discount window. Whether specific assets will be considered
qualifying collateral for secured borrowings made through the
discount window, and the amount that may be borrowed against the
collateral, remains in the discretion of the Federal Reserve.
The Company had approximately $32.5 billion as of
December 31, 2010, in U.S. credit card loans and
charge card receivables that could be sold over time through its
existing securitization trusts, or pledged in return for secured
borrowings to provide further liquidity, subject in each case to
applicable market conditions and eligibility criteria.
45
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
Committed
Bank Credit Facilities
The Company maintained committed bank credit facilities as of
December 31, 2010, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Centurion
|
|
|
|
|
|
|
|
(Billions)
|
|
Company
|
|
|
Credco
|
|
|
Bank
|
|
|
FSB
|
|
|
Total
(a)
|
|
|
Committed
(b)
|
|
$
|
0.8
|
|
|
$
|
9.0
|
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
|
$
|
10.6
|
|
Outstanding
|
|
$
|
|
|
|
$
|
4.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4.1
|
|
|
|
|
|
|
(a)
|
|
Does not include the
$3.0 billion Secured Borrowing Capacity described above of
which $2.5 billion was drawn as of December 31, 2010.
|
(b)
|
|
Committed lines were supplied by 32
financial institutions as of year end.
|
The Companys committed facilities expire as follows:
|
|
|
|
|
|
|
(Billions)
|
|
|
|
|
2011
|
|
$
|
3.3
|
|
2012
|
|
|
7.3
|
|
|
|
|
|
|
Total
|
|
$
|
10.6
|
|
|
|
The availability of the credit lines is subject to the
Companys compliance with certain financial covenants,
including the maintenance by the Company of consolidated
tangible net worth of at least $4.1 billion, the
maintenance by Credco of a 1.25 ratio of combined earnings and
fixed charges to fixed charges, and the compliance by the Banks
with applicable regulatory capital adequacy guidelines. As of
December 31, 2010, the Companys consolidated tangible
net worth was approximately $13.1 billion, Credcos
ratio of combined earnings and fixed charges to fixed charges
was 1.54 and Centurion Bank and FSB each exceeded their
regulatory capital adequacy guidelines. The drawn balance of
$4.1 billion as of December 31, 2010 was used to fund
the Companys business activities in the normal course. The
remaining capacity of the facilities mainly served to further
enhance the Companys contingent funding resources.
The Companys committed bank credit facilities do not
contain material adverse change clauses, which might otherwise
preclude borrowing under the credit facilities. The facilities
may not be terminated should there be a change in the
Companys credit rating.
In consideration of all the funding sources described above, the
Company believes it would have access to liquidity to satisfy
all maturing long-term funding obligations for at least a
12-month
period in the event that access to the secured and unsecured
fixed income capital markets is completely interrupted for that
length of time. These events are not considered likely to occur.
Parent
Company Funding
Parent Company long-term debt outstanding was $10.3 billion
and $10.2 billion as of December 31, 2010 and 2009,
respectively.
The Parent Company is authorized to issue commercial paper. This
program is supported by a $0.8 billion multi-purpose
committed bank credit facility. The credit facility will expire
in 2012. There was no Parent Company commercial paper
outstanding during 2010 and 2009 and no borrowings have been
made under its bank credit facility.
OFF-BALANCE
SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
The Company has identified both on and off-balance sheet
transactions, arrangements, obligations and other relationships
that may have a material current or future effect on its
financial condition, changes in financial condition, results of
operations, or liquidity and capital resources.
46
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
CONTRACTUAL
OBLIGATIONS
The table below identifies transactions that represent
contractually committed future obligations of the Company.
Purchase obligations include agreements to purchase goods and
services that are enforceable and legally binding on the Company
and that specify significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by year
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 and
|
|
|
|
|
(Millions)
|
|
2011
|
|
|
2012-2013
|
|
|
2014-2015
|
|
|
thereafter
|
|
|
Total
(a)
|
|
|
Long-term debt
|
|
$
|
14,263
|
|
|
$
|
26,135
|
|
|
$
|
14,530
|
|
|
$
|
11,601
|
|
|
$
|
66,529
|
|
Interest payments on long-term
debt
(b)
|
|
|
1,729
|
|
|
|
2,434
|
|
|
|
1,449
|
|
|
|
3,859
|
|
|
|
9,471
|
|
Other long-term
liabilities
(c)
|
|
|
98
|
|
|
|
33
|
|
|
|
8
|
|
|
|
63
|
|
|
|
202
|
|
Operating lease obligations
|
|
|
222
|
|
|
|
379
|
|
|
|
305
|
|
|
|
1,071
|
|
|
|
1,977
|
|
Purchase
obligations
(d)
|
|
|
421
|
|
|
|
97
|
|
|
|
56
|
|
|
|
48
|
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,733
|
|
|
$
|
29,078
|
|
|
$
|
16,348
|
|
|
$
|
16,642
|
|
|
$
|
78,801
|
|
|
|
|
|
|
(a)
|
|
The above table excludes
approximately $1.4 billion of tax liabilities that have
been recorded in accordance with GAAP governing the accounting
for uncertainty in income taxes as inherent complexities and the
number of tax years currently open for examination in multiple
jurisdictions do not permit reasonable estimates of payments, if
any, to be made over a range of years.
|
(b)
|
|
Estimated interest payments were
calculated using the effective interest rate in place as of
December 31, 2010, and reflects the effect of existing
interest rate swaps. Actual cash flows may differ from estimated
payments.
|
(c)
|
|
As of December 31, 2010, there
were no minimum required contributions, and no contributions are
currently planned, for the U.S. American Express Retirement
Plan. For the U.S. American Express Supplemental Retirement Plan
and
non-U.S.
defined benefit pension and postretirement benefit plans,
contributions in 2011 are anticipated to be approximately
$69 million, and this amount has been included within other
long-term liabilities. Remaining obligations under defined
benefit pension and postretirement benefit plans aggregating
$633 million have not been included in the table above as
the timing of such obligations is not determinable.
Additionally, other long-term liabilities do not include
$4.5 billion of Membership Rewards liabilities, which are
not considered long-term liabilities as cardmembers in good
standing can redeem points immediately, without restrictions,
and because the timing of point redemption is not determinable.
|
(d)
|
|
The purchase obligation amounts
represent non-cancelable minimum contractual obligations by
period under contracts that were in effect as of
December 31, 2010. Termination fees are included in these
amounts.
|
The Company also has certain contingent obligations to make
payments under contractual agreements entered into as part of
the ongoing operation of the Companys business, primarily
with co-brand partners. The contingent obligations under such
arrangements were approximately $7.5 billion as of
December 31, 2010.
In addition to the contractual obligations noted above, the
Company has off-balance sheet arrangements that include
guarantees, retained interests in structured investments,
unconsolidated variable interest entities and other off-balance
sheet arrangements as more fully described below.
GUARANTEES
The Companys principal guarantees are associated with
cardmember services to enhance the value of owning an American
Express card. As of December 31, 2010, the Company had
guarantees totaling approximately $68 billion related to
cardmember protection plans, as well as other guarantees in the
ordinary course of business that are within the scope of GAAP
governing the accounting for guarantees. Refer to Note 13
to the Consolidated Financial Statements for further discussion
regarding the Companys guarantees.
CERTAIN
OTHER OFF-BALANCE SHEET
ARRANGEMENTS
As of December 31, 2010, the Company had approximately
$226 billion of unused credit available to cardmembers as
part of established lending product agreements. Total unused
credit available to cardmembers does not represent potential
future cash requirements, as a significant portion of this
unused credit will likely not be drawn. The Companys
charge card products have no pre-set limit and, therefore, are
not reflected in unused credit available to cardmembers.
Refer to Note 24 to the Consolidated Financial Statements
for discussion regarding the Companys other off-balance
sheet arrangements.
47
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
RISK
MANAGEMENT
GOVERNANCE
The Audit and Risk Committee of the Board approves the
Companys Enterprise-wide Risk Management Policy and all
its subordinate risk policies. The Enterprise-wide Risk
Management Policy defines risk management objectives, risk
appetite, risk limits and escalation triggers, and establishes
the governance structure for managing risk. The Policy focuses
on the major risks that are relevant to the Company given its
business model credit risk (individual and
institutional), operational risk, funding and liquidity risk,
market risk and reputational risk. Internal management
committees, including the Enterprise Risk Management Committee
(ERMC), chaired by the Companys Chief Risk Officer, and
the Asset-Liability Committee (ALCO), chaired by the
Companys Chief Financial Officer, are responsible for
implementing the Policy across the Company. Additionally, in
2010, the Risk Management organization developed a group to
independently validate models used to manage the Companys
risk.
CREDIT
RISK MANAGEMENT PROCESS
Credit risk is defined as loss due to obligor or counterparty
default. Credit risks in the Company are divided into two broad
categories: individual and institutional. Each has distinct risk
management tools and metrics. Business units that create
individual or institutional credit risk exposures of significant
importance are supported by dedicated risk management teams,
each led by a Chief Credit Officer. To preserve independence,
Chief Credit Officers for all business units have a solid line
reporting relationship to the Companys Chief Risk Officer.
INDIVIDUAL
CREDIT RISK
Individual credit risk arises principally from consumer and
small business charge cards, credit cards, lines of credit,
loans and prepaid products. These portfolios consist of millions
of customers across multiple geographies, occupations,
industries and levels of net worth. The Company benefits from
the high-quality profile of its customers, which is driven by
brand, premium customer servicing, product features and risk
management capabilities which span underwriting, customer
management and collections. Externally, the risk in these
portfolios is correlated with broad economic trends, such as
unemployment rates, GDP growth, and home values, which can
affect customer liquidity.
The business unit leaders and their embedded Chief Credit
Officers take the lead in managing this process. These Chief
Credit Officers are guided by the Individual Credit Policy
Committee which is responsible for implementation and
enforcement of the Individual Credit Risk Policy. This policy is
further supported by subordinate policies and operating manuals
covering decision logic and processes of credit extension,
including prospecting, new account approvals, authorizations,
line management and collections. The subordinate risk policies
and operating manuals are designed to assure consistent
application of risk management principles and standardized
reporting of asset quality and loss recognition.
Individual credit risk management is supported by sophisticated
proprietary scoring and decision-making models that use the most
up-to-date
proprietary information on prospects and customers, such as
spending and payment history, data feeds from credit bureaus and
mortgage information. Additional data, such as new commercial
variables, were integrated into the Companys models in the
early stages of the recent economic downturn to further mitigate
small business risk. The Company has developed data-driven
economic decision logic for each customer interaction to better
serve its customers.
INSTITUTIONAL
CREDIT RISK
Institutional credit risk arises principally within the
Companys Global Corporate Card Services, Merchant Services
and Network Services, prepaid services, foreign exchange
services businesses, and investment activities. Unlike
individual credit, institutional credit risk is characterized by
a lower loss frequency but higher severity. It is affected both
by general economic conditions and by customer-specific events.
The absence of large losses in any given year or over several
years is not necessarily representative of the level of risk of
institutional portfolios, given the infrequency of loss events
in such portfolios.
Similar to Individual Credit Risk, business units taking
institutional risks are supported by Chief Credit Officers.
These officers are guided by the Institutional Risk Management
Committee (IRMC) which is responsible for implementation and
enforcement of the Policy and for providing guidance to the
credit officers of each business unit with substantial
institutional credit risk exposures. The committee, along with
business unit Chief Credit Officers, make investment decisions
in core risk capabilities, ensure proper implementation of the
underwriting standards and contractual rights of risk
mitigation, monitor risk exposures, and determine risk
mitigation actions. The IRMC formally reviews large
institutional exposures to ensure compliance with ERMC
guidelines and procedures and escalates them to the ERMC as
appropriate. At the same time, the IRMC provides guidance to
business unit risk teams to optimize risk-adjusted returns on
capital. A company-wide risk rating utility and a specialized
airline risk group provide risk assessment of institutional
obligors.
MARKET
RISK MANAGEMENT PROCESS
Market risk is the risk to earnings or value resulting from
movements in market prices. The Companys market risk
exposure is primarily generated by:
|
|
|
Interest rate risk in its card, insurance and Travelers Cheque
businesses, as well as its investment portfolios; and
|
|
|
Foreign exchange risk in its operations outside the United
States.
|
48
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
Market Risk limits and escalation triggers within
the Market Risk Policy are approved by ALCO and by the ERMC.
Market risk is centrally monitored for compliance with policy
and limits by the Market Risk Committee, which reports into the
ALCO and is chaired by the Chief Market Risk Officer. Market
risk management is also guided by policies covering the use of
derivative financial instruments, funding and liquidity and
investments.
The Companys market exposures are in large part
by-products of the delivery of its products and services.
Interest rate risk arises through the funding of cardmember
receivables and fixed-rate loans with variable-rate borrowings
as well as through the risk to net interest margin from changes
in the relationship between benchmark rates such as Prime and
LIBOR.
Interest rate exposure within the Companys charge card and
fixed-rate lending products is managed by varying the proportion
of total funding provided by short-term and variable-rate debt
and deposits compared to fixed-rate debt and deposits. In
addition, interest rate swaps are used from time to time to
effectively convert fixed-rate debt to variable-rate or to
convert variable-rate debt to fixed-rate. The Company may change
the mix between variable-rate and fixed-rate funding based on
changes in business volumes and mix, among other factors.
The Company does not engage in derivative financial instruments
for trading purposes. Refer to Note 12 to the Consolidated
Financial Statements for further discussion of the
Companys derivative financial instruments.
The detrimental effect on the Companys annual pretax
earnings of a hypothetical 100 basis point increase in
interest rates would be approximately $149 million
($97 million related to the U.S. dollar), based on the
2010 year-end positions. This effect, which is calculated
using a static asset liability gapping model, is primarily
determined by the volume of variable-rate funding of charge card
and fixed-rate lending products for which the interest rate
exposure is not managed by derivative financial instruments. As
of year end 2010, the percentage of worldwide charge card
accounts receivable and loans that were deemed to be fixed rate
was 65 percent, or $63.7 billion, with the remaining
35 percent, or $34.3 billion, deemed to be variable
rate.
The Company is also subject to market risk from changes in the
relationship between the benchmark Prime rate that determines
the yield on its variable-rate lending receivables and the
benchmark LIBOR rate that determines the effective interest cost
on a significant portion of its outstanding debt. Differences in
the rate of change of these two indices, commonly referred to as
basis risk, would impact the Companys variable-rate
U.S. lending net interest margins because the Company
borrows at rates based on LIBOR but lends to its customers based
on the Prime rate. The detrimental effect on the Companys
pretax earnings of a hypothetical 10 basis point decrease
in the spread between Prime and 1 month LIBOR over the next
12 months is estimated to be $34 million. The Company
currently has approximately $34.3 billion of Prime-based,
variable-rate U.S. lending receivables that are funded with
LIBOR-indexed debt, including asset securitizations.
Foreign exchange risk is generated by cardmember cross-currency
charges, foreign subsidiary equity and foreign currency earnings
in units outside the United States. The Companys foreign
exchange risk is managed primarily by entering into agreements
to buy and sell currencies on a spot basis or by hedging this
market exposure to the extent it is economically justified
through various means, including the use of derivative financial
instruments such as foreign exchange forward and cross-currency
swap contracts, which can help lock in the value of
the Companys exposure to specific currencies.
As of December 31, 2010 and 2009, foreign currency
derivative instruments with total notional amounts of
approximately $22 billion and $19 billion,
respectively, were outstanding. Derivative hedging activities
related to cross-currency charges, balance sheet exposures and
foreign currency earnings generally do not qualify for hedge
accounting; however, derivative hedging activities related to
translation exposure of foreign subsidiary equity generally do.
With respect to cross-currency charges and balance sheet
exposures, including related foreign exchange forward contracts
outstanding, the effect on the Companys earnings of a
hypothetical 10 percent change in the value of the
U.S. dollar would be immaterial as of December 31,
2010. With respect to earnings denominated in foreign
currencies, the adverse impact on pretax income of a
hypothetical 10 percent strengthening of the
U.S. dollar related to anticipated overseas operating
results for the next 12 months would be approximately
$152 million as of December 31, 2010. With respect to
translation exposure of foreign subsidiary equity, including
related foreign exchange forward contracts outstanding, a
hypothetical 10 percent strengthening in the
U.S. dollar would result in an immaterial reduction in
equity as of December 31, 2010.
The actual impact of interest rate and foreign exchange rate
changes will depend on, among other factors, the timing of rate
changes, the extent to which different rates do not move in the
same direction or in the same direction to the same degree, and
changes in the volume and mix of the Companys businesses.
FUNDING &
LIQUIDITY RISK MANAGEMENT
PROCESS
Liquidity risk is defined as the inability of the Company to
meet its ongoing financial and business obligations as they
become due at a reasonable cost. General principles and the
overall framework for managing liquidity risk across the Company
are defined in the Liquidity Risk Policy approved by the ALCO
and Audit and Risk Committee of the Board. Liquidity risk is
centrally managed by the Funding and Liquidity Committee, which
reports into the ALCO. The Companys liquidity objective is
to maintain access to a diverse set of cash, readily-marketable
securities and contingent sources of liquidity, such that the
Company can continuously meet
49
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
expected future financing obligations and business requirements,
even in the event it is unable to raise new funds under its
regular funding programs. The Company balances the trade-offs
between maintaining too much liquidity, which can be costly and
limit financial flexibility, and having inadequate liquidity,
which may result in financial distress during a liquidity event.
Liquidity risk is managed both at an aggregate company level and
at the major legal entities in order to ensure that sufficient
funding and liquidity resources are available in the amount and
in the location needed in a stress event. The Funding and
Liquidity Committee reviews the forecasts of the Companys
aggregate and subsidiary cash positions and financing
requirements, approves the funding plans designed to satisfy
those requirements under normal conditions, establishes
guidelines to identify the amount of liquidity resources
required and monitors positions and determines any actions to be
taken. Liquidity planning also takes into account operating cash
flexibilities.
OPERATIONAL
RISK MANAGEMENT PROCESS
The Company defines operational risk as the risk of not
achieving business objectives due to inadequate or failed
processes or information systems, human error or the external
environment (i.e., natural disasters) including losses due to
failures to comply with laws and regulations. Operational risk
is inherent in all business activities and can impact an
organization through direct or indirect financial loss, brand
damage, customer dissatisfaction, or legal and regulatory
penalties.
The operational risk governance and the overall framework for
managing operational risk across the Company are defined in the
Operational Risk Policy approved by the Audit and Risk Committee
of the Board of Directors. The Operational Risk Management
Committee (ORMC) coordinates and oversees the operational risk
mitigation efforts by Lead Operational Risk Officers in the
business units and staff groups supported by the control groups.
In order to appropriately measure operational risk, the Company
has developed a comprehensive operational risk framework. This
framework assesses (i) risk events; (ii) root causes;
(iii) impact and (iv) accountability. The impact on
the Company is assessed from a financial, brand, regulatory and
legal perspective. The operational risk model also assesses the
frequency and likelihood that events may occur again so that the
appropriate mitigation steps may be taken.
Additionally, the Company uses an operational risk framework to
identify, measure, monitor and report inherent and emerging
operational risks. This framework, supervised by the ORMC,
consists of (a) operational risk event capture,
(b) project office to coordinate control enhancements,
(c) key risk indicators, and (d) process and
entity-level risk self-assessments. The process risk
self-assessment methodology is used to facilitate compliance
with Section 404 of the Sarbanes-Oxley Act, and is also
used for non-financial operational risk self-assessments. During
the entity risk self-assessment, senior leaders identify key
operational risks in a business unit or staff group and
determine the Companys risk mitigation plans.
Managing operational risk is an important priority for the
Company, and projects and investments are underway to increase
operational risk management effectiveness, which will benefit
both shareholders and customers.
REPUTATIONAL
RISK MANAGEMENT PROCESS
The Company defines reputational risk as the risk that negative
publicity regarding the Companys products, services,
business practices, management, clients and partners, whether
true or not, could cause a decline in the customer base, costly
litigation, or revenue reductions.
The Company views protecting its reputation as core to its
vision of becoming the worlds most respected service brand
and fundamental to its long-term success.
General principles and the overall framework for managing
reputational risk across the Company are defined in the
Reputational Risk Management Policy. The Reputational Risk
Management Committee (RRMC) is responsible for implementation
and adherence to this policy, and for performing periodic
assessment of the Companys reputation and brand health
based on internal and external assessments.
Business leaders across the Company are responsible for ensuring
that reputation risk implications of transactions, business
activities and management practices are appropriately considered
and relevant subject matter experts are engaged as needed.
50
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
BUSINESS
SEGMENT RESULTS
The Company is a global service company principally engaged in
businesses comprising four reportable operating segments:
U.S. Card Services (USCS), International Card Services
(ICS), Global Commercial Services (GCS) and Global
Network & Merchant Services (GNMS).
The Company considers a combination of factors when evaluating
the composition of its reportable operating segments, including
the results reviewed by the chief operating decision maker,
economic characteristics, products and services offered, classes
of customers, product distribution channels, geographic
considerations (primarily U.S. versus
non-U.S.)
and regulatory environment considerations. Refer to Note 25
to the Consolidated Financial Statements for additional
discussion of products and services by segment.
Results of the business segments essentially treat each segment
as a stand-alone business. The management reporting process that
derives these results allocates income and expense using various
methodologies as described below.
Beginning in the fourth quarter of 2010, the Company completed
its conversion to a new general ledger platform. This conversion
enabled the Company to streamline its ledger reporting unit
structure, resulting in a reconfiguration of intercompany
accounts. These changes have the effect of altering intercompany
balances among segments, thus altering reported total segment
assets. Total segment assets as of December 31, 2010 and
2009 presented below reflect the changes described above. This
conversion has no impact on segment results, segment capital or
return on segment capital metrics.
Beginning in the first quarter of 2010, the Company made changes
to the manner in which it allocates capital and the related
interest expense charged to its reportable operating segments.
The changes reflect modifications in allocation methodology that
the Company believes more accurately reflect the funding and
capital characteristics of its segments. The change to interest
allocation also impacted the consolidated and segment reported
net interest yield on cardmember loans. The segment results and
net interest yield on cardmember loans for 2009 and 2008 have
been revised for this change.
Beginning in 2009, the Company changed the manner by which it
assesses the performance of its reportable operating segments to
exclude the impact of its excess liquidity funding levels.
Accordingly, the debt, cash and investment balances associated
with the Companys excess liquidity funding and the related
net negative interest spread are not included within the
reportable operating segment results (primarily USCS and GCS
segments) and are reported in the Corporate & Other
segment for 2010 and 2009. The segment results for 2008 have not
been revised for this change.
As discussed more fully below, results are presented on a GAAP
basis unless otherwise stated. Refer to Glossary of
Selected Terminology for the definitions of certain key
terms and related information appearing in the tables below.
TOTAL
REVENUES NET OF INTEREST EXPENSE
The Company allocates discount revenue and certain other
revenues among segments using a transfer pricing methodology.
Segments earn discount revenue based on the volume of merchant
business generated by cardmembers. Within the USCS, ICS and GCS
segments, discount revenue reflects the issuer component of the
overall discount rate; within the GNMS segment, discount revenue
reflects the network and merchant component of the overall
discount rate. Total interest income and net card fees are
directly attributable to the segment in which they are reported.
PROVISIONS
FOR LOSSES
The provisions for losses are directly attributable to the
segment in which they are reported.
EXPENSES
Marketing and promotion expenses are reflected in each segment
based on actual expenses incurred, with the exception of brand
advertising, which is primarily reflected in the GNMS and USCS
segments. Rewards and cardmember services expenses are reflected
in each segment based on actual expenses incurred within each
segment.
Salaries and employee benefits and other operating expenses,
such as professional services, occupancy and equipment and
communications, reflect expenses incurred directly within each
segment. In addition, expenses related to the Companys
support services, such as technology costs, are allocated to
each segment based on support service activities directly
attributable to the segment. Other overhead expenses, such as
staff group support functions, are allocated to segments based
on each segments relative level of pretax income.
Financing requirements are managed on a consolidated basis.
Funding costs are allocated based on segment funding
requirements.
CAPITAL
Each business segment is allocated capital based on established
business model operating requirements, risk measures and
regulatory capital requirements. Business model operating
requirements include capital needed to support operations and
specific balance sheet items. The risk measures include
considerations for credit, market and operational risk.
INCOME
TAXES
Income tax provision (benefit) is allocated to each business
segment based on the effective tax rates applicable to various
businesses that make up the segment.
51
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
U.S.
CARD SERVICES
SELECTED
INCOME STATEMENT DATA GAAP BASIS PRESENTATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount revenue, net card fees and other
|
|
$
|
10,038
|
|
|
$
|
9,105
|
|
|
$
|
10,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization income,
net
(a)
|
|
|
|
|
|
|
400
|
|
|
|
1,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
5,390
|
|
|
|
3,216
|
|
|
|
4,425
|
|
Interest expense
|
|
|
812
|
|
|
|
568
|
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
4,578
|
|
|
|
2,648
|
|
|
|
2,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
14,616
|
|
|
|
12,153
|
|
|
|
14,199
|
|
Provisions for losses
|
|
|
1,591
|
|
|
|
3,769
|
|
|
|
4,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for
losses
|
|
|
13,025
|
|
|
|
8,384
|
|
|
|
9,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards and cardmember services
|
|
|
5,651
|
|
|
|
4,266
|
|
|
|
4,837
|
|
Salaries and employee benefits and other operating expenses
|
|
|
3,837
|
|
|
|
3,532
|
|
|
|
3,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,488
|
|
|
|
7,798
|
|
|
|
8,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
3,537
|
|
|
|
586
|
|
|
|
1,343
|
|
Income tax provision
|
|
|
1,291
|
|
|
|
175
|
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
2,246
|
|
|
$
|
411
|
|
|
$
|
978
|
|
|
|
|
|
|
(a)
|
|
In accordance with new GAAP
effective January 1, 2010, the Company no longer reports
securitization income, net in its income statement.
|
SELECTED
STATISTICAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Billions, except percentages
|
|
|
|
|
|
|
|
|
|
and where indicated)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Card billed business
|
|
$
|
378.1
|
|
|
$
|
339.4
|
|
|
$
|
382.0
|
|
Total
cards-in-force
(millions)
|
|
|
39.9
|
|
|
|
39.5
|
|
|
|
44.2
|
|
Basic
cards-in-force
(millions)
|
|
|
29.7
|
|
|
|
29.5
|
|
|
|
32.9
|
|
Average basic cardmember
spending
(dollars)
*
|
|
$
|
12,795
|
|
|
$
|
10,957
|
|
|
$
|
11,594
|
|
U.S. Consumer Travel:
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel sales
(millions)
|
|
$
|
3,116
|
|
|
$
|
2,561
|
|
|
$
|
3,113
|
|
Travel commissions and fees/sales
|
|
|
8.2
|
%
|
|
|
8.4
|
%
|
|
|
8.2
|
%
|
Total segment assets
|
|
$
|
91.3
|
|
|
$
|
57.6
|
(f)
|
|
$
|
77.8
|
(f)
|
Segment capital
(millions)
|
|
$
|
7,411
|
|
|
$
|
6,021
|
|
|
$
|
4,199
|
|
Return on average segment
capital
(a)
|
|
|
35.4
|
%
|
|
|
8.0
|
%
|
|
|
22.3
|
%
|
Return on average tangible segment
capital
(a)
|
|
|
38.1
|
%
|
|
|
8.7
|
%
|
|
|
23.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
$
|
19.2
|
|
|
$
|
17.8
|
|
|
$
|
17.8
|
|
30 days past due as a % of total
|
|
|
1.5
|
%
|
|
|
1.8
|
%
|
|
|
3.7
|
%
|
Average receivables
|
|
$
|
17.1
|
|
|
$
|
16.1
|
|
|
$
|
19.2
|
|
Net write-off
rate
(b)
|
|
|
1.6
|
%
|
|
|
3.8
|
%
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember loans
GAAP basis portfolio:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
51.6
|
|
|
$
|
23.5
|
|
|
$
|
32.7
|
|
30 days past due loans as a % of total
|
|
|
2.1
|
%
|
|
|
3.7
|
%
|
|
|
4.7
|
%
|
Average loans
|
|
$
|
49.8
|
|
|
$
|
25.9
|
|
|
$
|
36.7
|
|
Net write-off rate
|
|
|
5.8
|
%
|
|
|
9.1
|
%
|
|
|
5.8
|
%
|
Net interest income divided by average
loans
(d)(e)
|
|
|
9.2
|
%
|
|
|
10.2
|
%
|
|
|
7.6
|
%
|
Net interest yield on cardmember
loans
(d)
|
|
|
9.4
|
%
|
|
|
9.4
|
%
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember loans
Managed basis portfolio:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
51.6
|
|
|
$
|
52.6
|
|
|
$
|
62.4
|
|
30 days past due loans as a % of total
|
|
|
2.1
|
%
|
|
|
3.7
|
%
|
|
|
4.7
|
%
|
Average loans
|
|
$
|
49.8
|
|
|
$
|
54.9
|
|
|
$
|
64.0
|
|
Net write-off rate
|
|
|
5.8
|
%
|
|
|
8.7
|
%
|
|
|
5.5
|
%
|
Net interest yield on cardmember
loans
(d)
|
|
|
9.4
|
%
|
|
|
10.1
|
%
|
|
|
9.0
|
%
|
|
|
|
|
|
*
|
|
Proprietary cards only.
|
(a)
|
|
Return on average segment capital
is calculated by dividing (i) one-year period segment
income ($2.2 billion, $411 million and
$978 million for 2010, 2009 and 2008, respectively) by
(ii) one-year average segment capital ($6.4 billion,
$5.1 billion and $4.4 billion for 2010, 2009 and 2008,
respectively). Return on average tangible segment capital is
computed in the same manner as return on average segment capital
except the computation of average tangible segment capital
excludes from average segment capital average goodwill and other
intangibles of $459 million, $432 million and
$243 million at December 31, 2010, 2009 and 2008,
respectively. The Company believes that return on average
tangible segment capital is a useful measure of the
profitability of its business.
|
(b)
|
|
In the fourth quarter of 2008, the
Company revised the time period in which past due cardmember
receivables in USCS are written off to 180 days past due,
consistent with applicable bank regulatory guidance. Previously,
receivables were written off when 360 days past billing.
The net write-offs for 2008 include approximately
$341 million resulting from this write-off methodology
change, which is not reflected in the table above. If the
$341 million had been included in USCS write-offs, the net
write-off rate would have been 5.4 percent for 2008.
|
52
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
|
|
|
(c)
|
|
Refer to Cardmember Loan
Portfolio Presentation on page 54 for discussion of
GAAP and non-GAAP presentation of the Companys U.S. loan
portfolio.
|
(d)
|
|
Refer to Consolidated Results
of Operations Selected Statistical
Information, footnote (f) on page 32.
|
(e)
|
|
Refer to Consolidated Results
of Operations Selected Statistical
Information, footnote (g) on page 32.
|
(f)
|
|
Revised from prior disclosure due
to the reclassification of certain intercompany accounts.
|
CALCULATION
OF NET INTEREST YIELD ON CARDMEMBER
LOANS
(a)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
(Millions, except percentages or where indicated)
|
|
2010
|
|
|
2009
|
|
|
Calculation based on 2010 and 2009
GAAP information:
(b)
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
4,578
|
|
|
$
|
2,648
|
|
Average loans
(billions)
|
|
$
|
49.8
|
|
|
$
|
25.9
|
|
Adjusted net interest income
|
|
$
|
4,684
|
|
|
$
|
2,451
|
|
Adjusted average loans
(billions)
|
|
$
|
49.8
|
|
|
$
|
26.0
|
|
Net interest income divided by average
loans
(c)
|
|
|
9.2
|
%
|
|
|
10.2
|
%
|
Net interest yield on cardmember loans
|
|
|
9.4
|
%
|
|
|
9.4
|
%
|
Calculation based on 2010 and 2009
managed information:
(b)
|
|
|
|
|
|
|
|
|
Net interest
income
(b)
|
|
$
|
4,578
|
|
|
$
|
5,501
|
|
Average loans
(billions)
|
|
$
|
49.8
|
|
|
$
|
54.9
|
|
Adjusted net interest income
|
|
$
|
4,684
|
|
|
$
|
5,558
|
|
Adjusted average loans
(billions)
|
|
$
|
49.8
|
|
|
$
|
55.0
|
|
Net interest yield on cardmember loans
|
|
|
9.4
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
(a)
|
|
Refer to Consolidated Results
of Operations Calculation of Net Interest Yield on
Cardmember Loans, footnote (a) on page 33.
|
(b)
|
|
Refer to Cardmember Loan
Portfolio Presentation on page 54 for discussion of
GAAP and non-GAAP presentation of the Companys U.S. loan
portfolio.
|
(c)
|
|
Refer to Consolidated Results
of Operations Selected Statistical
Information, footnote (g) on page 32.
|
RESULTS
OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31,
2010 GAAP BASIS
The following discussion of USCS segment results of operations
is presented on a GAAP basis.
USCS reported segment income of $2.2 billion for 2010, a
$1.8 billion or greater than 100 percent increase from
$411 million in 2009, which decreased $567 million or
58 percent from 2008.
Total
Revenues Net of Interest Expense
In 2010, USCS total revenues net of interest expense increased
$2.5 billion or 20 percent to $14.6 billion due
to increases in discount revenue, net card fees and other, and
interest income partially offset by increased interest expense.
Discount revenue, net card fees and other of $10.0 billion
in 2010 increased $933 million or 10 percent from
2009, primarily due to billed business growth of
11 percent. The growth in billed business was driven by a
17 percent increase in average spending per proprietary
basic
cards-in-force.
This line also reflects higher other commissions and fees,
driven by the new GAAP effective January 1, 2010, which led
to the inclusion of fees formerly recorded in securitization
income, net and greater travel commissions and fees, partially
offset by lower net card fees.
Interest income of $5.4 billion in 2010 was
$2.2 billion or 68 percent higher than in 2009,
principally due to the new GAAP effective January 1, 2010,
partially offset by lower yields on cardmember loans.
Interest expense of $812 million in 2010 increased
$244 million or 43 percent as compared to a year ago,
reflecting higher expense related to the new GAAP effective
January 1, 2010, a higher cost of funds and greater average
cardmember receivable balances, partially offset by reduced
funding requirements due to a reduction in average balances of
cardmember loans.
Total revenues net of interest expense of $12.2 billion in
2009 were $2.0 billion or 14 percent lower than 2008
as a result of lower securitization income, net, decreased
interest income and lower discount revenue, net card fees and
other, partially offset by lower interest expense.
Provisions
for Losses
Provisions for losses decreased $2.2 billion or
58 percent to $1.6 billion for 2010 compared to 2009,
principally reflecting lower reserve requirements driven by
improving cardmember loan and charge card credit trends,
partially offset by the inclusion in 2010 of write-offs on
securitized cardmember loans and a higher charge card provision.
The lending net write-off rate decreased to 5.8 percent in
2010 from 9.1 percent in 2009. The charge card net
write-off rate decreased to 1.6 percent in 2010 from
3.8 percent in 2009.
Provisions for losses decreased $620 million or
14 percent to $3.8 billion for 2009 compared to 2008
due to lower loan balances and improving credit indicators
during the second half of 2009.
Expenses
During 2010, USCS expenses increased $1.7 billion or
22 percent to $9.5 billion, due to increased
marketing, promotion, rewards and cardmember services expenses,
and salaries and employee benefits and total other operating
expenses. Expenses in 2010, 2009 and 2008, included
$55 million, $12 million and $30 million,
respectively, of charges related to reengineering activities
primarily related to the Companys reengineering
initiatives in 2010, 2009 and 2008 as previously discussed.
Expenses in 2009 of $7.8 billion were $669 million or
8 percent lower than in 2008, due to lower marketing,
promotion, rewards and cardmember services expenses and lower
salaries and employee benefits and total operating expenses.
Marketing, promotion, rewards and cardmember services expenses
increased $1.4 billion or 32 percent in 2010 to
$5.7 billion, reflecting increased marketing and promotion
expenses due to increased investment spending resulting from
better credit and business trends in 2010 and higher rewards
expense primarily due to greater rewards-related spending
volumes and higher co-brand expense. Rewards expense
53
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
growth also reflects the benefit in 2009 of a revised, more
restrictive redemption policy for accounts 30 days past
due. Marketing, promotion, rewards and cardmember services
expenses decreased $571 million or 12 percent in 2009 to
$4.3 billion, due to lower rewards costs, reduced marketing
and promotion expenses and the Delta-related charge to the
Membership Reward balance sheet reserve in the fourth quarter of
2008.
Salaries and employee benefits and other operating expenses of
$3.8 billion in 2010 increased $305 million or
9 percent from 2009, primarily reflecting the higher
reengineering-related costs, and higher technology development
expenditures and other business building investments. Salaries
and employee benefits and other operating expenses of
$3.5 billion in 2009 decreased $98 million or
3 percent from 2008, reflecting the benefits from
reengineering activities, lower net charges associated with
these reengineering programs, the favorable impact in 2008
related to fair value hedge ineffectiveness and the costs
related to the Delta contract extension in the fourth quarter of
2008.
Income
Taxes
The effective tax rate was 36 percent for 2010 compared to
30 percent and 27 percent for 2009 and 2008,
respectively. The rates for each of these years reflect the
benefits from the resolution of certain prior years tax
items and the relationship of recurring tax benefits to varying
levels of pretax income.
Cardmember
Loan Portfolio Presentation
For periods ended on or prior to December 31, 2009, the
Companys non-securitized cardmember loan and related debt
performance information on a GAAP basis was referred to as the
owned basis presentation. For such periods, the
Company also provided information on a non-GAAP
managed basis which should be read only as a
supplement to GAAP information. Unlike the GAAP basis
presentation, the managed basis presentation in such periods
assumed there had been no off-balance sheet securitizations for
the Companys USCS segment (the Company does not currently
securitize its international cardmember loans), resulting in the
inclusion of all securitized and non-securitized cardmember
loans and related debt in the Companys performance
information.
Under the GAAP basis presentation prior to securitization for
the period ended on or prior to December 31, 2009, revenues
and expenses from cardmember loans and related debt were
reflected in the Companys income statements in other
commissions and fees, net interest income and provisions for
losses for cardmember loans. At the time of a securitization
transaction, the securitized cardmember loans were removed from
the Companys balance sheet, and the resulting gain on sale
was reflected in securitization income, net, as well as a
reduction to the provision for losses (credit reserves were no
longer recorded for the cardmember loans once sold). Over the
life of a securitization transaction, the Company recognized the
net cash flow from interest and fee collections on interests
sold to investors (the investors interests) after
deducting interest paid on the investors certificates,
credit losses, contractual service fees, other expenses and
changes in the fair value of the interest-only strip (referred
to as excess spread). These amounts, in addition to
servicing fees and the non-credit components of the
gains/(losses) from securitization activities, were reflected in
securitization income, net. The Company also recognized interest
income over the life of the securitization transaction related
to the interest it retained (i.e., the sellers interest).
At the maturity of a securitization transaction, cardmember
loans on the balance sheet increased, and the impact of the
incremental required loss reserves was recorded in provisions
for losses.
Under the managed basis presentation for periods ended on or
prior to December 31, 2009, revenues and expenses related
to securitized cardmember loans and related debt were reflected
in other commissions and fees (included in discount revenue, net
card fees and other), interest income, interest expense and
provisions for losses. In addition, there was no securitization
income, net as this presentation assumed no securitization
transactions had occurred.
Historically, the Company included USCS information on a managed
basis, as that was the manner in which the Companys
management viewed and managed the business. Management believed
that a full picture of trends in the Companys cardmember
loans business could only be derived by evaluating the
performance of both securitized and non-securitized cardmember
loans, as the presentation of the entire cardmember loan
portfolio was more representative of the economics of the
aggregate cardmember relationships and ongoing business
performance and related trends over time. The managed basis
presentation also provided investors a more comprehensive
assessment of the information necessary for the Company and
investors to evaluate the Companys market share.
The adoption of new GAAP on January 1, 2010 resulted in
accounting for both the Companys securitized and
non-securitized cardmember loans in the Consolidated Financial
Statements. As a result, the Companys 2010 GAAP
presentations and managed basis presentations prior to 2010 are
generally comparable.
54
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
The following table sets forth cardmember loan portfolio
financial information for the years ended December 31,
2010, 2009 and 2008. The December 31, 2010 financial
information was determined in accordance with the new GAAP
effective January 1, 2010. The December 31, 2009 and
2008 information includes the owned (GAAP) basis
presentation, together with the adjustments for securitization
activity to arrive at the managed (non-GAAP) basis
presentation. For additional information, see Cardmember
Loan Portfolio Presentation above.
U.S.
CARD SERVICES
SELECTED
FINANCIAL INFORMATION MANAGED BASIS PRESENTATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Discount revenue, net card fees and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported for the period (GAAP)
|
|
$
|
10,038
|
|
|
$
|
9,105
|
|
|
$
|
10,345
|
|
Securitization adjustments
|
|
|
|
|
|
|
331
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed discount revenue, net card fees and other
|
|
$
|
10,038
|
|
|
$
|
9,436
|
|
|
$
|
10,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported for the period (GAAP)
|
|
$
|
5,390
|
|
|
$
|
3,216
|
|
|
$
|
4,425
|
|
Securitization adjustments
|
|
|
|
|
|
|
3,097
|
|
|
|
3,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed interest income
|
|
$
|
5,390
|
|
|
$
|
6,313
|
|
|
$
|
7,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization income,
net:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported for the period (GAAP)
|
|
$
|
|
|
|
$
|
400
|
|
|
$
|
1,070
|
|
Securitization adjustments
|
|
|
|
|
|
|
(400
|
)
|
|
|
(1,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed securitization income, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported for the period (GAAP)
|
|
$
|
812
|
|
|
$
|
568
|
|
|
$
|
1,641
|
|
Securitization adjustments
|
|
|
|
|
|
|
244
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed interest expense
|
|
$
|
812
|
|
|
$
|
812
|
|
|
$
|
2,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported for the period (GAAP)
|
|
$
|
1,591
|
|
|
$
|
3,769
|
|
|
$
|
4,389
|
|
Securitization adjustments
|
|
|
|
|
|
|
2,573
|
(b)
|
|
|
2,002
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed provisions for losses
|
|
$
|
1,591
|
|
|
$
|
6,342
|
(b)
|
|
$
|
6,391
|
(b)
|
|
|
|
|
|
(a)
|
|
In accordance with new GAAP
effective January 1, 2010, the Company no longer reports
securitization income, net in its income statement.
|
(b)
|
|
Includes provisions for losses for
off-balance sheet cardmember loans based on the same methodology
as applied to on-balance sheet cardmember loans, except that any
quarterly adjustment to reserve levels for on-balance sheet
loans to address external environmental factors was not applied
to adjust the provision expense for the securitized portfolio.
|
RESULTS
OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31,
2010 MANAGED BASIS
The following discussion of USCS is on a managed basis.
Discount revenue, net card fees and other in 2010 increased
$602 million or 6 percent to $10.0 billion,
reflecting higher billed business volumes and increased travel
revenues, partially offset by lower commissions and fees.
Discount revenue, net card fees and other in 2009 decreased
$1.3 billion or 12 percent to $9.4 billion, due
to lower billed business volumes, reduced other commissions and
fees, decreased net card fees, lower other revenues and reduced
travel commissions and fees.
Interest income in 2010 of $5.4 billion decreased by
$923 million or 15 percent, due to a decline in the
average loan balance and a lower portfolio yield driven by
higher payment rates, lower revolving levels and the CARD Act,
partially offset by repricing initiatives during 2009 and 2010.
Interest income in 2009 of $6.3 billion decreased by
$1.6 billion or 20 percent due to a decline in the
average managed lending balance and a lower portfolio yield,
offset by the benefits of certain repricing initiatives during
2009.
Interest expense in 2010 remained flat at $812 million, due
to an increase in the cost of funds and higher average
cardmember receivable balances, offset by reduced funding
requirements due to a lower average cardmember loan balance in
the managed portfolio. In 2009, interest expense decreased
$1.7 billion or 67 percent to $812 million due to
a lower market interest rate-driven cost of funds and lower
average managed cardmember loans and receivable balances, as
well as the movement of liquidity-related interest expense to
the Corporate & Other segment.
Provisions for losses decreased $4.8 billion or
75 percent to $1.6 billion in 2010, due to improving
cardmember loan and charge card credit performance and a lower
average loan balance. The lending net write-off rate was
5.8 percent in 2010 versus 8.7 percent in 2009.
Provisions for losses decreased 1 percent in 2009, driven
by a lower average loan and receivable balance and improved
charge card credit performance, partially offset by a higher
lending write-off level versus 2008.
INTERNATIONAL
CARD SERVICES
SELECTED
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount revenue, net card fees and other
|
|
$
|
3,685
|
|
|
$
|
3,447
|
|
|
$
|
3,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,393
|
|
|
|
1,509
|
|
|
|
1,720
|
|
Interest expense
|
|
|
428
|
|
|
|
427
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
965
|
|
|
|
1,082
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
4,650
|
|
|
|
4,529
|
|
|
|
4,732
|
|
Provisions for losses
|
|
|
392
|
|
|
|
1,211
|
|
|
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for
losses
|
|
|
4,258
|
|
|
|
3,318
|
|
|
|
3,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards and cardmember services
|
|
|
1,612
|
|
|
|
1,221
|
|
|
|
1,453
|
|
Salaries and employee benefits and other operating expenses
|
|
|
2,008
|
|
|
|
1,821
|
|
|
|
2,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,620
|
|
|
|
3,042
|
|
|
|
3,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
638
|
|
|
|
276
|
|
|
|
104
|
|
Income tax provision (benefit)
|
|
|
72
|
|
|
|
(56
|
)
|
|
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
566
|
|
|
$
|
332
|
|
|
$
|
321
|
|
|
|
55
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
SELECTED
STATISTICAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Billions, except percentages
|
|
|
|
|
|
|
|
|
|
and where indicated)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Card billed business
|
|
$
|
107.9
|
|
|
$
|
94.9
|
|
|
$
|
106.1
|
|
Total
cards-in-force
(millions)
|
|
|
15.0
|
|
|
|
15.0
|
|
|
|
16.3
|
|
Basic
cards-in-force
(millions)
|
|
|
10.4
|
|
|
|
10.5
|
|
|
|
11.4
|
|
Average basic cardmember
spending
(dollars)
*
|
|
$
|
10,366
|
|
|
$
|
8,758
|
|
|
$
|
9,292
|
|
International Consumer Travel:
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel sales
(millions)
|
|
$
|
1,126
|
|
|
$
|
985
|
|
|
$
|
1,267
|
|
Travel commissions and fees/sales
|
|
|
8.0
|
%
|
|
|
8.6
|
%
|
|
|
8.1
|
%
|
Total segment assets
|
|
$
|
25.3
|
|
|
$
|
23.0
|
(f)
|
|
$
|
20.7
|
(f)
|
Segment capital
(millions)
|
|
$
|
2,199
|
|
|
$
|
2,262
|
|
|
$
|
2,240
|
|
Return on average segment
capital
(a)
|
|
|
26.5
|
%
|
|
|
15.1
|
%
|
|
|
14.7
|
%
|
Return on average tangible segment
capital
(a)
|
|
|
36.7
|
%
|
|
|
20.1
|
%
|
|
|
19.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
$
|
6.7
|
|
|
$
|
5.9
|
|
|
$
|
5.6
|
|
90 days past billing as a % of
total
(b)
|
|
|
1.0
|
%
|
|
|
2.1
|
%
|
|
|
3.1
|
%
|
Net loss ratio (as a % of charge
volume)
(b)(c)
|
|
|
0.24
|
%
|
|
|
0.36
|
%
|
|
|
0.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
9.3
|
|
|
$
|
9.2
|
|
|
$
|
9.5
|
|
30 days past due loans as a % of total
|
|
|
2.3
|
%
|
|
|
3.3
|
%
|
|
|
3.6
|
%
|
Average loans
|
|
$
|
8.6
|
|
|
$
|
8.9
|
|
|
$
|
10.9
|
|
Net write-off rate
|
|
|
4.6
|
%
|
|
|
6.8
|
%
|
|
|
4.8
|
%
|
Net interest income divided by average
loans
(d)(e)
|
|
|
11.2
|
%
|
|
|
12.2
|
%
|
|
|
8.7
|
%
|
Net interest yield on cardmember
loans
(d)
|
|
|
11.1
|
%
|
|
|
12.2
|
%
|
|
|
9.4
|
%
|
|
|
|
|
|
*
|
|
Proprietary cards only.
|
(a)
|
|
Return on average segment capital
is calculated by dividing (i) one-year period segment
income ($566 million, $332 million and
$321 million for December 31, 2010, 2009 and 2008,
respectively) by (ii) one-year average segment capital
($2.1 billion, $2.2 billion and $2.2 billion for
December 31, 2010, 2009 and 2008, respectively). Return on
average tangible segment capital is computed in the same manner
as return on average segment capital except the computation of
average tangible segment capital excludes from average segment
capital average goodwill and other intangibles of
$592 million, $551 million and $544 million as of
December 31, 2010, 2009 and 2008, respectively. Management
believes that return on average tangible segment capital is a
useful measure of the profitability of its business.
|
(b)
|
|
Effective January 1, 2010, the
Company revised the time period in which past due cardmember
receivables in ICS are written off to when they are
180 days past due or earlier, consistent with applicable
bank regulatory guidance and the write-off methodology adopted
for USCS in the fourth quarter of 2008. Previously, receivables
were written off when they were 360 days past billing or
earlier. Therefore, the net write-offs for the first quarter of
2010 include net write-offs of approximately $60 million
for ICS resulting from this write-off methodology change, which
increased the net loss ratio and decreased the 90 days past
billing metric for this segment, but did not have a substantial
impact on provisions for losses.
|
(c)
|
|
Refer to Consolidated Results
of Operations Selected Statistical
Information, footnote (c) on page 32.
|
(d)
|
|
Refer to Consolidated Results
of Operations Selected Statistical
Information, footnote (f) on page 32.
|
(e)
|
|
Refer to Consolidated Results
of Operations Selected Statistical
Information, footnote (g) on page 32.
|
(f)
|
|
Refer to U.S. Card
Services Selected Statistical Information,
footnote (f) on page 52.
|
CALCULATION
OF NET INTEREST YIELD ON CARDMEMBER
LOANS
(a)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
(Millions, except percentage and where indicated)
|
|
2010
|
|
|
2009
|
|
|
Net interest income
|
|
$
|
965
|
|
|
$
|
1,082
|
|
Average loans
(billions)
|
|
$
|
8.6
|
|
|
$
|
8.9
|
|
Adjusted net interest income
|
|
$
|
946
|
|
|
$
|
1,087
|
|
Adjusted average loans
(billions)
|
|
$
|
8.5
|
|
|
$
|
8.9
|
|
Net interest income divided by average
loans
(b)
|
|
|
11.2
|
%
|
|
|
12.2
|
%
|
Net interest yield on cardmember loans
|
|
|
11.1
|
%
|
|
|
12.2
|
%
|
|
|
|
|
|
(a)
|
|
Refer to Consolidated Results
of Operations Calculation of Net Interest Yield on
Cardmember Loans, footnote (a) on page 33.
|
(b)
|
|
Refer to Consolidated Results
of Operations Selected Statistical
Information, footnote (g) on page 32.
|
RESULTS
OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2010
ICS reported segment income of $566 million for 2010, a
$234 million or 70 percent increase from
$332 million in 2009, which increased $11 million or
3 percent from 2008. The increase in segment income for
2010 is primarily due to an increase in total revenues net of
interest expense and a decrease in provisions for losses,
partially offset by an increase in expenses. A significant
portion of ICS segment income in 2009 and 2008 is attributable
to the Companys internal tax allocation process. See
further discussion in the Income Taxes section below.
Total
Revenues Net of Interest Expense
In 2010, ICS total revenues net of interest expense increased
$121 million or 3 percent to $4.7 billion
compared to 2009 due to higher discount revenue, net card fees
and other, partially offset by lower interest income.
Discount revenue, net card fees, and other increased
$238 million or 7 percent to $3.7 billion in 2010
compared to 2009, driven primarily by the higher level of
cardmember spending and greater foreign-exchange conversion
revenues. The 14 percent increase in billed business in
2010 reflected an 18 percent increase in average spending
per proprietary basic
cards-in-force,
partially offset by a 1 percent decrease in basic
cards-in-force.
Assuming no changes in foreign currency exchange rates from 2009
to 2010, billed business and average spending per proprietary
basic
cards-in-force
increased 9 percent and 14 percent, respectively;
volumes increased across the major geographic regions, including
an increase of 13 percent in Latin America, 10 percent
in Asia Pacific, and 8 percent in both Canada and
Europe
2
.
|
|
2
|
Refer to footnote 1 on page 33
under Consolidated Results of Operations for the Three Years
Ended December 31, 2010 relating to changes in foreign
exchange rates.
|
56
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
Interest income declined $116 million or 8 percent to
$1.4 billion in 2010 compared to 2009, as a lower yield on
cardmember loans and a lower average loan balance were partially
offset by higher lending card fees.
Interest expense of $428 million in 2010 was flat as
compared to 2009, as lower average loan balances offset higher
average receivable levels.
Total revenues net of interest expense of $4.5 billion in
2009 were $203 million or 4 percent lower than 2008
due to lower discount revenue, net card fees and other and
decreased interest income, partially offset by lower interest
expense.
Provisions
for Losses
Provisions for losses decreased $819 million or
68 percent to $392 million in 2010 compared to 2009,
primarily reflecting lower reserve requirements due to improving
cardmember loan and charge card credit trends. The charge card
net loss ratio (as a percentage of charge volume) was
0.24 percent in 2010 versus 0.36 percent last year.
The lending net write-off rate was 4.6 percent in 2010
versus 6.8 percent last year.
Provisions for losses increased $181 million or
18 percent to $1.2 billion in 2009 compared to 2008,
primarily reflecting a higher lending reserve level.
Expenses
During 2010, ICS expenses increased $578 million or
19 percent to $3.6 billion compared to 2009, due to
higher marketing, promotion, rewards and cardmember services and
increased salaries and employee benefits and other operating
expenses. Expenses in 2010, 2009 and 2008, included
$19 million, $4 million and $83 million,
respectively, of reengineering costs primarily related to the
Companys reengineering initiatives in 2010, 2009 and 2008
as previously discussed. Expenses in 2009 of $3.0 billion
were $556 million or 15 percent lower than 2008, due
to lower marketing, promotion, rewards and cardmember services
and decreased salaries and employee benefits and other operating
expenses.
Marketing, promotion, rewards and cardmember services expenses
increased $391 million or 32 percent to
$1.6 billion in 2010 compared to 2009, primarily due to
higher marketing and promotion expenses and greater
volume-related rewards costs. Marketing, promotion, rewards and
cardmember services expenses decreased $232 million or
16 percent to $1.2 billion in 2009 compared to 2008,
reflecting reduced marketing and promotion expenses through the
first nine months of 2009 and lower reward costs.
Salaries and employee benefits and other operating expenses
increased $187 million or 10 percent to
$2.0 billion in 2010 compared to 2009, reflecting the
higher net reengineering costs in 2010, higher technology
development expenditures, increased investments in sales-force,
closing costs related to the acquisition of Loyalty Partner and
other business building investments. Salaries and employee
benefits and other operating expenses decreased
$324 million or 15 percent to $1.8 billion in
2009 compared to 2008, primarily due to benefits from the
Companys reengineering activities and lower net charges
during 2009 related to reengineering initiatives.
Income
Taxes
The effective tax rate was 11 percent in 2010 versus
negative 20 percent in 2009 and negative 209 percent
in 2008. The tax rate in 2010 reflects a benefit from the
resolution of certain prior years tax items. In addition,
the tax rates in each of the periods primarily reflect the
impact of recurring tax benefits on varying levels of pretax
income. This segment reflects the favorable impact of the
consolidated tax benefit related to its ongoing funding
activities outside the U.S., which is allocated to ICS under the
Companys internal tax allocation process.
GLOBAL
COMMERCIAL SERVICES
SELECTED
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount revenue, net card fees and other
|
|
$
|
4,622
|
|
|
$
|
4,158
|
|
|
$
|
5,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
7
|
|
|
|
5
|
|
|
|
6
|
|
Interest expense
|
|
|
227
|
|
|
|
180
|
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(220
|
)
|
|
|
(175
|
)
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
4,402
|
|
|
|
3,983
|
|
|
|
4,617
|
|
Provisions for losses
|
|
|
158
|
|
|
|
177
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for
losses
|
|
|
4,244
|
|
|
|
3,806
|
|
|
|
4,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards and cardmember services
|
|
|
442
|
|
|
|
332
|
|
|
|
377
|
|
Salaries and employee benefits and other operating expenses
|
|
|
3,041
|
|
|
|
2,969
|
|
|
|
3,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,483
|
|
|
|
3,301
|
|
|
|
3,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
761
|
|
|
|
505
|
|
|
|
614
|
|
Income tax provision
|
|
|
287
|
|
|
|
155
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
474
|
|
|
$
|
350
|
|
|
$
|
454
|
|
|
|
57
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
SELECTED
STATISTICAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Billions, except percentages
|
|
|
|
|
|
|
|
|
|
and where indicated)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Card billed business
|
|
$
|
132.8
|
|
|
$
|
111.2
|
|
|
$
|
129.2
|
|
Total
cards-in-force
(millions)
|
|
|
7.1
|
|
|
|
7.1
|
|
|
|
7.1
|
|
Basic
cards-in-force
(millions)
|
|
|
7.1
|
|
|
|
7.1
|
|
|
|
7.1
|
|
Average basic cardmember
spending
(dollars)
*
|
|
$
|
18,927
|
|
|
$
|
15,544
|
|
|
$
|
18,527
|
|
Global Corporate Travel:
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel sales
|
|
$
|
17.5
|
|
|
$
|
14.6
|
|
|
$
|
21.0
|
|
Travel commissions and fees/sales
|
|
|
8.2
|
%
|
|
|
8.8
|
%
|
|
|
7.8
|
%
|
Total segment assets
|
|
$
|
18.9
|
|
|
$
|
16.1
|
(d)
|
|
$
|
25.2
|
(d)
|
Segment capital
(millions)
|
|
$
|
3,650
|
|
|
$
|
3,719
|
|
|
$
|
3,611
|
|
Return on average segment
capital
(a)
|
|
|
13.2
|
%
|
|
|
9.7
|
%
|
|
|
14.1
|
%
|
Return on average tangible segment
capital
(a)
|
|
|
28.6
|
%
|
|
|
20.8
|
%
|
|
|
30.5
|
%
|
Cardmember receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
$
|
11.3
|
|
|
$
|
9.8
|
|
|
$
|
9.4
|
|
90 days past billing as a % of
total
(b)
|
|
|
0.8
|
%
|
|
|
1.4
|
%
|
|
|
2.7
|
%
|
Net loss ratio (as a % of charge
volume)
(b)(c)
|
|
|
0.11
|
%
|
|
|
0.19
|
%
|
|
|
0.13
|
%
|
|
|
|
|
|
*
|
|
Proprietary cards only.
|
(a)
|
|
Return on average segment capital
is calculated by dividing (i) one-year period segment
income ($474 million, $350 million and
$454 million for 2010, 2009 and 2008, respectively) by
(ii) one-year average segment capital ($3.6 billion,
$3.6 billion and $3.2 billion for 2010, 2009 and 2008,
respectively). Return on average tangible segment capital is
computed in the same manner as return on average segment capital
except the computation of average tangible segment capital
excludes from average segment capital average goodwill and other
intangibles of $1.9 billion, $1.9 billion and
$1.7 billion at December 31, 2010, 2009 and 2008,
respectively. The Company believes the return on average
tangible segment capital is a useful measure of the
profitability of its business.
|
(b)
|
|
Effective January 1, 2010, the
Company revised the time period in which past due cardmember
receivables in Global Commercial Services are written off to
when they are 180 days past due or earlier, consistent with
applicable bank regulatory guidance and the write-off
methodology adopted for U.S. Card Services in the fourth quarter
of 2008. Previously, receivables were written off when they were
360 days past billing or earlier. Therefore, the net
write-offs for the first quarter of 2010 include net write-offs
of approximately $48 million for Global Commercial Services
resulting from this write-off methodology change, which
increased the net loss ratio and decreased the 90 days past
billing metric for this segment, but did not have a substantial
impact on provisions for losses. The metrics for prior periods
have not been revised for this change as it was deemed
immaterial.
|
(c)
|
|
Refer to Consolidated Results
of Operations Selected Statistical
Information, footnote(c) on page 32.
|
(d)
|
|
Refer to U.S. Card
Services Selected Statistical Information,
footnote (f) on page 52.
|
RESULTS
OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2010
GCS reported segment income of $474 million for 2010, a
$124 million or 35 percent increase from
$350 million in 2009, which decreased $104 million or
23 percent from 2008.
Total
Revenues Net of Interest Expense
In 2010, GCS total revenues net of interest expense increased
$419 million or 11 percent to $4.4 billion due to
increased discount revenue, net card fees, and other and higher
interest income, partially offset by higher interest expense.
Discount revenue, net card fees, and other revenues increased
$464 million or 11 percent to $4.6 billion in
2010 primarily driven by higher cardmember spending and greater
travel commissions and fees. The 19 percent increase in
billed business in 2010 was driven by the 22 percent
increase in average spending per proprietary basic
cards-in-force.
Adjusting for the impact of foreign exchange translation, billed
business and average spending per proprietary basic
cards-in-force
grew 19 percent and 21 percent,
respectively
3
,
volume increased 19 percent within the United States,
compared to an increase of 18 percent outside the United
States
3
.
Interest income increased $2 million or 40 percent to
$7 million in 2010 compared to 2009.
Interest expense increased $47 million or 26 percent
to $227 million in 2010 compared to 2009 driven by
increased funding requirements due to a higher average
receivable balance and a higher cost of funds.
Total revenues net of interest expense of $4.0 billion in
2009 decreased $634 million or 14 percent compared to
2008 due to decreased discount revenue, net card fees, and other
and lower interest income, partially offset by lower interest
expense.
Provisions
for Losses
Provisions for losses decreased $19 million or
11 percent to $158 million in 2010 compared to 2009,
driven by improved credit performance within the underlying
portfolio. The charge card net loss ratio (as a percentage of
charge volume) was 0.11 percent in 2010 versus
0.19 percent last year. Provisions for losses decreased
$54 million or 23 percent to $177 million in 2009
compared to 2008, reflecting improved credit trends as 2009
progressed.
3
Refer
to footnote 1 on page 33 under Consolidated Results of
Operations for the Three Years Ended December 31, 2010
relating to changes in foreign exchange rates.
58
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
Expenses
During 2010, GCS expenses increased $182 million or
6 percent to $3.5 billion, due to higher marketing,
promotion, rewards and cardmember services expense and increased
salaries and employee benefits and other operating expenses.
Expenses in 2010, 2009 and 2008, included $32 million,
$101 million and $138 million, respectively, of
reengineering costs, primarily reflecting the Companys
reengineering initiatives in 2010, 2009 and 2008 as previously
discussed. Expenses in 2009 of $3.3 billion decreased
$471 million or 12 percent, reflecting a reduction in
salaries and employee benefits and other operating expenses, as
well as lower rewards costs, lower net charges associated with
reengineering initiatives in 2009, and the Delta-related
increase in the Membership Rewards balance sheet reserve in the
fourth quarter of 2008.
Marketing, promotion, rewards and cardmember services expenses
increased $110 million or 33 percent to
$442 million in 2010 compared to 2009, reflecting higher
rewards costs and greater marketing and promotion expenses.
Marketing, promotion, rewards and cardmember services expenses
decreased $45 million or 12 percent to
$332 million in 2009 compared to 2008, primarily reflecting
lower rewards costs in 2009 and the Delta-related increase in
the Membership Rewards balance sheet reserve in the fourth
quarter of 2008.
Salaries and employee benefits and other operating expenses
increased $72 million or 2 percent to
$3.0 billion in 2010 compared to 2009, as higher travel
volume-driven personnel costs, greater incentive-based
sales-force costs, as well as increased technology development
expenditures and other business-building investments were
partially offset by the lower reengineering-related costs.
Salaries and employee benefits and other operating expenses
decreased $426 million or 13 percent to
$3.0 billion in 2009 compared to 2008, reflecting the
benefits from the Companys reengineering initiatives,
partially offset by lower net charges associated with these
programs during 2009.
Income
Taxes
The effective tax rate was 38 percent in 2010 versus
31 percent in 2009 and 26 percent in 2008. The higher
2010 rate reflects the impact of increasing the valuation
allowance against deferred tax assets associated with certain
non-U.S. travel
operations.
GLOBAL
NETWORK & MERCHANT
SERVICES
SELECTED
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount revenue, net card fees and other
|
|
$
|
4,169
|
|
|
$
|
3,602
|
|
|
$
|
3,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
Interest expense
|
|
|
(200
|
)
|
|
|
(177
|
)
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
204
|
|
|
|
178
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
4,373
|
|
|
|
3,780
|
|
|
|
4,191
|
|
Provisions for losses
|
|
|
61
|
|
|
|
135
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for
losses
|
|
|
4,312
|
|
|
|
3,645
|
|
|
|
4,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards and cardmember services
|
|
|
755
|
|
|
|
521
|
|
|
|
553
|
|
Salaries and employee benefits and other operating expenses
|
|
|
1,908
|
|
|
|
1,679
|
|
|
|
1,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,663
|
|
|
|
2,200
|
|
|
|
2,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax segment income
|
|
|
1,649
|
|
|
|
1,445
|
|
|
|
1,579
|
|
Income tax provision
|
|
|
586
|
|
|
|
508
|
|
|
|
529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
1,063
|
|
|
$
|
937
|
|
|
$
|
1,050
|
|
|
|
SELECTED
STATISTICAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(Billions, except percentages
|
|
|
|
|
|
|
|
|
|
and where indicated)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Global Card billed business
|
|
$
|
713.3
|
|
|
$
|
619.8
|
|
|
$
|
683.3
|
|
Global Network & Merchant Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
$
|
13.6
|
|
|
$
|
12.3
|
(c)
|
|
$
|
7.2
|
(c)
|
Segment capital
(millions)
|
|
$
|
1,922
|
|
|
$
|
1,443
|
|
|
$
|
1,238
|
|
Return on average segment
capital
(a)
|
|
|
63.9
|
%
|
|
|
65.7
|
%
|
|
|
98.4
|
%
|
Return on average tangible segment
capital
(a)
|
|
|
66.7
|
%
|
|
|
67.4
|
%
|
|
|
101.8
|
%
|
Global Network
Services:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Card billed business
|
|
$
|
91.7
|
|
|
$
|
71.8
|
|
|
$
|
67.4
|
|
Total
cards-in-force
(millions)
|
|
|
29.0
|
|
|
|
26.3
|
|
|
|
24.8
|
|
|
|
|
|
|
(a)
|
|
Return on average segment capital
is calculated by dividing (i) segment income
($1.1 billion, $937 million and $1.1 billion for
2010, 2009 and 2008, respectively) by (ii) average segment
capital ($1.7 billion, $1.4 billion and
$1.1 billion for 2010, 2009 and 2008, respectively). Return
on average tangible segment capital is computed in the same
manner as return on average segment capital except the
computation of average tangible segment capital excludes from
average segment capital average goodwill and other intangibles
of $70 million, $36 million and $35 million as of
December 31, 2010, 2009 and 2008, respectively. The Company
believes the return on average tangible segment capital is a
useful measure of the profitability of its business.
|
(b)
|
|
For non-proprietary retail co-brand
partners, Global Network Services metrics exclude cardmember
accounts which have no
out-of-store
spend activity during the prior
12-month
period.
|
(c)
|
|
Refer to U.S. Card
Services Selected Statistical Information,
footnote (f) on page 52.
|
59
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
RESULTS
OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2010
GNMS reported segment income of $1.1 billion in 2010, a
$126 million or 13 percent increase from
$937 million in 2009, which decreased $113 million or
11 percent from 2008.
Total
Revenues Net of Interest Expense
GNMS total revenues net of interest expense increased
$593 million or 16 percent to $4.4 billion in
2010 compared to 2009, due to increased discount revenue, net
card fees and other and increased interest expense credit.
Discount revenue, fees and other increased $567 million or
16 percent to $4.2 billion in 2010 compared to 2009,
primarily due to an increase in merchant-related revenues,
driven by a 15 percent increase in global card billed
business, as well as higher volume driven GNS-related revenues.
Interest expense credit increased $23 million or
13 percent to $200 million in 2010 compared to 2009,
due to a higher funding-driven interest credit related to
internal transfer pricing, which recognizes the merchant
services accounts payable-related funding benefit.
Total revenues net of interest expense of $3.8 billion in
2009 decreased $411 million or 10 percent compared to
2008 due to decreased discount revenue, net card fees and other
and decreased interest expense credit.
Provisions
for Losses
Provisions for losses decreased $74 million or
55 percent to $61 million in 2010 compared to 2009,
primarily due to lower merchant-related debit balances.
Provisions for losses in 2009 increased $8 million or
6 percent to $135 million compared to 2008, primarily
driven by the higher provisions in GNS.
Expenses
During 2010, GNMS expenses increased $463 million or
21 percent to $2.7 billion compared to 2009 due to
higher salaries and employee benefits and other operating
expenses and an increase in marketing and promotion expenses.
Expenses in 2009 of $2.2 billion were $285 million or
11 percent lower than 2008, due to lower salaries and
employee benefits and other operating expenses and a decrease in
marketing and promotion expenses.
Marketing and promotion expenses increased $234 million or
45 percent to $755 million in 2010 compared to 2009,
reflecting higher network, merchant-related and brand marketing
investments. Marketing and promotion expenses decreased
6 percent in 2009 to $521 million compared to 2008,
reflecting lower brand and merchant-related marketing costs.
Salaries and employee benefits and other operating expenses
increased $229 million or 14 percent to
$1.9 billion in 2010 compared to 2009, primarily due to
greater third party merchant sales-force commissions, higher
technology development expenditures, and other business building
investments. Salaries and employee benefits and other operating
expenses decreased $253 million or 13 percent to
$1.7 billion in 2009 compared to 2008, primarily reflecting
the benefits from the Companys reengineering initiatives.
Income
Taxes
The effective tax rate was 36 percent in 2010,
35 percent in 2009 and 34 percent in 2008.
CORPORATE &
OTHER
Corporate & Other had net expense of $292 million
and net income of $107 million and $68 million in
2010, 2009 and 2008, respectively. Results in 2010, 2009 and
2008 reflected $372 million, $372 million and
$186 million of after-tax income related to the MasterCard
litigation settlement, respectively, and $172 million of
after-tax income for all three years related to the Visa
litigation settlement. Reengineering costs after-tax of
$2 million, $35 million and $108 million, for
2010, 2009 and 2008, respectively, primarily related to the
Companys reengineering initiatives previously discussed.
Net expense in 2010 reflected higher incentive compensation and
benefit reinstatement-related expenses, and various investments
in the Global Prepaid business and Enterprise Growth initiatives.
Net income in 2009 reflected $135 million of after-tax
income related to the ICBC sale, a $135 million benefit
representing the correction of an error related to the
accounting for cumulative translation adjustments associated
with a net investment in foreign subsidiaries and a
$45 million benefit resulting from the change in fair value
of certain forward exchange contracts.
Net income in 2008 reflected a $19 million after-tax charge
primarily relating to AEB operations retained by the Company in
the first quarter of 2008.
EXPOSURE
TO AIRLINE INDUSTRY
The Company has multiple co-brand relationships and rewards
partners, of which relationships with airlines are one of the
most important and valuable. Refer to Note 22 to the
Consolidated Financial Statements for further discussion of
these relationships. Refer also to Note 8 for further
discussion of prepaid miles acquired from certain airlines.
60
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
OTHER
REPORTING MATTERS
ACCOUNTING
DEVELOPMENTS
See the Recently Issued Accounting Standards section of
Note 1 to the Consolidated Financial Statements.
GLOSSARY
OF SELECTED TERMINOLOGY
Adjusted average loans
Represents
average cardmember loans on a GAAP or managed basis, as
applicable, in each case excluding the impact of deferred card
fees, net of deferred direct acquisition costs of cardmember
loans.
Adjusted net interest income
Represents
net interest income allocated to the Companys cardmember
loans portfolio on a GAAP or managed basis, as applicable, in
each case excluding the impact of card fees on loans and balance
transfer fees attributable to the Companys cardmember
loans.
Asset securitizations
Asset
securitization involves the transfer and sale of receivables or
loans to a special purpose entity created for the securitization
activity, typically a trust. The trust, in turn, issues
securities, commonly referred to as asset-backed securities,
that are secured by the transferred receivables or loans. The
trust uses the proceeds from the sale of such securities to pay
the purchase price for the underlying receivables or loans.
Average discount rate
This calculation is
designed to reflect pricing at merchants accepting general
purpose American Express cards. It represents the percentage of
billed business (both proprietary and Global Network Services)
retained by the Company from merchants it acquires, prior to
payments to third parties unrelated to merchant acceptance.
Basic
cards-in-force
Proprietary
basic consumer
cards-in-force
includes basic cards issued to the primary account owner and
does not include additional supplemental cards issued on that
account. Proprietary basic small business and corporate
cards-in-force
include basic and supplemental cards issued to employee
cardmembers. Non-proprietary basic
cards-in-force
includes all cards that are issued and outstanding under network
partnership agreements, except for retail co-brand cardmember
accounts which have no out-of-store spend activity during the
prior 12-month period.
Billed business
Includes activities
(including cash advances) related to proprietary cards, cards
issued under network partnership agreements (non-proprietary
billed business) and certain insurance fees charged on
proprietary cards. In-store spend activity within retail
co-brand portfolios in Global Network Services, from which the
Company earns no revenue, is not included in non-proprietary
billed business. Card billed business is reflected in the United
States or outside the United States based on where the
cardmember is domiciled.
Capital asset pricing model
Generates an
appropriate discount rate using internal and external inputs to
value future cash flows based on the time value of money and the
price for bearing uncertainty inherent in an investment.
Capital ratios
Represents the minimum
standards established by the regulatory agencies as a measure to
determine whether the regulated entity has sufficient capital to
absorb on- and off-balance sheet losses beyond current loss
accrual estimates.
Card acquisition
Primarily represents
the issuance of new cards to either new or existing cardmembers
through marketing and promotion efforts.
Cardmember
The individual holder of an
issued American Express branded charge or credit card.
Cardmember loans
Represents the
outstanding amount due from cardmembers for charges made on
their American Express credit cards, as well as any interest
charges and card-related fees. Cardmember loans also include
balances with extended payment terms on certain charge card
products and are net of unearned revenue.
Cardmember receivables
Represents the
outstanding amount due from cardmembers for charges made on
their American Express charge cards as well as any card-related
fees.
Charge cards
Represents cards that
generally carry no pre-set spending limits and are primarily
designed as a method of payment and not as a means of financing
purchases. Charge cardmembers generally must pay the full amount
billed each month. No finance charges are assessed on charge
cards. Each charge card transaction is authorized based on its
likely economics reflecting a customers most recent credit
information and spend patterns.
Credit cards
Represents cards that have
a range of revolving payment terms, grace periods, and rate and
fee structures.
Discount revenue
Represents revenue
earned from fees charged to merchants with whom the Company has
entered into a card acceptance agreement for processing
cardmember transactions. The discount fee generally is deducted
from the Companys payment reimbursing the merchant for
cardmember purchases. Such amounts are reduced by contra-revenue
such as payments to third-party card issuing partners, cash-back
reward costs and corporate incentive payments.
Interest expense
Interest expense
includes interest incurred primarily to fund cardmember loans,
charge card product receivables, general corporate purposes, and
liquidity needs, and is recognized as incurred. Interest expense
is divided principally into three categories: (i) deposits,
which primarily relates to interest expense on deposits taken
from customers and institutions, (ii) short-term
borrowings, which primarily relates to interest expense on
commercial paper, federal funds purchased, bank overdrafts and
other short-term borrowings, and (iii) long-term debt,
which primarily relates to interest expense on the
Companys long-term debt.
Interest income
Interest income includes
(i) interest and fees on loans, (ii) interest and
dividends on investment securities and (iii) interest
income on deposits with banks and others.
Interest and fees on loans includes interest on loans which is
assessed using the average daily balance method for loans owned.
These amounts are recognized based upon the principal amount
outstanding in accordance with the terms of
61
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
the applicable account agreement until the outstanding balance
is paid or written-off. Loan fees are deferred and recognized in
interest income on a straight-line basis over the
12-month
card membership period, net of deferred direct card acquisition
costs and a reserve for projected membership cancellation.
Interest and dividends on investment securities primarily
relates to the Companys performing fixed-income
securities. Interest income is accrued as earned using the
effective interest method, which adjusts the yield for security
premiums and discounts, fees and other payments, so that the
related investment security recognizes a constant rate of return
on the outstanding balance throughout its term. These amounts
are recognized until these securities are in default or when it
is likely that future interest payments will not be made as
scheduled.
Interest income on deposits with banks and other is recognized
as earned, and primarily relates to the placement of cash in
excess of near-term funding requirements in interest-bearing
time deposits, overnight sweep accounts, and other interest
bearing demand and call accounts.
Interest-only strip
Interest-only strips
are generated from USCS securitization activity and are a
form of retained interest held by the Company in the
securitization. This financial instrument represents the present
value of estimated future positive excess spread
expected to be generated by the securitized assets over the
estimated life of those assets. Excess spread is the net cash
flow from interest and fee collections allocated to the
third-party investors interests in the securitization
after deducting the interest paid on the investor certificates,
credit losses, contractual servicing fees, and other expenses.
Merchant acquisition
Represents the
signing of merchants to accept American Express-branded cards.
Net card fees
Represents the charge card
membership fees earned during the period. These fees are
recognized as revenue over the covered card membership period
(typically one year), net of provision for projected refunds for
cancellation of card membership.
Net interest yield on cardmember loans
Net
interest yield on cardmember loans is a non-GAAP financial
measure that represents the net spread earned on cardmember
loans. Net interest yield on cardmember loans is computed by
dividing adjusted net interest income by adjusted average loans,
computed on an annualized basis. The calculation of net interest
yield on cardmember loans includes interest that is deemed
uncollectible. For all presentations of net interest yield on
cardmember loans, reserves and net write-offs related to
uncollectible interest are recorded through provisions for
losses cardmember loans; therefore, such reserves
and net write-offs are not included in the net interest yield
calculation.
Net loss ratio
Represents the ratio of
charge card write-offs consisting of principal (resulting from
authorized and unauthorized transactions) and fee components,
less recoveries, on cardmember receivables expressed as a
percentage of gross amounts billed to cardmembers.
Net write-off rate
Represents the amount
of cardmember loans or USCS cardmember receivables written off
consisting of principal (resulting from authorized
transactions), less recoveries, as a percentage of the average
loan balance or USCS average receivables during the period.
Return on average equity
Calculated by
dividing one-year period net income by one-year average total
shareholders equity.
Return on average tangible common
equity
Computed in the same manner as ROE
except the computation of average tangible common
shareholders equity excludes from average total
shareholders equity average goodwill and other intangibles.
Return on average segment
capital
Calculated by dividing one-year
period segment income by one-year average segment capital.
Return on average tangible segment
capital
Computed in the same manner as
return on average segment capital except the computation of
average tangible segment capital excludes from average segment
capital average goodwill and other intangibles.
Risk-weighted assets
Refer to Capital
Strategy section for definition.
Securitization income, net
Prior to
2010, includes non-credit provision components of the net gains
or losses from securitization activities; changes in fair value
of the interest-only strip; excess spread related to securitized
cardmember loans; and servicing income, net of related discounts
or fees. Excess spread, which is recognized as earned, is the
net cash flow from interest and fee collections allocated to the
third-party investors interests in the securitization
after deducting the interest paid on the investor certificates,
credit losses, contractual servicing fees and other expenses.
Segment capital
Represents capital
allocated to a segment based upon specific business operational
needs, risk measures, and regulatory capital requirements.
Stored value and prepaid
products
Includes Travelers Cheques and
other prepaid products such as gift cheques and cards as well as
reloadable Travelers Cheque cards. These products are sold as
safe and convenient alternatives to currency for purchasing
goods and services.
Tier 1 leverage ratio
Refer to
Capital Strategy section for definition.
Tier 1 risk-based capital
ratio
Refer to Capital Strategy section for
definition.
Total
cards-in-force
Represents the number of cards that are issued and
outstanding. Proprietary basic consumer
cards-in-force
includes basic cards issued to the primary account owner and
does not include additional supplemental cards issued on that
account. Proprietary basic small business and corporate
cards-in-force
include basic and supplemental cards issued to employee
cardmembers. Non-proprietary
cards-in-force
includes all cards that are issued and
62
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
outstanding under network partnership agreements, except for
retail co-brand cardmember accounts which have no
out-of-store
spend activity during the prior
12-month
period.
Total risk-based capital ratio
Refer to
Capital Strategy section for definition.
Travel sales
Represents the total dollar
amount of travel transaction volume for airline, hotel, car
rental, and other travel arrangements made for consumers and
corporate clients. The Company earns revenue on these
transactions by charging a transaction or management fee.
FORWARD-LOOKING
STATEMENTS
This report includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
which are subject to risks and uncertainties. The
forward-looking statements, which address the Companys
expected business and financial performance, among other
matters, contain words such as believe,
expect, estimate,
anticipate, optimistic,
intend, plan, aim,
will, may, should,
could, would, likely, and
similar expressions. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only
as of the date on which they are made. The Company undertakes no
obligation to update or revise any forward-looking statements.
Factors that could cause actual results to differ materially
from these forward-looking statements, include, but are not
limited to, the following:
|
|
|
changes in global economic and business conditions, including
consumer and business spending, the availability and cost of
credit, unemployment and political conditions, all of which may
significantly affect spending on the Companys cards,
delinquency rates, loan balances and other aspects of our
business and results of operations;
|
|
|
changes in capital and credit market conditions, which may
significantly affect the Companys ability to meet its
liquidity needs, access to capital and cost of capital,
including changes in interest rates; changes in market
conditions affecting the valuation of our assets; or any
reduction in our credit ratings or those of our subsidiaries,
which could materially increase the cost and other terms of our
funding, restrict our access to the capital markets or result in
contingent payments under contracts;
|
|
|
litigation, such as class actions or proceedings brought by
governmental and regulatory agencies (including the lawsuit
filed against the Company by the U.S. Department of Justice
and certain state attorneys general), that could result in
(i) the imposition of behavioral remedies against the
Company or the Companys voluntarily making certain changes
to its business practices, the effects of which in either case
could have a material adverse impact on the Companys
financial performance; (ii) the imposition of substantial
monetary damages in private actions against the Company;
and/or
(iii) damage to the Companys global reputation and
brand;
|
|
|
legal and regulatory developments wherever we do business,
including legislative and regulatory reforms in the United
States, such as the Dodd-Frank Acts stricter regulation of
large, interconnected financial institutions, increasing
regulation of rates charged to merchants and the practices
merchants may engage in to discriminate among the payment
products they accept, changes in requirements relating to
securitization and the establishment of the Bureau of Consumer
Financial Protection, which could make fundamental changes to
many of our business practices or materially affect our capital
requirements, results of operations, ability to pay dividends or
repurchase our stock; or actions and potential future actions by
the FDIC and credit rating agencies applicable to securitization
trusts, which could impact the Companys ABS program;
|
|
|
changes in the substantial and increasing worldwide competition
in the payments industry, including competitive pressures from
charge, credit and debit card networks and issuers, as well as
evolving alternative payment systems and products, competitive
pressure that may impact the prices we charge merchants that
accept our Cards and the success of marketing, promotion or
rewards programs;
|
|
|
changes in technology or in our ability to protect our
intellectual property (such as copyrights, trademarks, patents
and controls on access and distribution), and invest in and
compete at the leading edge of technological developments across
our businesses, including technology and intellectual property
of third parties whom we rely on, all of which could materially
affect our results of operations;
|
|
|
data breaches and fraudulent activity, which could damage our
brand, increase our costs or have regulatory implications, and
changes in regulation affecting privacy and data security under
federal, state and foreign law, which could result in higher
compliance and technology costs to ourselves or our vendors;
|
|
|
changes in our ability to attract or retain qualified personnel
in the management and operation of the Companys business,
including any changes that may result from increasing regulatory
supervision of compensation practices;
|
|
|
changes in the financial condition and creditworthiness of our
business partners, such as bankruptcies, restructurings or
consolidations, involving merchants that represent a significant
portion of our business, such as the airline industry, or our
partners in Global Network Services or financial institutions
that we rely on for routine funding and liquidity, which could
materially affect our financial condition or results of
operations;
|
63
AMERICAN
EXPRESS COMPANY
2010 FINANCIAL REVIEW
|
|
|
uncertainties associated with business acquisitions, including
the ability to realize anticipated business retention, growth
and cost savings or effectively integrate the acquired business
into our existing operations;
|
|
|
changes affecting the success of our reengineering and other
cost control initiatives, which may result in the Company not
realizing all or a significant portion of the benefits that we
intend;
|
|
|
the actual amount to be spent by the Company on investments in
the business, including on marketing, promotion, rewards and
cardmember services and certain other operating expenses, which
will be based in part on managements assessment of
competitive opportunities and the Companys performance and
the ability to control and manage operating, infrastructure,
advertising and promotion expenses as business expands or
changes;
|
|
|
the effectiveness of the Companys risk management policies
and procedures, including credit risk relating to consumer debt,
liquidity risk in meeting business requirements and operational
risks;
|
|
|
changes affecting our ability to accept or maintain deposits due
to market demand or regulatory constraints, such as changes in
interest rates and regulatory restrictions on our ability to
obtain deposit funding or offer competitive interest rates,
which could affect our liquidity position and our ability to
fund our business; and
|
|
|
factors beyond our control such as fire, power loss, disruptions
in telecommunications, severe weather conditions, natural
disasters, terrorism, hackers or fraud, which could
affect travel-related spending or disrupt our global network
systems and ability to process transactions.
|
A further description of these uncertainties and other risks can
be found in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010, and the
Companys other reports filed with the SEC.
64
AMERICAN
EXPRESS COMPANY
MANAGEMENTS REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting.
The Companys internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
GAAP in the United States of America, and includes those
policies and procedures that:
|
|
|
Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2010. In making this assessment, the
Companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in
Internal Control Integrated
Framework.
Based on managements assessment and those criteria, we
conclude that, as of December 31, 2010, the Companys
internal control over financial reporting is effective.
PricewaterhouseCoopers LLP, the Companys independent
registered public accounting firm, has issued an attestation
report appearing on the following page on the effectiveness of
the Companys internal control over financial reporting as
of December 31, 2010.
65
AMERICAN
EXPRESS COMPANY
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE
BOARD OF DIRECTORS AND SHAREHOLDERS OF AMERICAN EXPRESS COMPANY:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, cash flows and
shareholders equity present fairly, in all material
respects, the financial position of American Express Company and
its subsidiaries at December 31, 2010 and 2009, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2010, in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2010, based on
criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express opinions
on these financial statements and on the Companys internal
control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted new guidance in 2010 relating to
transfers of financial assets and consolidation of variable
interest entities.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
New York, New York
February 25, 2011
66
AMERICAN
EXPRESS COMPANY
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
PAGE
|
|
|
|
68
|
|
|
69
|
|
|
70
|
|
|
71
|
|
|
|
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|
|
|
|
|
72
|
|
|
75
|
|
|
75
|
|
|
78
|
|
|
81
|
|
|
83
|
|
|
85
|
|
|
87
|
|
|
89
|
|
|
89
|
|
|
92
|
|
|
92
|
|
|
96
|
|
|
97
|
|
|
98
|
|
|
99
|
|
|
101
|
|
|
103
|
|
|
103
|
Includes further details of:
|
|
|
Other
Commissions and Fees
|
|
|
Other
Revenues
|
|
|
Marketing,
Promotion, Rewards and Cardmember Services
|
|
|
Other,
Net Expenses
|
|
|
|
|
104
|
|
|
105
|
|
|
110
|
|
|
111
|
|
|
113
|
|
|
114
|
|
|
117
|
|
|
119
|
67
AMERICAN
EXPRESS COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
(Millions, except per share
amounts)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount revenue
|
|
$
|
15,111
|
|
|
$
|
13,389
|
|
|
$
|
15,025
|
|
Net card fees
|
|
|
2,102
|
|
|
|
2,151
|
|
|
|
2,150
|
|
Travel commissions and fees
|
|
|
1,779
|
|
|
|
1,594
|
|
|
|
2,010
|
|
Other commissions and fees
|
|
|
2,031
|
|
|
|
1,778
|
|
|
|
2,307
|
|
Securitization income, net
|
|
|
|
|
|
|
400
|
|
|
|
1,070
|
|
Other
|
|
|
1,927
|
|
|
|
2,087
|
|
|
|
2,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenues
|
|
|
22,950
|
|
|
|
21,399
|
|
|
|
24,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
|
6,783
|
|
|
|
4,468
|
|
|
|
6,159
|
|
Interest and dividends on investment securities
|
|
|
443
|
|
|
|
804
|
|
|
|
771
|
|
Deposits with banks and other
|
|
|
66
|
|
|
|
59
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
7,292
|
|
|
|
5,331
|
|
|
|
7,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
546
|
|
|
|
425
|
|
|
|
454
|
|
Short-term borrowings
|
|
|
3
|
|
|
|
37
|
|
|
|
483
|
|
Long-term debt and other
|
|
|
1,874
|
|
|
|
1,745
|
|
|
|
2,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,423
|
|
|
|
2,207
|
|
|
|
3,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
4,869
|
|
|
|
3,124
|
|
|
|
3,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
27,819
|
|
|
|
24,523
|
|
|
|
28,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge card
|
|
|
595
|
|
|
|
857
|
|
|
|
1,363
|
|
Cardmember loans
|
|
|
1,527
|
|
|
|
4,266
|
|
|
|
4,231
|
|
Other
|
|
|
85
|
|
|
|
190
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provisions for losses
|
|
|
2,207
|
|
|
|
5,313
|
|
|
|
5,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense after provisions for
losses
|
|
|
25,612
|
|
|
|
19,210
|
|
|
|
22,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, promotion, rewards and cardmember services
|
|
|
8,644
|
|
|
|
6,467
|
|
|
|
7,361
|
|
Salaries and employee benefits
|
|
|
5,566
|
|
|
|
5,080
|
|
|
|
6,090
|
|
Professional services
|
|
|
2,806
|
|
|
|
2,408
|
|
|
|
2,413
|
|
Other, net
|
|
|
2,632
|
|
|
|
2,414
|
|
|
|
3,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,648
|
|
|
|
16,369
|
|
|
|
18,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income from continuing operations
|
|
|
5,964
|
|
|
|
2,841
|
|
|
|
3,581
|
|
Income tax provision
|
|
|
1,907
|
|
|
|
704
|
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
4,057
|
|
|
|
2,137
|
|
|
|
2,871
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
(7
|
)
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
2,130
|
|
|
$
|
2,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common
Share Basic: (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common
shareholders
(a)
|
|
$
|
3.37
|
|
|
$
|
1.55
|
|
|
$
|
2.47
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
shareholders
(a)
|
|
$
|
3.37
|
|
|
$
|
1.54
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common
Share Diluted: (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common
shareholders
(a)
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
$
|
2.47
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
shareholders
(a)
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
$
|
2.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding for earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,188
|
|
|
|
1,168
|
|
|
|
1,154
|
|
Diluted
|
|
|
1,195
|
|
|
|
1,171
|
|
|
|
1,156
|
|
|
|
|
|
|
(a)
|
|
Represents income from continuing
operations or net income, as applicable, less
(i) accelerated preferred dividend accretion of
$212 million for the year ended December 31, 2009 due
to the repurchase of $3.39 billion of preferred shares
issued as part of the Capital Purchase Program (CPP),
(ii) preferred share dividends and related accretion of
$94 million for the year ended December 31, 2009, and
(iii) earnings allocated to participating share awards and
other items of $51 million, $22 million and
$15 million for the years ended December 31, 2010,
2009 and 2008, respectively.
|
See Notes to Consolidated Financial
Statements.
68
AMERICAN
EXPRESS COMPANY
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31
(Millions, except per share data)
|
|
2010
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash due from banks
|
|
$
|
2,498
|
|
|
$
|
1,525
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in other banks (including securities
purchased under resale agreements: 2010, $372;
2009, $212)
|
|
|
13,557
|
|
|
|
11,010
|
|
|
|
|
|
|
|
|
|
|
Short-term investment securities
|
|
|
654
|
|
|
|
4,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,709
|
|
|
|
16,599
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables (includes gross receivables available to
settle obligations of a consolidated
variable interest entity: 2010, $8,192; 2009, $8,314), less
reserves: 2010, $386; 2009, $546
|
|
|
36,880
|
|
|
|
33,197
|
|
|
|
|
|
|
|
|
|
|
Other receivables, less reserves: 2010, $175; 2009, $109
|
|
|
3,554
|
|
|
|
5,007
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember loans, (includes gross loans available to settle
obligations of a consolidated
variable interest entity: 2010,
$34,726)
(a)
,
less reserves: 2010, $3,646; 2009, $3,268
|
|
|
57,204
|
|
|
|
29,504
|
|
|
|
|
|
|
|
|
|
|
Other, less reserves: 2010, $24; 2009, $27
|
|
|
412
|
|
|
|
506
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
14,010
|
|
|
|
24,337
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment at cost, less accumulated
depreciation: 2010, $4,483; 2009, $4,130
|
|
|
2,905
|
|
|
|
2,782
|
|
|
|
|
|
|
|
|
|
|
Other assets (includes restricted cash of consolidated variable
interest entities: 2010, $3,759; 2009,
$1,799)
(a)
|
|
|
15,368
|
|
|
|
13,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
147,042
|
|
|
$
|
125,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
29,727
|
|
|
$
|
26,289
|
|
|
|
|
|
|
|
|
|
|
Travelers Cheques outstanding
|
|
|
5,618
|
|
|
|
5,975
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
9,691
|
|
|
|
9,063
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
3,414
|
|
|
|
2,344
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (includes debt issued by consolidated variable
interest entities: 2010, $23,341; 2009, $4,970)
|
|
|
66,416
|
|
|
|
52,338
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
15,946
|
|
|
|
14,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
130,812
|
|
|
|
110,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 24)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, $0.20 par value, authorized 3.6 billion
shares; issued and outstanding 1,197 million shares
as of December 31, 2010 and 1,192 million shares as of
December 31, 2009
|
|
|
238
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
11,937
|
|
|
|
11,144
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
4,972
|
|
|
|
3,737
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized securities gains, net of tax: 2010, $(19); 2009,
$(291)
|
|
|
57
|
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
Net unrealized derivatives losses, net of tax: 2010, $4; 2009,
$15
|
|
|
(7
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax: 2010,
$405; 2009, $31
|
|
|
(503
|
)
|
|
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
Net unrealized pension and other postretirement benefit losses,
net of tax: 2010, $226; 2009, $244
|
|
|
(464
|
)
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
|
(917
|
)
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
16,230
|
|
|
|
14,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
147,042
|
|
|
$
|
125,145
|
|
|
|
|
|
|
(a)
|
|
The balances as of
December 31, 2009 include an undivided, pro-rata interest
in an unconsolidated variable interest entity (historically
referred to as sellers interest) totaling
$8,752, of which $8,033 is included in cardmember loans and $719
is included in other assets. Refer to Note 7 for additional
details.
|
See Notes to Consolidated Financial
Statements.
69
AMERICAN
EXPRESS COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
2,130
|
|
|
$
|
2,699
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
7
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
4,057
|
|
|
|
2,137
|
|
|
|
2,871
|
|
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for losses
|
|
|
2,207
|
|
|
|
5,313
|
|
|
|
5,798
|
|
Depreciation and amortization
|
|
|
917
|
|
|
|
1,070
|
|
|
|
712
|
|
Deferred taxes, acquisition costs and other
|
|
|
1,135
|
|
|
|
(1,429
|
)
|
|
|
442
|
|
Stock-based compensation
|
|
|
287
|
|
|
|
230
|
|
|
|
256
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
(498
|
)
|
|
|
(730
|
)
|
|
|
101
|
|
Other assets
|
|
|
(590
|
)
|
|
|
526
|
|
|
|
(2,256
|
)
|
Accounts payable and other liabilities
|
|
|
2,090
|
|
|
|
(98
|
)
|
|
|
490
|
|
Travelers Cheques outstanding
|
|
|
(317
|
)
|
|
|
(449
|
)
|
|
|
(770
|
)
|
Net cash (used in) provided by operating activities attributable
to discontinued operations
|
|
|
|
|
|
|
(233
|
)
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
9,288
|
|
|
|
6,337
|
|
|
|
7,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of investments
|
|
|
2,196
|
|
|
|
2,930
|
|
|
|
4,657
|
|
Maturity and redemption of investments
|
|
|
12,066
|
|
|
|
2,900
|
|
|
|
9,620
|
|
Purchase of investments
|
|
|
(7,804
|
)
|
|
|
(13,719
|
)
|
|
|
(14,724
|
)
|
Net (increase) decrease in cardmember loans/receivables
|
|
|
(6,389
|
)
|
|
|
6,154
|
|
|
|
5,940
|
|
Proceeds from cardmember loan securitizations
|
|
|
|
|
|
|
2,244
|
|
|
|
9,619
|
|
Maturities of cardmember loan securitizations
|
|
|
|
|
|
|
(4,800
|
)
|
|
|
(4,670
|
)
|
Purchase of premises and equipment
|
|
|
(887
|
)
|
|
|
(772
|
)
|
|
|
(977
|
)
|
Sale of premises and equipment
|
|
|
9
|
|
|
|
50
|
|
|
|
27
|
|
Acquisitions/Dispositions, net of cash acquired
|
|
|
(400
|
)
|
|
|
|
|
|
|
(4,589
|
)
|
Net (increase) decrease in restricted cash
|
|
|
(20
|
)
|
|
|
(1,935
|
)
|
|
|
33
|
|
Net cash provided by investing activities attributable to
discontinued operations
|
|
|
|
|
|
|
196
|
|
|
|
2,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,229
|
)
|
|
|
(6,752
|
)
|
|
|
7,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in customer deposits
|
|
|
3,406
|
|
|
|
11,037
|
|
|
|
358
|
|
Net increase (decrease) in short-term borrowings
|
|
|
1,056
|
|
|
|
(6,574
|
)
|
|
|
(8,693
|
)
|
Issuance of long-term debt
|
|
|
5,918
|
|
|
|
6,697
|
|
|
|
19,213
|
|
Principal payments on long-term debt
|
|
|
(17,670
|
)
|
|
|
(15,197
|
)
|
|
|
(13,787
|
)
|
Issuance of American Express Series A preferred shares and
warrants
|
|
|
|
|
|
|
3,389
|
|
|
|
|
|
Issuance of American Express common shares
|
|
|
663
|
|
|
|
614
|
|
|
|
176
|
|
Repurchase of American Express Series A preferred shares
|
|
|
|
|
|
|
(3,389
|
)
|
|
|
|
|
Repurchase of American Express stock warrants
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
Repurchase of American Express common shares
|
|
|
(590
|
)
|
|
|
|
|
|
|
(218
|
)
|
Dividends paid
|
|
|
(867
|
)
|
|
|
(924
|
)
|
|
|
(836
|
)
|
Net cash provided by (used in) financing activities attributable
to discontinued operations
|
|
|
|
|
|
|
40
|
|
|
|
(6,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(8,084
|
)
|
|
|
(4,647
|
)
|
|
|
(10,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
135
|
|
|
|
7
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
110
|
|
|
|
(5,055
|
)
|
|
|
4,914
|
|
Cash and cash equivalents at beginning of year includes cash of
discontinued operations: 2010, $0; 2009, $3; 2008, $6,390
|
|
|
16,599
|
|
|
|
21,654
|
|
|
|
16,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year includes cash of
discontinued operations: 2010, $0; 2009, $0; 2008, $3
|
|
$
|
16,709
|
|
|
$
|
16,599
|
|
|
$
|
21,654
|
|
|
|
See Notes to Consolidated Financial
Statements.
70
AMERICAN
EXPRESS COMPANY
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
Three Years Ended December 31, 2010
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
(Millions, except per share amounts)
|
|
Total
|
|
|
Shares
|
|
|
Shares
|
|
|
Capital
|
|
|
(Loss) Income
|
|
|
Earnings
|
|
|
Balances as of December 31,
2007
|
|
$
|
11,029
|
|
|
$
|
|
|
|
$
|
232
|
|
|
$
|
10,164
|
|
|
$
|
(442
|
)
|
|
$
|
1,075
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,699
|
|
Change in net unrealized securities gains
|
|
|
(711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(711
|
)
|
|
|
|
|
Change in net unrealized derivatives (losses) gains
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
Change in net unrealized pension and other postretirement
benefit losses
|
|
|
(334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common shares
|
|
|
(218
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
(175
|
)
|
Other changes, primarily employee plans
|
|
|
334
|
|
|
|
|
|
|
|
1
|
|
|
|
374
|
|
|
|
3
|
|
|
|
(44
|
)
|
Cash dividends declared Common, $0.72 per share
|
|
|
(836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31,
2008
|
|
|
11,841
|
|
|
|
|
|
|
|
232
|
|
|
|
10,496
|
|
|
|
(1,606
|
)
|
|
|
2,719
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,130
|
|
Change in net unrealized securities gains
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,206
|
|
|
|
|
|
Change in net unrealized derivatives (losses) gains
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(354
|
)
|
|
|
|
|
Change in net unrealized pension and other postretirement
benefit losses
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
3,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred shares and common stock warrants
|
|
|
3,389
|
|
|
|
3,157
|
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
Preferred share accretion
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(232
|
)
|
Repurchase of preferred shares
|
|
|
(3,389
|
)
|
|
|
(3,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of warrants
|
|
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
(232
|
)
|
|
|
|
|
|
|
(108
|
)
|
Issuance of common shares
|
|
|
531
|
|
|
|
|
|
|
|
4
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
Other changes, primarily employee plans
|
|
|
279
|
|
|
|
|
|
|
|
1
|
|
|
|
121
|
|
|
|
|
|
|
|
157
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74
|
)
|
Common, $0.72 per share
|
|
|
(855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31,
2009
|
|
|
14,406
|
|
|
|
|
|
|
|
237
|
|
|
|
11,144
|
|
|
|
(712
|
)
|
|
|
3,737
|
|
Impact of Adoption of new GAAP (Note 7)
|
|
|
(1,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(315
|
)
|
|
|
(1,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 1, 2010
(Adjusted)
|
|
|
12,637
|
|
|
|
|
|
|
|
237
|
|
|
|
11,144
|
|
|
|
(1,027
|
)
|
|
|
2,283
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,057
|
|
Change in net unrealized securities gains
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
Change in net unrealized derivatives (losses) gains
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219
|
|
|
|
|
|
Change in net unrealized pension and other postretirement
benefit losses
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
4,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common shares
|
|
|
(590
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
(455
|
)
|
Other changes, primarily employee plans
|
|
|
883
|
|
|
|
|
|
|
|
4
|
|
|
|
925
|
|
|
|
|
|
|
|
(46
|
)
|
Cash dividends declared Common, $0.72 per share
|
|
|
(867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31,
2010
|
|
$
|
16,230
|
|
|
$
|
|
|
|
$
|
238
|
|
|
$
|
11,937
|
|
|
$
|
(917
|
)
|
|
$
|
4,972
|
|
|
|
See Notes to Consolidated Financial
Statements.
71
AMERICAN
EXPRESS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
THE
COMPANY
American Express is a global service company that provides
customers with access to products, insights and experiences that
enrich lives and build business success. The Companys
principal products and services are charge and credit payment
card products and travel-related services offered to consumers
and businesses around the world. The Companys various
products and services are sold globally to diverse customer
groups, including consumers, small businesses, mid-sized
companies and large corporations. These products and services
are sold through various channels, including direct mail,
on-line applications, targeted direct and third-party sales
forces and direct response advertising.
PRINCIPLES
OF CONSOLIDATION
The Consolidated Financial Statements of the Company are
prepared in conformity with U.S. generally accepted
accounting principles (GAAP). All significant intercompany
transactions are eliminated.
The Company consolidates all entities in which the Company holds
a controlling financial interest. For voting
interest entities, the Company is considered to hold a
controlling financial interest when the Company is able to
exercise control over the investees operating and
financial decisions. For variable interest entities (VIEs), the
Company is considered to hold a controlling financial interest
when it is determined to be the primary beneficiary. Prior to
the adoption of ASU
No. 2009-17,
Consolidation (Topic 810): Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities
(effective January 1, 2010), a primary beneficiary was the
party that absorbs a majority of the VIEs expected losses
or receive a majority of the VIEs expected residual
returns. For VIEs, subsequent to the adoption of ASU
No. 2009-17,
a primary beneficiary is a party that has both: (1) the
power to direct the activities of a VIE that most significantly
impact that entitys economic performance, and (2) the
obligation to absorb losses, or the right to receive benefits,
from the VIE that could potentially be significant to the VIE.
The determination of whether an entity is a VIE is based on the
amount and characteristics of the entitys equity.
Entities in which the Companys voting interest in common
equity does not provide the Company with control, but allows the
Company to exert significant influence over their financial and
operating decisions are accounted for under the equity method.
All other investments in equity securities, to the extent that
they are not considered marketable securities, are accounted for
under the cost method.
FOREIGN
CURRENCY
Assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based upon exchange rates
prevailing at the end of each year. The resulting translation
adjustments, along with any related qualifying hedge and tax
effects, are included in accumulated other comprehensive (loss)
income (AOCI), a component of shareholders equity.
Translation adjustments, including qualifying hedge and tax
effects, are reclassified to earnings upon the sale or
substantial liquidation of investments in foreign operations.
Revenues and expenses are translated at the average month-end
exchange rates during the year. Gains and losses related to
transactions in a currency other than the functional currency,
including operations outside the U.S. where the functional
currency is the U.S. dollar, are reported net in the
Companys Consolidated Statements of Income, in other
non-interest revenue, interest income, interest expense, or
other, net expense, depending on the nature of the activity. Net
foreign currency transaction gains amounted to approximately
$138 million, $205 million and $15 million in
2010, 2009 and 2008, respectively.
AMOUNTS
BASED ON ESTIMATES AND
ASSUMPTIONS
Accounting estimates are an integral part of the Consolidated
Financial Statements. These estimates are based, in part, on
managements assumptions concerning future events. Among
the more significant assumptions are those that relate to
reserves for cardmember losses relating to loans and charge card
receivables, reserves for Membership Rewards costs, fair value
measurement, goodwill and income taxes. These accounting
estimates reflect the best judgment of management, but actual
results could differ.
TOTAL
REVENUES NET OF INTEREST EXPENSE
Discount
Revenue
Discount revenue represents fees charged to merchants with which
the Company, or its GNS partners, has entered into card
acceptance agreements for facilitating transactions between the
merchants and the Companys cardmembers. The discount
generally is deducted from the payment to the merchant and
recorded as discount revenue at the time the charge is captured.
Net
Card Fees
Card fees are deferred and recognized on a straight-line basis
over the
12-month
card membership period, net of deferred direct card acquisition
costs and a reserve for projected membership cancellations.
Charge card fees are recognized in net card fees in the
Consolidated Statements of Income and the unamortized net card
fee balance is reported in other liabilities on the Consolidated
Balance Sheets (refer to Note 11). Loan product fees are
considered an enhancement to the yield on the product, and are
recognized in interest and fees on loans in the Consolidated
Statements of Income. The unamortized net card
72
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
fee balance for lending products is reported net in cardmember
loans on the Consolidated Balance Sheets (refer to Note 4).
Travel
Commissions and Fees
The Company earns travel commissions and fees by charging
clients transaction or management fees for selling and arranging
travel and for travel management services. Client transaction
fee revenue is recognized at the time the client books the
travel arrangements. Travel management services revenue is
recognized over the contractual term of the agreement. The
Companys travel suppliers (for example, airlines, hotels
and car rental companies) pay commissions and fees on tickets
issued, sales and other services based on contractual
agreements. Commissions and fees from travel suppliers are
generally recognized at the time a ticket is purchased or over
the term of the contract. Commissions and fees that are based on
services rendered (for example, hotel stays and car rentals) are
recognized based on usage.
Other
Commissions and Fees
Other commissions and fees include foreign currency conversion
fees, delinquency fees, service fees and other card related
assessments, which are recognized primarily in the period in
which they are charged to the cardmember. Also included are fees
related to the Companys Membership Rewards program, which
are deferred and recognized over the period covered by the fee.
The unamortized Membership Rewards fee balance is included in
other liabilities on the Consolidated Balance Sheets (refer to
Note 11).
Contra-revenue
The Company regularly makes payments through contractual
arrangements with merchants, commercial card clients and certain
other customers (collectively the customers).
Payments to customers are generally classified as contra-revenue
unless a specifically identifiable benefit (e.g., goods or
services) is received by the Company in consideration for that
payment and the fair value of such benefit is determinable and
measurable. If no such benefit is identified, then the entire
payment is classified as contra-revenue and included within
total non-interest revenues in the Consolidated Statements of
Income in the line item where the related transaction revenues
are recorded (e.g., discount revenue, travel commissions and
fees and other commissions and fees). If such a benefit is
identified, then the payment is classified as expense up to the
estimated fair value of the benefit.
Interest
Income
Interest on loans owned is assessed using the average daily
balance method. Interest is recognized based upon the loan
principal amount outstanding in accordance with the terms of the
applicable account agreement until the outstanding balance is
paid or written-off.
Interest and dividends on investment securities primarily
relates to the Companys performing fixed-income
securities. Interest income is accrued as earned using the
effective interest method, which adjusts the yield for security
premiums and discounts, fees and other payments, so that a
constant rate of return is recognized on the investment
securitys outstanding balance. Amounts are recognized
until such time as a security is in default or when it is likely
that future interest payments will not be received as scheduled.
Interest on deposits with banks and other is recognized as
earned, and primarily relates to the placement of cash in
interest-bearing time deposits, overnight sweep accounts, and
other interest-bearing demand and call accounts.
Interest
Expense
Interest expense includes interest incurred primarily to fund
cardmember loans, charge card product receivables, general
corporate purposes, and liquidity needs, and is recognized as
incurred. Interest expense is divided principally into three
categories: (i) deposits, which primarily relates to
interest expense on deposits taken from customers and
institutions, (ii) short-term borrowings, which primarily
relates to interest expense on commercial paper, federal funds
purchased, bank overdrafts and other short-term borrowings, and
(iii) long-term debt, which primarily relates to interest
expense on the Companys long-term financing.
BALANCE
SHEET
Cash
and Cash Equivalents
Cash and cash equivalents include cash and amounts due from
banks, interest-bearing bank balances, including securities
purchased under resale agreements and other highly liquid
investments with original maturities of 90 days or less.
Premises
and Equipment
Premises and equipment, including leasehold improvements, are
carried at cost less accumulated depreciation. Costs incurred
during construction are capitalized and are depreciated once an
asset is placed in service. Depreciation is generally computed
using the straight-line method over the estimated useful lives
of assets, which range from 3 to 8 years for equipment.
Premises are depreciated based upon their estimated useful life
at the acquisition date, which generally ranges from 40 to
60 years.
Leasehold improvements are depreciated using the straight-line
method over the lesser of the remaining term of the leased
facility or the economic life of the improvement, which ranges
from 5 to 10 years. The Company maintains operating leases
worldwide for facilities and equipment. Rent expense for
facility leases is recognized ratably over the lease term, and
is calculated to include adjustments for rent concessions, rent
escalations and leasehold improvement allowances. The Company
accounts for lease restoration obligations in accordance with
applicable GAAP, which requires recognition of the fair value of
restoration liabilities when incurred, and amortization of
capitalized restoration costs over the lease term.
73
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Software
development costs
The Company capitalizes certain costs associated with the
acquisition or development of internal-use software. Once the
software is ready for its intended use, these costs are
amortized on a straight-line basis over the softwares
estimated useful life, generally 5 years.
OTHER
SIGNIFICANT ACCOUNTING POLICIES
The following table identifies the Companys other
significant accounting policies, the Note and page where a
detailed description of each policy can be found.
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
|
|
Significant Accounting Policy
|
|
Number
|
|
Note Title
|
|
Page
|
|
Fair Value Measurements
|
|
Note 3
|
|
Fair Values
|
|
Page 76
|
Accounts Receivable
|
|
Note 4
|
|
Accounts Receivable and Loans
|
|
Page 78
|
Loans
|
|
Note 4
|
|
Accounts Receivable and Loans
|
|
Page 78
|
Reserves for Losses
|
|
Note 5
|
|
Reserves for Losses
|
|
Page 81
|
Investment Securities
|
|
Note 6
|
|
Investment Securities
|
|
Page 83
|
Securitization Income, Net; and Asset Securitization
|
|
Note 7
|
|
Asset Securitizations
|
|
Page 85
|
Goodwill and Other Intangible Assets
|
|
Note 8
|
|
Other Assets
|
|
Page 87
|
Membership Rewards
|
|
Note 11
|
|
Other Liabilities
|
|
Page 92
|
Derivative Financial Instruments and Hedging Activities
|
|
Note 12
|
|
Derivatives and Hedging Activities
|
|
Page 92
|
Income Taxes
|
|
Note 17
|
|
Income Taxes
|
|
Page 101
|
Other Non-Interest Revenues
|
|
Note 19
|
|
Details of Certain Consolidated Statements of Income Lines
|
|
Page 103
|
Other, Net Expense
|
|
Note 19
|
|
Details of Certain Consolidated Statements of Income Lines
|
|
Page 103
|
Stock-based Compensation
|
|
Note 20
|
|
Stock Plans
|
|
Page 104
|
Legal Contingencies
|
|
Note 24
|
|
Commitments and Contingencies
|
|
Page 113
|
Reportable Operating Segments
|
|
Note 25
|
|
Reportable Operating Segments and Geographic Operations
|
|
Page 114
|
|
|
RECENTLY
ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) recently issued
Accounting Standards Update (ASU)
No. 2010-20,
Receivables (Topic 310): Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses. This
standard is intended to provide additional information to assist
financial statement users in assessing an entitys credit
risk exposures and evaluating the adequacy of its allowance for
credit losses. As such, the standard amends existing guidance by
requiring an entity to provide a greater level of disaggregated
information about its financing receivables and its allowance
for credit losses and includes new disclosures such as credit
quality indicators, past due information and additional impaired
loan data. Effective December 31, 2010, the Company adopted
these amendments except for disclosures of activity within
periods, which become effective for periods beginning
January 1, 2011. Additionally, certain new disclosures for
Troubled Debt Restructurings were not implemented because such
disclosures have been deferred by ASU
No. 2011-01,
Receivables (Topic 310): Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in Update
No. 2010-20,
and are expected to be effective for periods beginning
April 1, 2011.
In addition, the Company adopted the following standards:
|
|
|
ASU
No. 2009-16,
Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets, and
|
|
|
ASU
No. 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities.
|
These standards (generally referred to herein as new GAAP
effective January 1, 2010) eliminated the concept of a
qualifying special purpose entity (QSPE), therefore requiring
these entities to be evaluated under the accounting guidance for
consolidation of VIEs. In addition, ASU
2009-17
required an entity to reconsider its previous consolidation
conclusions reached under the VIE consolidation model, including
(i) whether an entity is a VIE, (ii) whether the
enterprise is the VIEs primary beneficiary, and
(iii) the required financial statement disclosures.
Upon adoption of ASU
2009-16
and
ASU
2009-17,
the Company was required to change its accounting for the
American Express Credit Account Master Trust (the Lending
Trust), a previously unconsolidated VIE, which is now
consolidated. As a result, beginning January 1, 2010, the
securitized cardmember loans and related debt securities issued
to third parties by the Lending Trust are included on the
Companys Consolidated Balance Sheet. The Company continues
to consolidate the American Express Issuance Trust (the Charge
Trust). Prior period results have not been revised for the
change in accounting for the Lending Trust. Refer to Note 7
for further discussion.
74
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
CLASSIFICATION
OF CASH BALANCES
The Company determined that in periods prior to June 30,
2010, the Company misclassified certain book overdraft balances
against cash balances on its Consolidated Balance Sheets. Such
overdraft balances, which arise in the normal course of the
Companys business activities, should have been classified
as either accounts payable or other liabilities, depending on
the underlying nature of the account. The Company has evaluated
the effects of these misclassifications and concluded that they
are not, individually or in the aggregate, material to any of
the Companys previously issued quarterly or annual
Consolidated Financial Statements. Nevertheless, the Company has
elected to revise in this report and future filings its
Consolidated Balance Sheet and Consolidated Statements of Cash
Flows to correct the effects of these misclassifications.
The amounts on the Consolidated Balance Sheet as of
December 31, 2009 that have been revised are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Previously Reported
|
|
|
As Revised
|
|
|
Cash and cash equivalents
|
|
$
|
15,542
|
|
|
$
|
16,599
|
|
Accounts payable
|
|
|
8,926
|
|
|
|
9,063
|
|
Other liabilities
|
|
|
13,810
|
|
|
|
14,730
|
|
|
|
These balance sheet misclassifications further impacted amounts
previously reported in prior period Consolidated Statements of
Cash Flows, as summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Previously
|
|
|
As
|
|
|
Previously
|
|
|
As
|
|
(Billions)
|
|
Reported
|
|
|
Revised
|
|
|
Reported
|
|
|
Revised
|
|
|
Change in accounts payable and other liabilities
|
|
$
|
|
|
|
$
|
(0.1
|
)
|
|
$
|
0.9
|
|
|
$
|
0.5
|
|
Net cash provided by operating activities
|
|
|
6.4
|
|
|
|
6.3
|
|
|
|
8.1
|
|
|
|
7.8
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(5.0
|
)
|
|
|
(5.1
|
)
|
|
|
5.3
|
|
|
|
4.9
|
|
|
|
Certain other reclassifications of prior period amounts have
been made to conform to the current presentation.
NOTE 2
ACQUISITIONS
AND DISCONTINUED OPERATIONS
ACQUISITIONS
During the course of the year, the Company purchased Accertify
(November 10, 2010) and Revolution Money
(January 15, 2010) for a total consideration of
$151 million and $305 million, respectively. Accertify
is an on-line fraud solution provider and Revolution Money is a
provider of secure
person-to-person
payment services through an internet-based platform. These
acquisitions did not have a significant impact on either the
Companys consolidated results of operations or the
segments in which they are reflected for the year ended
December 31, 2010.
On March 28, 2008, the Company purchased Corporate Payment
Services (CPS), General Electric Companys commercial card
and corporate purchasing business unit.
The following table summarizes the assets acquired and
liabilities assumed for these acquisitions as of the acquisition
dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Revolution
|
|
|
Payment
|
|
(Millions)
|
|
Accertify
|
|
|
Money
|
|
|
Services
|
|
|
Goodwill
|
|
$
|
131
|
|
|
$
|
184
|
|
|
$
|
818
|
|
Definite-lived intangible assets
|
|
|
15
|
|
|
|
119
|
|
|
|
232
|
|
Other assets
|
|
|
11
|
|
|
|
7
|
|
|
|
1,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
157
|
|
|
|
310
|
|
|
|
2,309
|
|
Total liabilities
|
|
|
6
|
|
|
|
5
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
151
|
|
|
$
|
305
|
|
|
$
|
2,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Reportable operating segment
|
|
|
GNMS
|
|
|
|
& Other
|
|
|
|
GCS
|
(a)
|
|
|
|
|
|
(a)
|
|
An insignificant portion of the
receivables and intangible assets are also allocated to the USCS
reportable operating segment.
|
DISCONTINUED
OPERATIONS
On September 18, 2007, the Company entered into an
agreement to sell its international banking subsidiary, American
Express Bank Ltd. (AEB) to Standard Chartered PLC (Standard
Chartered) and to sell American Express International Deposit
Company (AEIDC) through a put/call agreement to Standard
Chartered 18 months after the close of the AEB sale. The
sale of AEB was completed on February 29, 2008. In the
third quarter of 2008, AEIDC qualified to be reported as a
discontinued operation. The sale of AEIDC was completed on
September 10, 2009.
As of and for the years ended December 31, 2009 and 2008,
all of the operating results, assets and liabilities, and cash
flows of AEB (except for certain components of AEB that were not
sold) and AEIDC have been removed from the Corporate &
Other segment and are presented separately in discontinued
operations in the Companys Consolidated Financial
Statements. The Notes to the Consolidated Financial Statements
have been adjusted to exclude discontinued operations unless
otherwise noted.
75
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 3
FAIR
VALUES
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in
an orderly transaction between market participants at the
measurement date, and is based on the Companys principal
or most advantageous market for the specific asset or liability.
GAAP provides for a three-level hierarchy of inputs to valuation
techniques used to measure fair value, defined as follows:
|
|
|
Level 1 Inputs that are quoted prices
(unadjusted) for identical assets or liabilities in active
markets.
|
|
|
Level 2 Inputs other than quoted prices
included within Level 1 that are observable for the asset
or liability, either directly or indirectly, for substantially
the full term of the asset or liability, including:
|
|
|
|
|
|
Quoted prices for similar assets or liabilities in active markets
|
|
|
|
Quoted prices for identical or similar assets or liabilities in
markets that are not active
|
|
|
|
Inputs other than quoted prices that are observable for the
asset or liability
|
|
|
|
Inputs that are derived principally from or corroborated by
observable market data by correlation or other means
|
|
|
|
Level 3 Inputs that are unobservable and
reflect the Companys own assumptions about the assumptions
market participants would use in pricing the asset or liability
based on the best information available in the circumstances
(e.g., internally derived assumptions surrounding the timing and
amount of expected cash flows).
|
The following table summarizes the Companys financial
assets and financial liabilities measured at fair value on a
recurring basis, categorized by GAAPs valuation hierarchy
(as described in the preceding paragraphs), as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
(Millions)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
475
|
|
|
$
|
475
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
530
|
|
|
$
|
530
|
|
|
$
|
|
|
|
$
|
|
|
Retained subordinated
securities
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,599
|
|
|
|
|
|
|
|
|
|
|
|
3,599
|
|
Debt securities and other
|
|
|
13,535
|
|
|
|
|
|
|
|
13,535
|
|
|
|
|
|
|
|
20,208
|
|
|
|
|
|
|
|
20,208
|
|
|
|
|
|
Interest-only
strip
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Derivatives
(c)
|
|
|
1,089
|
|
|
|
|
|
|
|
1,089
|
|
|
|
|
|
|
|
833
|
|
|
|
|
|
|
|
833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,099
|
|
|
$
|
475
|
|
|
$
|
14,624
|
|
|
$
|
|
|
|
$
|
25,190
|
|
|
$
|
530
|
|
|
$
|
21,041
|
|
|
$
|
3,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
(c)
|
|
$
|
419
|
|
|
$
|
|
|
|
$
|
419
|
|
|
$
|
|
|
|
$
|
283
|
|
|
$
|
|
|
|
$
|
283
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
419
|
|
|
$
|
|
|
|
$
|
419
|
|
|
$
|
|
|
|
$
|
283
|
|
|
$
|
|
|
|
$
|
283
|
|
|
$
|
|
|
|
|
|
|
|
(a)
|
|
Refer to Note 6 for the fair
values of investment securities on a further disaggregated basis.
|
(b)
|
|
As a result of new GAAP effective
January 1, 2010, the Company no longer presents the
retained subordinated securities and interest-only strip within
its Consolidated Financial Statements in periods subsequent to
December 31, 2009. Refer to Note 7 for further details.
|
(c)
|
|
Refer to Note 12 for the fair
values of derivative assets and liabilities on a further
disaggregated basis. While derivative assets and derivative
liabilities are presented gross in the table above, GAAP permits
the netting of derivative assets and derivative liabilities when
a legally enforceable master netting agreement exists between
the Company and its derivative counterparty. As of
December 31, 2010 and 2009, $18 million and
$33 million, respectively, of derivative assets and
liabilities have been offset and presented net on the
Consolidated Balance Sheets.
|
The table below presents a reconciliation of all assets and
liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) as of
December 31, 2009, including realized and unrealized gains
(losses) included in earnings and AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
(a)
|
|
|
|
Investments Retained
|
|
|
Other Assets
|
|
(Millions)
|
|
Subordinated Securities
|
|
|
Interest-Only Strip
|
|
|
Beginning fair value, January 1
|
|
$
|
744
|
|
|
$
|
32
|
|
Increases in securitized
loans
(b)
|
|
|
1,760
|
|
|
|
|
|
Unrealized and realized gains (losses)
|
|
|
1,095
|
(c)
|
|
|
(12
|
)
(d)
|
|
|
|
|
|
|
|
|
|
Ending fair value, December 31
|
|
$
|
3,599
|
|
|
$
|
20
|
|
|
|
|
|
|
(a)
|
|
The Company did not measure any
financial instruments at fair value using significantly
unobservable inputs (Level 3) during the year ended
December 31, 2010.
|
(b)
|
|
Represents cost basis of
securitized loans.
|
(c)
|
|
Included in AOCI, net of taxes.
|
(d)
|
|
Included in securitization income,
net.
|
76
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
GAAP requires disclosure of the estimated fair value of all
financial instruments. A financial instrument is defined as
cash, evidence of an ownership in an entity, or a contract
between two entities to deliver cash or another financial
instrument or to exchange other financial instruments. The
disclosure requirements for the fair value of financial
instruments exclude leases, equity method investments, affiliate
investments, pension and benefit obligations, insurance
contracts and all non-financial instruments.
VALUATION
TECHNIQUES USED IN MEASURING FAIR VALUE
For the financial assets and liabilities measured at fair value
on a recurring basis (categorized in the valuation hierarchy
table on the previous page) the Company applies the following
valuation techniques to measure fair value:
Investment
Securities (Excluding Retained Subordinated
Securities and the Interest-Only Strip)
|
|
|
When available, quoted market prices in active markets are used
to determine fair value. Such investment securities are
classified within Level 1 of the fair value hierarchy.
|
|
|
When quoted prices in an active market are not available, the
fair values for the Companys investment securities are
obtained primarily from pricing services engaged by the Company,
and the Company receives one price for each security. The fair
values provided by the pricing services are estimated using
pricing models, where the inputs to those models are based on
observable market inputs. The inputs to the valuation techniques
applied by the pricing services vary depending on the type of
security being priced but are typically benchmark yields,
benchmark security prices, credit spreads, prepayment speeds,
reported trades and broker-dealer quotes, all with reasonable
levels of transparency. The pricing services did not apply any
adjustments to the pricing models used. In addition, the Company
did not apply any adjustments to prices received from the
pricing services. The Company classifies the prices obtained
from the pricing services within Level 2 of the fair value
hierarchy because the underlying inputs are directly observable
from active markets or recent trades of similar securities in
inactive markets. However, the pricing models used do entail a
certain amount of subjectivity and therefore differing judgments
in how the underlying inputs are modeled could result in
different estimates of fair value.
|
The Company reaffirms its understanding of the valuation
techniques used by its pricing services at least annually. In
addition, the Company corroborates the prices provided by its
pricing services to test their reasonableness by comparing their
prices to valuations from different pricing sources as well as
comparing prices to the sale prices received from sold
securities. Refer to Note 6 for additional fair value
information.
Retained
Subordinated Securities
As of January 1, 2010, pursuant to changes in GAAP
governing accounting for transfers of financial assets, the
Company no longer has retained subordinated securities. The fair
value of the Companys retained subordinated securities was
determined using discounted cash flow models. The discount rate
was based on an interest rate curve observable in the
marketplace plus an unobservable credit spread for risks
associated with these securities and other similar financial
instruments. The Company classified such securities as
Level 3 in the fair value hierarchy because the credit
spreads were not observable due to market illiquidity for these
securities and similar financial instruments.
Interest-Only
Strip
As of January 1, 2010, pursuant to changes in GAAP
governing accounting for transfers of financial assets, the
Company no longer has interest-only strips. The fair value of
the interest-only strip was the present value of estimated
future positive excess spread expected to be generated by the
securitized loans over the estimated remaining life of those
loans. Management utilized certain estimates and assumptions to
determine the fair value of the interest-only strip asset,
including estimates for finance charge yield, credit losses,
London Interbank Offered Rate (LIBOR) (which determined future
certificate interest costs), monthly payment rate and discount
rate. On a quarterly basis, the Company compared the assumptions
it used in calculating the fair value of its interest-only strip
to observable market data when available, and to historical
trends. The interest-only strip was classified within
Level 3 of the fair value hierarchy due to the significance
of the unobservable inputs used in valuing this asset.
Derivative
Financial Instruments
The fair value of the Companys derivative financial
instruments, which could be assets or liabilities on the
Consolidated Balance Sheets, is estimated by a third-party
valuation service that uses proprietary pricing models, or by
internal pricing models. The pricing models do not contain a
high level of subjectivity as the valuation techniques used do
not require significant judgment, and inputs to those models are
readily observable from actively quoted markets. The pricing
models used are consistently applied and reflect the contractual
terms of the derivatives, including the period of maturity, and
market-based parameters such as interest rates, foreign exchange
rates, equity indices or prices, and volatility.
Credit valuation adjustments are necessary when the market
parameters, such as a benchmark curve, used to value derivatives
are not indicative of the credit quality of the Company or its
counterparties. The Company considers the counterparty credit
risk by applying an observable forecasted default rate to the
current exposure. Refer to Note 12 for additional fair
value information.
77
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table discloses the estimated fair value for the
Companys financial assets and financial liabilities that
are not carried at fair value, as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(Billions)
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets for which carrying values equal or approximate fair value
|
|
$
|
62
|
|
|
$
|
62
|
(a)
|
|
$
|
58
|
|
|
$
|
58
|
(b)
|
Loans, net
|
|
$
|
58
|
|
|
$
|
58
|
(a)
|
|
$
|
30
|
|
|
$
|
30
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities for which carrying values equal or approximate
fair value
|
|
$
|
43
|
|
|
$
|
43
|
|
|
$
|
34
|
|
|
$
|
34
|
|
Certificates of deposit
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
15
|
|
|
$
|
16
|
|
Long-term debt
|
|
$
|
66
|
|
|
$
|
69
|
(a)
|
|
$
|
52
|
|
|
$
|
54
|
(b)
|
|
|
|
|
|
(a)
|
|
Includes fair values of cardmember
receivables, loans and long-term debt of $8.1 billion,
$33.2 billion and $23.6 billion, respectively, held by
consolidated VIEs as of December 31, 2010. Refer to the
Consolidated Balance Sheets for the related carrying values.
|
(b)
|
|
Includes fair values of cardmember
receivables and long-term debt of $8.3 billion and
$5.0 billion, respectively, held by a consolidated VIE as
of December 31, 2009. Refer to the Consolidated Balance
Sheets for the related carrying values.
|
The fair values of these financial instruments are estimates
based upon the market conditions and perceived risks as of
December 31, 2010 and 2009, and require management
judgment. These figures may not be indicative of their future
fair values. The fair value of the Company cannot be reliably
estimated by aggregating the amounts presented.
The following methods were used to determine estimated fair
values:
FINANCIAL
ASSETS FOR WHICH CARRYING VALUES EQUAL OR APPROXIMATE FAIR VALUE
Financial assets for which carrying values equal or approximate
fair value include cash and cash equivalents, cardmember
receivables, accrued interest and certain other assets. For
these assets, the carrying values approximate fair value because
they are short term in duration or variable rate in nature.
FINANCIAL
ASSETS CARRIED AT OTHER THAN FAIR VALUE
Loans,
net
Loans are recorded at historical cost, less reserves, on the
Consolidated Balance Sheets. In estimating the fair value for
the Companys loans the principal market is assumed to be
the securitization market, and the Company uses the hypothetical
securitization price to determine the fair value of the
portfolio. The securitization price is estimated from the
assumed proceeds of the hypothetical securitization in the
current market, adjusted for securitization uncertainties such
as market conditions and liquidity.
FINANCIAL
LIABILITIES FOR WHICH CARRYING VALUES EQUAL OR APPROXIMATE FAIR
VALUE
Financial liabilities for which carrying values equal or
approximate fair value include accrued interest, customer
deposits (excluding certificates of deposit, which are described
further below), Travelers Cheques outstanding, short-term
borrowings and certain other liabilities for which the carrying
values approximate fair value because they are short term in
duration, variable rate in nature or have no defined maturity.
FINANCIAL
LIABILITIES CARRIED AT OTHER THAN FAIR VALUE
Certificates
of Deposit
Certificates of deposit (CDs) are recorded at their historical
issuance cost on the Consolidated Balance Sheets. Fair value is
estimated using a discounted cash flow methodology based on the
Companys current borrowing rates for similar types of CDs.
Long-term
Debt
Long-term debt is recorded at historical issuance cost on the
Consolidated Balance Sheets. Fair value is estimated using
either quoted market prices or discounted cash flows based on
the Companys current borrowing rates for similar types of
borrowings.
NOTE 4
ACCOUNTS
RECEIVABLE AND LOANS
The Companys charge and lending payment card products
result in the generation of cardmember receivables (from charge
payment products) and cardmember loans (from lending payment
products) which are described below.
CARDMEMBER
AND OTHER RECEIVABLES
Cardmember receivables, representing amounts due from charge
payment product customers, are recorded at the time a cardmember
enters into a
point-of-sale
transaction with a merchant. Charge card customers generally
must pay the full amount billed each month. Each charge card
transaction is authorized based on its likely economics
reflecting cardmembers most recent credit information and
spend patterns. Global limits are established to limit maximum
exposure for high risk and some high spend charge cardmembers.
Accounts of high risk,
out-of-pattern
charge cardmembers can be monitored even if they are current.
Cardmember receivable balances are presented on the Consolidated
Balance Sheets net of reserves for losses (refer to
Note 5), and include principal and any related accrued fees.
78
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Accounts receivable as of December 31, 2010 and 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
U.S. Card
Services
(a)
|
|
$
|
19,155
|
|
|
$
|
17,750
|
|
International Card Services
|
|
|
6,673
|
|
|
|
5,944
|
|
Global Commercial
Services
(b)
|
|
|
11,259
|
|
|
|
9,844
|
|
Global Network & Merchant
Services
(c)
|
|
|
179
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables,
gross
(d)
|
|
|
37,266
|
|
|
|
33,743
|
|
Less: Cardmember reserve for losses
|
|
|
386
|
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables, net
|
|
$
|
36,880
|
|
|
$
|
33,197
|
|
|
|
|
|
|
|
|
|
|
Other receivables,
net
(e)
|
|
$
|
3,554
|
|
|
$
|
5,007
|
|
|
|
|
|
|
(a)
|
|
Includes $7.7 billion and
$7.8 billion of gross cardmember receivables available to
settle obligations of a consolidated VIE as of December 31,
2010 and 2009, respectively.
|
(b)
|
|
Includes $0.5 billion of gross
cardmember receivables available to settle obligations of a
consolidated VIE as of December 31, 2010 and 2009.
|
(c)
|
|
Includes receivables primarily
related to the Companys International Currency Card
portfolios.
|
(d)
|
|
Includes approximately
$11.7 billion and $10.4 billion of cardmember
receivables outside the United States as of December 31,
2010 and 2009, respectively.
|
(e)
|
|
Other receivables primarily
represent amounts for tax-related receivables, amounts due from
the Companys travel customers and suppliers, purchased
joint venture receivables, third-party issuing partners, amounts
due from certain merchants for billed discount revenue, accrued
interest on investments and other receivables due to the Company
in the ordinary course of business. As of December 31,
2009, these amounts also include $1.9 billion of cash held
in an unconsolidated VIE required for daily settlement
requirements. Beginning January 1, 2010, this VIE is
consolidated by the Company and cash held by this consolidated
VIE is considered restricted cash included in other assets on
the Companys Consolidated Balance Sheets. Refer to
Note 7 for additional details.
|
CARDMEMBER
AND OTHER LOANS
Cardmember loans, representing amounts due from lending payment
product customers, are recorded at the time a cardmember enters
into a
point-of-sale
transaction with a merchant or when a charge card customer
enters into an extended payment arrangement. The Companys
lending portfolios primarily include revolving loans to
cardmembers obtained through either their credit card accounts
or the lending on charge feature of their charge card accounts.
These loans have a range of terms such as credit limits,
interest rates, fees and payment structures, which can be
adjusted over time based on new information about cardmembers
and in accordance with applicable regulations and the respective
products terms and conditions. Cardmembers holding
revolving loans are typically required to make monthly payments
greater than or equal to certain pre-established amounts. The
amounts that cardmembers choose to revolve are subject to
finance charges. When cardmembers fall behind their required
payments, their accounts will be monitored.
Cardmember loans are presented on the Consolidated Balance
Sheets net of reserves for losses and unamortized net card fees
and include accrued interest receivable and fees. The
Companys policy generally is to cease accruing for
interest receivable on a cardmember loan at the time the account
is written off. The Company establishes reserves for interest
that the Company believes will not be collected.
Loans as of December 31, 2010 and 2009 consisted of:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
U.S. Card
Services
(a)
|
|
$
|
51,565
|
|
|
$
|
23,507
|
|
International Card Services
|
|
|
9,255
|
|
|
|
9,241
|
|
Global Commercial Services
|
|
|
30
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Cardmember loans,
gross
(b)
|
|
|
60,850
|
|
|
|
32,772
|
|
Less: Cardmember loans reserve for losses
|
|
|
3,646
|
|
|
|
3,268
|
|
|
|
|
|
|
|
|
|
|
Cardmember loans, net
|
|
$
|
57,204
|
|
|
$
|
29,504
|
|
|
|
|
|
|
|
|
|
|
Other loans,
net
(c)
|
|
$
|
412
|
|
|
$
|
506
|
|
|
|
|
|
|
(a)
|
|
As of December 31, 2010,
includes approximately $34.7 billion of gross cardmember
loans available to settle obligations of a consolidated VIE. As
of December 31, 2009, includes approximately
$8.0 billion for an undivided, pro-rata interest in an
unconsolidated VIE (historically referred to as
sellers interest). Refer to Note 7 for
additional details.
|
(b)
|
|
Cardmember loan balance is net of
unamortized net card fees of $134 million and
$114 million as of December 31, 2010 and 2009,
respectively.
|
(c)
|
|
Other loans primarily represent
small business installment loans, a store card portfolio whose
billed business is not processed on the Companys network
and small business loans associated with the acquisition of CPS.
|
CARDMEMBER
LOANS AND CARDMEMBER RECEIVABLES AGING
Generally a cardmember account is considered past due if payment
is not received within 30 days after the billing statement
date. The following table represents the aging of cardmember
loans and receivables as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59
|
|
|
60-89
|
|
|
90+
|
|
|
|
|
|
|
|
|
|
Days
|
|
|
Days
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
Past
|
|
|
Past
|
|
|
Past
|
|
|
|
|
(Millions)
|
|
Current
|
|
|
Due
|
|
|
Due
|
|
|
Due
|
|
|
Total
|
|
|
Cardmember Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Card Services
|
|
$
|
50,508
|
|
|
$
|
282
|
|
|
$
|
226
|
|
|
$
|
549
|
|
|
$
|
51,565
|
|
International Card Services
|
|
|
9,044
|
|
|
|
66
|
|
|
|
48
|
|
|
|
97
|
|
|
|
9,255
|
|
Cardmember Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Card Services
|
|
$
|
18,864
|
|
|
$
|
104
|
|
|
$
|
55
|
|
|
$
|
132
|
|
|
$
|
19,155
|
|
International Card
Services
(a)
|
|
|
(b
|
)
|
|
|
(b
|
)
|
|
|
(b
|
)
|
|
|
64
|
|
|
|
6,673
|
|
Global Commercial
Services
(a)
|
|
|
(b
|
)
|
|
|
(b
|
)
|
|
|
(b
|
)
|
|
|
96
|
|
|
|
11,259
|
|
|
|
|
|
|
(a)
|
|
For cardmember receivables in
International Card Services and Global Commercial Services,
delinquency data is tracked based on days past billing status
rather than days past due. A cardmember account is considered
90 days past billing if payment has not been received
within 90 days of the cardmembers billing statement
date. In addition, if the Company initiates collection
procedures on an account prior to the account becoming
90 days past billing the associated cardmember receivable
balance is considered as 90 days past billing. These
amounts are shown above as 90+ Days Past Due for presentation
purposes.
|
(b)
|
|
Historically, data for periods
prior to 90 days past billing are not available due to
system constraints. Therefore, it has not been utilized for risk
management purposes. The balances that are current
89 days past due can be derived as the difference between
the Total and the 90+ Days Past Due balances.
|
79
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
CREDIT
QUALITY INDICATORS FOR LOANS AND RECEIVABLES
The following table presents the key credit quality indicators
for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
30 Days
|
|
|
|
|
|
30 Days
|
|
|
|
Net
|
|
|
Past Due
|
|
|
Net
|
|
|
Past Due
|
|
|
|
Write-Off
|
|
|
as a % of
|
|
|
Write-Off
|
|
|
as a % of
|
|
(Millions, except percentages)
|
|
Rate
|
|
|
Total
|
|
|
Rate
|
|
|
Total
|
|
|
U.S. Card Services Cardmember Loans
|
|
|
5.8
|
%
|
|
|
2.1
|
%
|
|
|
9.1
|
%
|
|
|
3.7
|
%
|
U.S. Card Services Cardmember Receivables
|
|
|
1.6
|
%
|
|
|
1.5
|
%
|
|
|
3.8
|
%
|
|
|
1.8
|
%
|
International Card Services Cardmember Loans
|
|
|
4.6
|
%
|
|
|
2.3
|
%
|
|
|
6.8
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Net Loss
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
Ratio as
|
|
|
90 Days
|
|
|
Ratio as
|
|
|
90 Days
|
|
|
|
a % of
|
|
|
Past Billing
|
|
|
a % of
|
|
|
Past Billing
|
|
|
|
Charge
|
|
|
as a % of
|
|
|
Charge
|
|
|
as a % of
|
|
(Millions, except percentages)
|
|
Volume
(a)(b)
|
|
|
Receivables
(a)
|
|
|
Volume
|
|
|
Receivables
|
|
|
International Card Services Cardmember Receivables
|
|
|
0.24
|
%
|
|
|
1.0
|
%
|
|
|
0.36
|
%
|
|
|
2.1
|
%
|
Global Commercial Services Cardmember Receivables
|
|
|
0.11
|
%
|
|
|
0.8
|
%
|
|
|
0.19
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
(a)
|
|
Effective January 1, 2010, the
Company revised the time period in which past due cardmember
receivables in International Card Services and Global Commercial
Services are written off to when they are 180 days past due
or earlier, consistent with applicable bank regulatory guidance
and the write-off methodology adopted for U.S. Card Services in
the fourth quarter of 2008. Previously, receivables were written
off when they were 360 days past billing or earlier. The
net write-offs for the first quarter of 2010 include net
write-offs of approximately $60 million for International
Card Services and $48 million for Global Commercial
Services resulting from this write-off methodology change.
|
(b)
|
|
Beginning with the first quarter of
2010, the Company has revised the net loss ratio to exclude net
write-offs related to unauthorized transactions, consistent with
the methodology for calculation of the net write-off rate for
U.S. Card Services. The metrics for prior periods have not been
revised for this change as it was deemed immaterial.
|
Refer to Note 5 for other factors, including external
environmental factors, that management considers as part of its
evaluation process for reserves for losses.
PLEDGED
LOANS AND RECEIVABLES
Certain cardmember loans and receivables totaling approximately
$42.9 billion as of December 31, 2010 are pledged by
the Company to its Lending and Charge Trusts (including certain
loans sold to the Trusts by the Companys bank
subsidiaries; refer to Note 7).
IMPAIRED
LOANS AND RECEIVABLES
Impaired loans and receivables are defined by GAAP as individual
larger balance or homogeneous pools of smaller balance
restructured loans and receivables for which it is probable that
the lender will be unable to collect all amounts due according
to the original contractual terms of the loan and receivable
agreement. The Company considers impaired loans and receivables
to include: (i) loans over 90 days past due still
accruing interest, (ii) non-accrual loans, and
(iii) loans and receivables modified in a troubled debt
restructuring (TDR).
The Company may modify cardmember loans and receivables to
minimize losses to the Company while providing cardmembers with
temporary or permanent financial relief. Such modifications may
include reducing the interest rate or delinquency fees on the
loans and receivables
and/or
placing the cardmember on a fixed payment plan not exceeding
60 months. If the cardmember does not comply with the
modified terms, then the loan or receivable agreement generally
reverts back to its original terms. Modification programs can be
long-term (more than 12 months) or short term
(12 months or less). The Company has classified such
cardmember loans and receivables in these modification programs
as TDRs.
The performance of a TDR is closely monitored to understand its
impact on the Companys reserve for losses. Though the
ultimate success of these modification programs remains
uncertain, the Company believes they improve the cumulative loss
performance of such loans and receivables.
Reserves for a TDR are determined by the difference between cash
flows expected to be received from the cardmember discounted at
the original effective interest rates and the carrying value of
the cardmember loan or receivable balance.
80
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following tables provide additional information with respect
to the Companys impaired cardmember loans and receivables
as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans over
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
Loans &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
Receivables
|
|
|
Total
|
|
|
Unpaid
|
|
|
|
|
|
Related
|
|
(Millions)
|
|
& Accruing
|
|
|
Non-Accrual
|
|
|
Modified
|
|
|
Impaired
|
|
|
Principal
|
|
|
Average
|
|
|
Allowance
|
|
As of December 31, 2010
|
|
Interest
(a)
|
|
|
Loans
(b)
|
|
|
as a
TDR
(c)
|
|
|
Loans
|
|
|
Balance
(d)
|
|
|
Balance
|
|
|
for
TDRs
(e)
|
|
|
U.S. Card Services Cardmember Loans
|
|
$
|
90
|
|
|
$
|
628
|
|
|
$
|
1,076
|
|
|
$
|
1,794
|
|
|
$
|
1,704
|
|
|
$
|
2,255
|
|
|
$
|
274
|
|
International Card Services Cardmember Loans
|
|
|
95
|
|
|
|
8
|
|
|
|
11
|
|
|
|
114
|
|
|
|
112
|
|
|
|
142
|
|
|
|
5
|
|
U.S. Card Services Cardmember Receivables
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
114
|
|
|
|
109
|
|
|
|
110
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(g)(h)
|
|
$
|
185
|
|
|
$
|
636
|
|
|
$
|
1,201
|
|
|
$
|
2,022
|
|
|
$
|
1,925
|
|
|
$
|
2,507
|
|
|
$
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 (Owned)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Card Services Cardmember Loans
|
|
$
|
102
|
|
|
$
|
480
|
|
|
$
|
706
|
|
|
$
|
1,288
|
|
|
|
(f
|
)
|
|
|
(f
|
)
|
|
$
|
180
|
|
International Card Services Cardmember Loans
|
|
|
147
|
|
|
|
9
|
|
|
|
15
|
|
|
|
171
|
|
|
|
(f
|
)
|
|
|
(f
|
)
|
|
|
7
|
|
U.S. Card Services Cardmember Receivables
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
|
94
|
|
|
|
(f
|
)
|
|
|
(f
|
)
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(g)(h)
|
|
$
|
249
|
|
|
$
|
489
|
|
|
$
|
815
|
|
|
$
|
1,553
|
|
|
|
|
|
|
|
|
|
|
$
|
251
|
|
|
|
|
|
|
(a)
|
|
The Companys policy is
generally to accrue interest through the date of charge-off (at
180 days past due). The Company establishes reserves for
interest that the Company believes will not be collected.
|
(b)
|
|
Non-accrual loans not in
modification programs include certain cardmember loans placed
with outside collection agencies for which the Company has
ceased accruing interest.
|
(c)
|
|
The total loans and receivables
modified as a TDR include $655 million and
$586 million that are non-accrual and $7 million and
$1 million that are past due 90 days and still
accruing interest as of December 31, 2010 and 2009,
respectively. These amounts are excluded from the previous two
columns.
|
(d)
|
|
Unpaid principal balance consists
of cardmember charges billed and excludes other amounts charged
directly by the Company such as interest and fees.
|
(e)
|
|
Reserves for losses for loans and
receivables modified in a TDR are determined by the difference
between cash flows expected to be received from the cardmember
discounted at the original effective interest rate and the
carrying value of the cardmember balance.
|
(f)
|
|
Detailed data for these portfolios
were not required prior to December 31, 2010. This
information is not available for 2009.
|
(g)
|
|
The increase in impaired loans was
due to the adoption of new GAAP effective January 1, 2010,
which resulted in the consolidation of the Lending Trust as
discussed further in Note 1. As a result of these changes,
amounts as of December 31, 2010 include impaired loans and
receivables for both the Charge Trust and Lending Trust;
correspondingly, amounts as of December 31, 2009 only
include impaired loans and receivables for the Charge Trust and
the sellers interest portion of the Lending Trust. Amounts
as of both balance sheet dates also include impaired loans and
receivables associated with other non-securitized portfolios.
|
(h)
|
|
These disclosures either do not
apply or are not significant for cardmember receivables in
International Card Services and Global Commercial Services.
|
NOTE 5
RESERVES
FOR LOSSES
RESERVES
FOR LOSSES CARDMEMBER RECEIVABLES AND LOANS
Reserves for losses relating to cardmember loans and receivables
represent managements best estimate of the losses inherent
in the Companys outstanding portfolio of loans and
receivables. Managements evaluation process requires
certain estimates and judgments.
Reserves for these losses are primarily based upon models that
analyze portfolio performance and reflect managements
judgment regarding overall reserve adequacy. The analytic models
take into account several factors, including average losses and
recoveries over an appropriate historical period. Management
considers whether to adjust the analytic models for specific
factors such as increased risk in certain portfolios, impact of
risk management initiatives on portfolio performance and
concentration of credit risk based on factors such as tenure,
industry or geographic regions. In addition, management adjusts
the reserves for losses on cardmember loans for other external
environmental factors including leading economic and market
indicators such as the unemployment rate, Gross Domestic Product
(GDP), home price indices, non-farm payrolls, personal
consumption expenditures index, consumer confidence index,
purchasing managers index, bankruptcy filings and the legal and
regulatory environment. Generally, due to the short-term nature
of cardmember receivables, the impact of additional external
factors on the inherent losses within the cardmember receivable
portfolio is not significant. As part of this evaluation
process, management also considers various reserve coverage
metrics, such as reserves as a percentage of past due amounts,
reserves as a percentage of cardmember receivables or loans and
net write-off coverage.
Cardmember receivables balances are written off when management
deems amounts to be uncollectible and is generally determined by
the number of days past due, which is generally no later than
180 days past due. Receivables in bankruptcy or owed by
deceased individuals are written off upon notification.
Recoveries are recognized on a cash basis.
81
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Changes
in Cardmember Receivables Reserve for Losses
The following table presents changes in the cardmember
receivables reserve for losses for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance, January 1
|
|
$
|
546
|
|
|
$
|
810
|
|
|
$
|
1,149
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables
provisions
(a)
|
|
|
439
|
|
|
|
773
|
|
|
|
1,186
|
|
Cardmember receivables provisions
other
(b)
|
|
|
156
|
|
|
|
84
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
|
595
|
|
|
|
857
|
|
|
|
1,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember receivables net
write-offs
(c)(d)(e)
|
|
|
(598
|
)
|
|
|
(1,131
|
)
|
|
|
(1,552
|
)
|
Cardmember receivables
other
(f)
|
|
|
(157
|
)
|
|
|
10
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
386
|
|
|
$
|
546
|
|
|
$
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cardmember receivables evaluated separately for
impairment
(g)
|
|
$
|
114
|
|
|
$
|
94
|
|
|
$
|
141
|
|
Reserves on cardmember receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated separately for
impairment
(g)
|
|
$
|
63
|
|
|
$
|
64
|
|
|
|
(h)
|
|
|
|
Cardmember receivables evaluated collectively for impairment
|
|
$
|
37,152
|
|
|
$
|
33,649
|
|
|
$
|
32,847
|
|
Reserves on cardmember receivables evaluated collectively for
impairment
|
|
$
|
323
|
|
|
$
|
482
|
|
|
|
(h)
|
|
|
|
|
|
|
(a)
|
|
Represents loss provisions for
cardmember receivables consisting of principal (resulting from
authorized transactions) and fee reserve components.
|
(b)
|
|
Primarily represents loss
provisions for cardmember receivables resulting from
unauthorized transactions.
|
(c)
|
|
Represents write-offs consisting of
principal (resulting from authorized transactions) and fee
components, less recoveries of $357 million,
$349 million and $187 million for 2010, 2009 and 2008,
respectively. For the years ended December 31, 2010 and
2009, these amounts also include net write-offs for cardmember
receivables resulting from unauthorized transactions.
|
(d)
|
|
Through December 31, 2009,
cardmember receivables in the International Card Services (ICS)
and Global Commercial Services (GCS) segments were written off
when 360 days past billing or earlier. During the first
quarter of 2010, consistent with applicable bank regulatory
guidance, the Company modified its methodology to write off
cardmember receivables in the ICS and GCS segments when
180 days past due or earlier. Therefore, net write-offs for
cardmember receivables for the first quarter of 2010 included
approximately $108 million resulting from this change in
write-off methodology. The impact of this change to the
provision for charge card losses was not material.
|
(e)
|
|
In the fourth quarter of 2008, the
Company revised the time period in which past due cardmember
receivables in U.S. Card Services are written off to when
180 days past due, consistent with applicable regulatory
guidance. Previously, receivables were written off when
360 days past due. The net write-offs for 2008 include
approximately $341 million resulting from this write-off
methodology change.
|
(f)
|
|
For the year ended
December 31, 2010, these amounts include net write-offs of
cardmember receivables resulting from unauthorized transactions.
For all periods these amounts include foreign currency
translation adjustments.
|
(g)
|
|
Represents receivables modified in
a TDR and related reserves. Refer to the Impaired Loans and
Receivables discussion in Note 4 for further information.
|
(h)
|
|
Amounts were not available for
disclosure.
|
Changes
in Cardmember Loans Reserve for Losses
The following table presents changes in the cardmember loans
reserve for losses for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance, January 1
|
|
$
|
3,268
|
|
|
$
|
2,570
|
|
|
$
|
1,831
|
|
Reserves established for consolidation of a variable interest
entity
|
|
|
2,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted balance, January 1
|
|
|
5,799
|
|
|
|
2,570
|
|
|
|
1,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember loans
provisions
(a)
|
|
|
1,445
|
|
|
|
4,209
|
|
|
|
4,106
|
|
Cardmember loans
other
(b)
|
|
|
82
|
|
|
|
57
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
|
1,527
|
|
|
|
4,266
|
|
|
|
4,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember loans net write-offs
principal
(c)
|
|
|
(3,260
|
)
|
|
|
(2,949
|
)
|
|
|
(2,643
|
)
|
Cardmember loans net write-offs interest and
fees
(c)
|
|
|
(359
|
)
|
|
|
(448
|
)
|
|
|
(580
|
)
|
Cardmember loans
other
(d)
|
|
|
(61
|
)
|
|
|
(171
|
)
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
3,646
|
|
|
$
|
3,268
|
|
|
$
|
2,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cardmember loans evaluated separately for
impairment
(e)
|
|
$
|
1,087
|
|
|
$
|
721
|
|
|
$
|
427
|
|
Reserves on cardmember loans evaluated separately for
impairment
(e)
|
|
$
|
279
|
|
|
$
|
187
|
|
|
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardmember loans evaluated collectively for impairment
|
|
$
|
59,763
|
|
|
$
|
32,051
|
|
|
$
|
41,784
|
|
Reserves on cardmember loans evaluated collectively for
impairment
|
|
$
|
3,367
|
|
|
$
|
3,081
|
|
|
|
(f)
|
|
|
|
|
|
|
(a)
|
|
Represents loss provisions for
cardmember loans consisting of principal (resulting from
authorized transactions), interest and fee reserves components.
|
(b)
|
|
Primarily represents loss
provisions for cardmember loans resulting from unauthorized
transactions.
|
(c)
|
|
Cardmember loans net
write-offs principal for 2010, 2009 and 2008 include
recoveries of $568 million, $327 million and
$301 million, respectively. Recoveries of interest and fees
were de minimis.
|
(d)
|
|
These amounts include net
write-offs related to unauthorized transactions and foreign
currency translation adjustments.
|
(e)
|
|
Represents loans modified in a TDR
and related reserves. Refer to the Impaired Loans and
Receivables discussion in Note 4 for further information.
|
(f)
|
|
Amounts were not available for
disclosure.
|
82
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 6
INVESTMENT
SECURITIES
Investment securities include debt and equity securities and are
classified as available for sale. The Companys investment
securities, principally debt securities, are carried at fair
value on the Consolidated Balance Sheets with unrealized gains
(losses) recorded in AOCI, net of income tax provisions
(benefits). Realized gains and losses are recognized in results
of operations upon disposition of the securities using the
specific identification method on a trade date basis. Refer to
Note 3 for a description of the Companys methodology
for determining the fair value of its investment securities.
The following is a summary of investment securities as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(Millions)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
State and municipal obligations
|
|
$
|
6,140
|
|
|
$
|
24
|
|
|
$
|
(367
|
)
|
|
$
|
5,797
|
|
|
$
|
6,457
|
|
|
$
|
51
|
|
|
$
|
(258
|
)
|
|
$
|
6,250
|
|
U.S. Government agency obligations
|
|
|
3,402
|
|
|
|
12
|
|
|
|
(1
|
)
|
|
|
3,413
|
|
|
|
6,699
|
|
|
|
47
|
|
|
|
(1
|
)
|
|
|
6,745
|
|
U.S. Government treasury obligations
|
|
|
2,450
|
|
|
|
6
|
|
|
|
|
|
|
|
2,456
|
|
|
|
5,556
|
|
|
|
10
|
|
|
|
|
|
|
|
5,566
|
|
Corporate debt
securities
(a)
|
|
|
1,431
|
|
|
|
15
|
|
|
|
(1
|
)
|
|
|
1,445
|
|
|
|
1,333
|
|
|
|
14
|
|
|
|
(12
|
)
|
|
|
1,335
|
|
Retained subordinated
securities
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,088
|
|
|
|
512
|
|
|
|
(1
|
)
|
|
|
3,599
|
|
Mortgage-backed
securities
(c)
|
|
|
272
|
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
276
|
|
|
|
179
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
180
|
|
Equity
securities
(d)
|
|
|
98
|
|
|
|
377
|
|
|
|
|
|
|
|
475
|
|
|
|
100
|
|
|
|
430
|
|
|
|
|
|
|
|
530
|
|
Foreign government bonds and obligations
|
|
|
95
|
|
|
|
4
|
|
|
|
|
|
|
|
99
|
|
|
|
90
|
|
|
|
2
|
|
|
|
|
|
|
|
92
|
|
Other
(e)
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,937
|
|
|
$
|
444
|
|
|
$
|
(371
|
)
|
|
$
|
14,010
|
|
|
$
|
23,542
|
|
|
$
|
1,069
|
|
|
$
|
(274
|
)
|
|
$
|
24,337
|
|
|
|
|
|
|
(a)
|
|
The December 31, 2010 and 2009
balances include, on a cost basis, $1.3 billion and
$1.1 billion, respectively, of corporate debt obligations
issued under the Temporary Liquidity Guarantee Program (TLGP)
that are guaranteed by the Federal Deposit Insurance Corporation
(FDIC).
|
(b)
|
|
As a result of the adoption of new
GAAP effective January 1, 2010, the Company no longer
presents the retained subordinated securities within its
Consolidated Financial Statements in periods subsequent to
December 31, 2009. The December 31, 2009, balance
consists of investments in retained subordinated securities
issued by unconsolidated VIEs related to the Companys
cardmember loan securitization programs. Refer to Note 7
for further details.
|
(c)
|
|
Represents mortgage-backed
securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
|
(d)
|
|
Represents the Companys
investment in Industrial and Commercial Bank of China (ICBC).
|
(e)
|
|
Other is comprised of investments
in various mutual funds.
|
OTHER-THAN-TEMPORARY
IMPAIRMENT
Realized losses are recognized upon managements
determination that a decline in fair value is other than
temporary. The determination of
other-than-temporary
impairment is a subjective process, requiring the use of
judgments and assumptions regarding the amount and timing of
recovery. The Company reviews and evaluates its investments at
least quarterly and more often, as market conditions may
require, to identify investments that have indications of
other-than-temporary
impairments. It is reasonably possible that a change in estimate
could occur in the near term relating to
other-than-temporary
impairment. Accordingly, the Company considers several factors
when evaluating debt securities for
other-than-temporary
impairment including the determination of the extent to which
the decline in fair value of the security is due to increased
default risk for the specific issuer or market interest rate
risk. With respect to increased default risk, the Company
assesses the collectibility of principal and interest payments
by monitoring issuers credit ratings, related changes to
those ratings, specific credit events associated with the
individual issuers as well as the credit ratings of a financial
guarantor, where applicable, and the extent to which amortized
cost exceeds fair value and the duration and size of that
difference. With respect to market interest rate risk, including
benchmark interest rates and credit spreads, the Company
assesses whether it has the intent to sell the securities and
whether it is more likely than not that the Company will not be
required to sell the securities before recovery of any
unrealized losses.
83
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table provides information about the
Companys investment securities with gross unrealized
losses and the length of time that individual securities have
been in a continuous unrealized loss position as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
(Millions)
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
Description of Securities
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
State and municipal obligations
|
|
$
|
2,535
|
|
|
$
|
(156
|
)
|
|
$
|
1,076
|
|
|
$
|
(211
|
)
|
|
$
|
837
|
|
|
$
|
(25
|
)
|
|
$
|
2,074
|
|
|
$
|
(233
|
)
|
U.S. Government agency obligations
|
|
|
299
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
249
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
102
|
|
|
|
(1
|
)
|
|
|
38
|
|
|
|
(11
|
)
|
Retained subordinated securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
(1
|
)
|
Mortgage-backed securities
|
|
|
71
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,905
|
|
|
$
|
(159
|
)
|
|
$
|
1,079
|
|
|
$
|
(212
|
)
|
|
$
|
1,308
|
|
|
$
|
(29
|
)
|
|
$
|
2,187
|
|
|
$
|
(245
|
)
|
|
|
The following table summarizes the gross unrealized losses due
to temporary impairments by ratio of fair value to amortized
cost as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Number of
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Number of
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Number of
|
|
|
Estimated
|
|
|
Unrealized
|
|
Ratio of Fair Value to Amortized Cost
|
|
Securities
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Fair Value
|
|
|
Losses
|
|
|
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90%100%
|
|
|
457
|
|
|
$
|
2,554
|
|
|
$
|
(113
|
)
|
|
|
31
|
|
|
$
|
79
|
|
|
$
|
(7
|
)
|
|
|
488
|
|
|
$
|
2,633
|
|
|
$
|
(120
|
)
|
Less than 90%
|
|
|
48
|
|
|
|
351
|
|
|
|
(46
|
)
|
|
|
115
|
|
|
|
1,000
|
|
|
|
(205
|
)
|
|
|
163
|
|
|
|
1,351
|
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2010
|
|
|
505
|
|
|
$
|
2,905
|
|
|
$
|
(159
|
)
|
|
|
146
|
|
|
$
|
1,079
|
|
|
$
|
(212
|
)
|
|
|
651
|
|
|
$
|
3,984
|
|
|
$
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90%100%
|
|
|
155
|
|
|
$
|
1,289
|
|
|
$
|
(25
|
)
|
|
|
225
|
|
|
$
|
1,411
|
|
|
$
|
(87
|
)
|
|
|
380
|
|
|
$
|
2,700
|
|
|
$
|
(112
|
)
|
Less than 90%
|
|
|
2
|
|
|
|
19
|
|
|
|
(4
|
)
|
|
|
78
|
|
|
|
776
|
|
|
|
(158
|
)
|
|
|
80
|
|
|
|
795
|
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2009
|
|
|
157
|
|
|
$
|
1,308
|
|
|
$
|
(29
|
)
|
|
|
303
|
|
|
$
|
2,187
|
|
|
$
|
(245
|
)
|
|
|
460
|
|
|
$
|
3,495
|
|
|
$
|
(274
|
)
|
|
|
The gross unrealized losses on state and municipal securities
and all other debt securities can be attributed to higher credit
spreads generally for state and municipal securities, higher
credit spreads for specific issuers, changes in market benchmark
interest rates, or a combination thereof, all as compared to
those prevailing when the investment securities were acquired.
In assessing default risk on these investment securities,
excluding the Companys retained subordinated securities,
the Company has qualitatively considered the key factors
identified above and determined that it expects to collect all
of the contractual cash flows due on the investment securities.
In assessing default risk on the retained subordinated
securities in 2009, the Company analyzed the projected cash
flows of the Lending Trust and determined that it expected to
collect all of the contractual cash flows due on the investment
securities.
Overall, for the investment securities in gross unrealized loss
positions identified above, (a) the Company does not intend
to sell the investment securities, (b) it is more likely
than not that the Company will not be required to sell the
investment securities before recovery of the unrealized losses,
and (c) the Company expects that the contractual principal
and interest will be received on the investment securities. As a
result, the Company recognized no
other-than-temporary
impairments during the periods presented.
SUPPLEMENTAL
INFORMATION
Gross realized gains and losses on the sales of investment
securities, included in other non-interest revenues, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Gains
(a)
|
|
$
|
1
|
|
|
$
|
226
|
|
|
$
|
20
|
|
Losses
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(5
|
)
|
|
$
|
225
|
|
|
$
|
12
|
|
|
|
|
|
|
(a)
|
|
The 2009 gains primarily represent
the gain from the sale of 50 percent of the Companys
investment in ICBC.
|
Contractual maturities of investment securities, excluding
equity securities and other securities, as of December 31,
2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
(Millions)
|
|
Cost
|
|
|
Fair Value
|
|
|
Due within 1 year
|
|
$
|
6,246
|
|
|
$
|
6,253
|
|
Due after 1 year but within 5 years
|
|
|
1,110
|
|
|
|
1,134
|
|
Due after 5 years but within 10 years
|
|
|
299
|
|
|
|
307
|
|
Due after 10 years
|
|
|
6,135
|
|
|
|
5,792
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,790
|
|
|
$
|
13,486
|
|
|
|
The expected payments on state and municipal obligations and
mortgage-backed securities may not coincide with their
84
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
contractual maturities because the issuers have the right to
call or prepay certain obligations.
NOTE 7
ASSET
SECURITIZATIONS
CHARGE
TRUST AND LENDING TRUST
The Company periodically securitizes cardmember receivables and
loans arising from its card business through the transfer of
those assets to securitization trusts. The trusts then issue
securities to third-party investors, collateralized by the
transferred assets.
Cardmember receivables are transferred to the Charge Trust and
cardmember loans are transferred to the Lending Trust. As of
December 31, 2009 and for all prior periods, cardmember
receivables transferred to the Charge Trust did not qualify as
accounting sales and accordingly, the Charge Trust was
consolidated by the Company. As a result, securitized cardmember
receivables and the related debt securities issued to third
parties by the Charge Trust were included on the Companys
Consolidated Balance Sheets. The Lending Trust met the criteria
of a QSPE for GAAP in effect through December 31, 2009 and,
accordingly, cardmember loans transferred to the Lending Trust
qualified as accounting sales. As a result, when cardmember
loans were sold through securitizations, the Company removed the
loans from its Consolidated Balance Sheets and recognized a gain
or loss on sale, recorded certain retained interests in the
securitization (i.e., retained subordinated securities and an
interest-only strip asset) and received an undivided pro-rata
interest in the excess loans held in the Lending Trust
(historically referred to as sellers interest).
Upon adoption of new GAAP effective January 1, 2010, the
Company continues to consolidate the Charge Trust. In addition,
the Company was required to change its accounting for the
Lending Trust, which is now consolidated. As a result, beginning
January 1, 2010, the securitized cardmember loans and the
related debt securities issued to third parties by the Lending
Trust are included on the Companys Consolidated Balance
Sheets. Prior period Consolidated Financial Statements have not
been revised for this accounting change.
The Charge Trust and the Lending Trust are consolidated by
American Express Travel Related Services Company, Inc. (TRS),
which is a consolidated subsidiary of the Company. The trusts
are considered VIEs as they have insufficient equity at risk to
finance their activities, which are to issue securities that are
collateralized by the underlying cardmember receivables and
loans.
TRS, in its role as servicer of the Charge Trust and the Lending
Trust, has the power to direct the most significant activity of
the trusts, which is the collection of the underlying cardmember
receivables and loans in the trusts. In addition, TRS owns
approximately $1.4 billion of subordinated securities
issued by the Lending Trust as of December 31, 2010. These
subordinated securities have the obligation to absorb losses of
the Lending Trust and provide the right to receive benefits from
the Lending Trust, both of which are significant to the VIE.
TRS role as servicer for the Charge Trust does not provide
it with a significant obligation to absorb losses or a
significant right to receive benefits. However, TRS
position as the parent company of the entities that transferred
the receivables to the Charge Trust makes it the party most
closely related to the Charge Trust. Based on these
considerations, TRS was determined to be the primary beneficiary
of both the Charge Trust and the Lending Trust.
The debt securities issued by the Charge Trust and the Lending
Trust are non-recourse to the Company. Securitized cardmember
receivables and loans held by the Charge Trust and the Lending
Trust are available only for payment of the debt securities or
other obligations issued or arising in the securitization
transactions. The long-term debt of each trust is payable only
out of collections on their respective underlying securitized
assets.
There was approximately $9.0 million and $1.8 billion
of restricted cash held by the Charge Trust as of
December 31, 2010 and 2009, respectively, and approximately
$3.7 billion of restricted cash held by the Lending Trust
as of December 31, 2010 included in other assets on the
Companys Consolidated Balance Sheets. Also, as of
December 31, 2009, other receivables on the Companys
Consolidated Balance Sheet included $1.9 billion of
restricted cash held in the Lending Trust. These amounts relate
to collections of cardmember receivables and loans to be used by
the trusts to fund future expenses, and obligations, including
interest paid on investor certificates, credit losses and
upcoming debt maturities.
85
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
LENDING
TRUST IMPACT ON THE CONSOLIDATED BALANCE SHEET
The following table summarizes the major balance sheet impacts,
including adjustments associated with the adoption of new GAAP
effective January 1, 2010, for the consolidation of the
Lending Trust:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Adjusted Balance
|
|
(Billions)
|
|
December 31, 2009
|
|
|
Adjustments
|
|
|
January 1, 2010
|
|
|
Cardmember loans
|
|
$
|
32.8
|
|
|
$
|
29.0
|
|
|
$
|
61.8
|
|
Loss reserves (cardmember loans)
|
|
|
(3.3
|
)
|
|
|
(2.5
|
)
|
|
|
(5.8
|
)
|
Investment securities
|
|
|
24.3
|
|
|
|
(3.6
|
)
|
|
|
20.7
|
|
Other receivables
|
|
|
5.1
|
|
|
|
(1.9
|
)
|
|
|
3.2
|
|
Other assets
|
|
|
13.2
|
|
|
|
2.2
|
|
|
|
15.4
|
|
Long-term debt
|
|
|
52.3
|
|
|
|
25.0
|
|
|
|
77.3
|
|
Shareholders equity
|
|
|
14.4
|
|
|
|
(1.8
|
)
|
|
|
12.6
|
|
|
|
The primary changes to the Companys Consolidated Balance
Sheets were:
|
|
|
An increase to cardmember loans (including impaired loans and
pledged loans) for the cardmember loans held by the Lending
Trust;
|
|
|
An increase to cardmember loans for the subordinated accrued
interest receivable for cardmember loans held by the Lending
Trust, with a corresponding decrease in other assets;
|
|
|
Establishment of a cardmember reserve for losses for the
additional cardmember loans;
|
|
|
The elimination in consolidation of the Companys retained
subordinated securities against the debt securities issued by
the Lending Trust;
|
|
|
The elimination of the interest-only strip;
|
|
|
An increase to long-term debt for the debt securities issued by
the Lending Trust;
|
|
|
A reduction to shareholders equity, primarily for the
after-tax effect of establishing the additional reserve for
losses on cardmember loans, and for reversing the unrealized
gains of the retained subordinated securities.
|
CHARGE
TRUST AND LENDING TRUST TRIGGERING EVENTS
Under the respective terms of the Charge Trust and the Lending
Trust agreements, the occurrence of certain events could result
in establishment of reserve funds, or in a worst-case scenario,
early amortization of investor certificates. As of
December 31, 2010, no triggering events have occurred
resulting in funding of reserve accounts or early amortization.
The Company announced in the second quarter of 2009 that certain
actions affecting outstanding series of securities issued by the
Lending Trust were completed in order to adjust the credit
enhancement structure of substantially all of the outstanding
series of securities previously issued by the Lending Trust. One
of these enhancements was the designation of a percentage of new
principal receivables arising from accounts in the Lending Trust
as Discount Option Receivables (as defined in the
Lending Trust documentation). The designated percentage was
reduced to zero percent in the third quarter of 2010 given that
the trust excess spread had exceeded pre-determined targets.
SECURITIZATION
INCOME, NET
As a result of the adoption of new GAAP effective
January 1, 2010, the Company no longer recognizes
securitization income, net. The components of securitization
income, net for the cardmember loans and long-term debt, are now
recorded in other commissions and fees, interest income and
interest expense.
The following table summarizes the activity related to
securitized loans reported in securitization income, net, prior
to adoption of the new accounting standards:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2009
|
|
|
2008
|
|
|
Excess spread,
net
(a)
|
|
$
|
(155
|
)
|
|
$
|
544
|
|
Servicing fees
|
|
|
562
|
|
|
|
543
|
|
Losses on
securitizations
(b)
|
|
|
(7
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Securitization income, net
|
|
$
|
400
|
|
|
$
|
1,070
|
|
|
|
|
|
|
(a)
|
|
Excess spread, net was the net cash
flow from interest and fee collections allocated to the
investors interests after deducting the interest paid on
investor certificates, credit losses, contractual servicing
fees, other expenses, and the changes in the fair value of the
interest-only strip. This amount excludes issuer rate fees on
the securitized accounts, which were recorded in discount
revenue in the Companys Consolidated Statements of Income.
|
(b)
|
|
Excludes $201 million and
$(393) million of impact from cardmember loan sales and
maturities for 2009, reflected in the provisions for losses for
the period. Excludes $446 million and $(177) million
of impact from cardmember loan sales and maturities for 2008,
reflected in the provisions for losses for the period.
|
86
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
RETAINED
INTERESTS IN SECURITIZED ASSETS
As of December 31, 2009, the Company retained subordinated
interests in the securitized cardmember loans. These interests
included one or more A-rated, BBB-rated and unrated investments
in tranches of the securitization (subordinated securities) of
$3.6 billion and an interest-only strip of
$20 million. The subordinated securities were accounted for
at fair value as
available-for-sale
investment securities and were reported in investments on the
Companys Consolidated Balance Sheets with unrealized gains
(losses) recorded in AOCI. The interest-only strip was accounted
for at fair value and was reported in other assets on the
Companys Consolidated Balance Sheets with changes in fair
value recorded in securitization income, net in the
Companys Consolidated Statements of Income.
NOTE 8
OTHER
ASSETS
The following is a summary of other assets as of December 31:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Restricted
cash
(a)
|
|
$
|
4,172
|
|
|
$
|
2,192
|
|
Deferred tax assets,
net
(b)
|
|
|
3,397
|
|
|
|
2,979
|
|
Goodwill
|
|
|
2,639
|
|
|
|
2,328
|
|
Prepaid
expenses
(c)
|
|
|
1,802
|
|
|
|
2,114
|
|
Derivative
assets
(b)
|
|
|
1,071
|
|
|
|
800
|
|
Other intangible assets, at amortized cost
|
|
|
972
|
|
|
|
717
|
|
Subordinated accrued interest
receivable
(d)
|
|
|
|
|
|
|
719
|
|
Other
|
|
|
1,315
|
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,368
|
|
|
$
|
13,213
|
|
|
|
|
|
|
(a)
|
|
Includes restricted cash of
$3.7 billion and $1.8 billion, respectively, as of
December 31, 2010 and 2009, which is primarily held for
certain asset-backed securitization maturities.
|
(b)
|
|
Refer to Notes 17 and 12 for a
discussion of deferred tax assets, net, and derivative assets,
respectively, as of December 31, 2010 and 2009. Derivative
assets reflect the effect of master netting agreements.
|
(c)
|
|
Includes prepaid miles and reward
points acquired from airline and other partners of approximately
$1.2 billion and $1.3 billion, respectively, as of
December 31, 2010 and 2009.
|
(d)
|
|
Upon the adoption of new GAAP on
January 1, 2010, subordinated accrued interest receivable
is no longer recorded in other assets and is now recorded in
cardmember loans on the Consolidated Balance Sheets.
|
GOODWILL
Goodwill represents the excess of acquisition cost of an
acquired company over the fair value of assets acquired and
liabilities assumed. The Company assigns goodwill to its
reporting units for the purpose of impairment testing. A
reporting unit is defined as an operating segment, or a business
one level below an operating segment for which complete,
discrete financial information is available that management
regularly reviews. The Company evaluates goodwill for impairment
annually as of June 30 and between annual tests if events occur
or circumstances change that more likely than not reduce the
fair value of reporting units below their carrying amounts. The
goodwill impairment test utilizes a two-step approach. The first
step identifies whether there is potential impairment by
comparing the fair value of a reporting unit to the carrying
amount, including goodwill. If the fair value of a reporting
unit is less than its carrying amount, the second step of the
impairment test is required to measure the amount of any
impairment loss. As of December 31, 2010 and 2009, goodwill
was not impaired and there were no accumulated impairment losses.
Goodwill impairment testing involves management judgment,
requiring an assessment of whether the carrying value of the
reporting unit can be supported by the fair value of the
individual reporting unit using widely accepted valuation
techniques, such as the market approach (earnings multiples or
transaction multiples) or income approach (discounted cash flow
methods). The fair values of the reporting units were determined
using a combination of valuation techniques consistent with the
income approach and the market approach.
When preparing discounted cash flow models under the income
approach, the Company uses internal forecasts to estimate future
cash flows expected to be generated by the reporting units.
Actual results may differ from forecasted results. The Company
uses the expected cost of equity financing, estimated using a
capital asset pricing model, to discount future cash flows for
each reporting unit. The Company believes the discount rates
used appropriately reflect the risks and uncertainties in the
financial markets generally and specifically in the
Companys internally developed forecasts. Further, to
assess the reasonableness of the valuations derived from the
discounted cash flow models, the Company also analyzes
market-based multiples for similar industries of the reporting
unit, where available.
87
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The changes in the carrying amount of goodwill reported in the
Companys reportable operating segments and
Corporate & Other were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate &
|
|
|
|
|
(Millions)
|
|
USCS
|
|
|
ICS
|
|
|
GCS
|
|
|
GNMS
|
|
|
Other
|
|
|
Total
|
|
|
Balance as of January 1, 2009
|
|
$
|
175
|
|
|
$
|
509
|
|
|
$
|
1,573
|
|
|
$
|
28
|
|
|
$
|
16
|
|
|
$
|
2,301
|
|
Other, including foreign currency translation
|
|
|
|
|
|
|
3
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
175
|
|
|
$
|
512
|
|
|
$
|
1,597
|
|
|
$
|
28
|
|
|
$
|
16
|
|
|
$
|
2,328
|
|
Acquisitions
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
|
|
184
|
|
|
|
315
|
|
Dispositions
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Other, including foreign currency translation
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
175
|
|
|
$
|
511
|
|
|
$
|
1,594
|
|
|
$
|
159
|
|
|
$
|
200
|
|
|
$
|
2,639
|
|
|
|
|
|
|
(a)
|
|
Comprised of $131 million and
$184 million for the acquisition of Accertify Inc. and
Revolution Money Inc., respectively. Refer to Note 2 for
further discussion.
|
OTHER
INTANGIBLE ASSETS
Intangible assets are amortized over their estimated useful
lives of 1 to 22 years. The Company reviews intangible
assets for impairment quarterly and whenever events and
circumstances indicate that their carrying amounts may not be
recoverable. In addition, on an annual basis, the Company
performs an impairment evaluation of all intangible assets by
assessing the recoverability of the asset values based on the
cash flows generated by the relevant assets or asset groups. An
impairment is recognized if the carrying amount is not
recoverable and exceeds the assets fair value.
The components of other intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
(Millions)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Customer relationships
|
|
$
|
1,125
|
|
|
$
|
(332
|
)
|
|
$
|
793
|
|
|
$
|
873
|
|
|
$
|
(240
|
)
|
|
$
|
633
|
|
Other
|
|
|
262
|
|
|
|
(83
|
)
|
|
|
179
|
|
|
|
145
|
|
|
|
(61
|
)
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,387
|
|
|
$
|
(415
|
)
|
|
$
|
972
|
|
|
$
|
1,018
|
|
|
$
|
(301
|
)
|
|
$
|
717
|
|
|
|
Amortization expense for the years ended December 31, 2010,
2009 and 2008 was $176 million, $140 million and
$83 million, respectively. Intangible assets acquired in
2010 and 2009 are being amortized, on average, over 8 years
and 5 years, respectively.
Estimated amortization expense for other intangible assets over
the next five years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Estimated amortization expense
|
|
$
|
178
|
|
|
$
|
168
|
|
|
$
|
156
|
|
|
$
|
131
|
|
|
$
|
117
|
|
|
|
OTHER
The Company has $197 million and $168 million in
affordable housing partnership interests as of December 31,
2010 and 2009, respectively, included in other assets in the
table above. The Company is a limited partner and typically has
a less than 50 percent interest in the affordable housing
partnerships.
These partnership interests are accounted for in accordance with
GAAP governing equity method investments and joint ventures.
88
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 9
CUSTOMER
DEPOSITS
As of December 31, customer deposits were categorized as
interest-bearing or non-interest-bearing deposits as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
U.S.:
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
$
|
29,053
|
|
|
$
|
25,579
|
|
Non-interest-bearing
|
|
|
17
|
|
|
|
13
|
|
Non-U.S.:
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
|
640
|
|
|
|
680
|
|
Non-interest-bearing
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total customer deposits
|
|
$
|
29,727
|
|
|
$
|
26,289
|
|
|
|
The customer deposits were aggregated by deposit type offered by
the Company as of December 31 as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
U.S. retail deposits:
|
|
|
|
|
|
|
|
|
Savings accounts Direct
|
|
$
|
7,725
|
|
|
$
|
1,950
|
|
Certificates of deposit
|
|
|
|
|
|
|
|
|
Direct
|
|
|
1,052
|
|
|
|
265
|
|
Third party
|
|
|
11,411
|
|
|
|
14,816
|
|
Sweep accounts Third party
|
|
|
8,865
|
|
|
|
8,548
|
|
Other deposits
|
|
|
674
|
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
Total customer deposits
|
|
$
|
29,727
|
|
|
$
|
26,289
|
|
|
|
The scheduled maturities of all certificates of deposit as of
December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
2011
|
|
$
|
5,696
|
|
|
$
|
371
|
|
|
$
|
6,067
|
|
2012
|
|
|
2,901
|
|
|
|
|
|
|
|
2,901
|
|
2013
|
|
|
2,293
|
|
|
|
|
|
|
|
2,293
|
|
2014
|
|
|
1,020
|
|
|
|
|
|
|
|
1,020
|
|
2015
|
|
|
121
|
|
|
|
|
|
|
|
121
|
|
After 5 years
|
|
|
432
|
|
|
|
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,463
|
|
|
$
|
371
|
|
|
$
|
12,834
|
|
|
|
As of December 31, certificates of deposit in denominations
of $100,000 or more were as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
U.S.
|
|
$
|
689
|
|
|
$
|
196
|
|
Non-U.S.
|
|
|
291
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
980
|
|
|
$
|
489
|
|
|
|
NOTE 10
DEBT
SHORT-TERM
BORROWINGS
The Companys short-term borrowings outstanding, defined as
borrowings with original maturities of less than one year, as of
December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-End Effective
|
|
|
|
|
|
|
Year-End Stated
|
|
|
|
|
|
Year-End Stated
|
|
|
Interest Rate with
|
|
(Millions, except percentages)
|
|
Outstanding Balance
|
|
|
Rate on
Debt
(a)
|
|
|
Outstanding Balance
|
|
|
Rate on
Debt
(a)
|
|
|
Swaps
(a)(b)
|
|
|
Commercial paper
|
|
$
|
645
|
|
|
|
0.16
|
%
|
|
$
|
975
|
|
|
|
0.19
|
%
|
|
|
|
|
Other short-term
borrowings
(c)
|
|
|
2,769
|
|
|
|
1.23
|
%
|
|
|
1,369
|
|
|
|
0.85
|
%
|
|
|
0.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(d)
|
|
$
|
3,414
|
|
|
|
1.03
|
%
|
|
$
|
2,344
|
|
|
|
0.57
|
%
|
|
|
|
|
|
|
|
|
|
(a)
|
|
For floating-rate debt issuances,
the stated and effective interest rates are based on the
floating rates in effect as of December 31, 2010 and 2009,
respectively. These rates may not be indicative of future
interest rates.
|
(b)
|
|
Effective interest rates are only
presented if swaps are in place to hedge the underlying debt.
There were no swaps in place as of December 31, 2010.
|
(c)
|
|
Includes interest-bearing
overdrafts with banks of $966 million and $277 million
as of December 31, 2010 and 2009, respectively. In
addition, balances include certain book overdrafts (i.e.,
primarily timing differences arising in the ordinary course of
business), short-term borrowings from banks, as well as
interest-bearing amounts due to merchants in accordance with
merchant service agreements.
|
(d)
|
|
The Company did not have any
federal funds purchased as of December 31, 2010 and 2009.
|
89
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
LONG-TERM
DEBT
The Companys long-term debt outstanding, defined as debt
with original maturities of one year or greater, as of December
31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Year-End
|
|
|
|
|
|
|
|
|
Year-End
|
|
|
|
|
|
|
|
|
Year-End
|
|
|
Effective
|
|
|
|
|
|
|
|
|
Effective
|
|
|
|
|
|
|
|
|
Stated
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
Maturity
|
|
Outstanding
|
|
|
Rate on
|
|
|
Rate with
|
|
|
Outstanding
|
|
|
Year-End Stated
|
|
|
Rate with
|
|
(Millions, except percentages)
|
|
Dates
|
|
Balance
(a)
|
|
|
Debt
(b)
|
|
|
Swaps
(b)(c)
|
|
|
Balance
(a)
|
|
|
Rate on
Debt
(b)
|
|
|
Swaps
(b)(c)
|
|
|
American Express Company (Parent Company only)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
2011-2038
|
|
$
|
9,604
|
|
|
|
6.83
|
%
|
|
|
6.02
|
%
|
|
$
|
9,499
|
|
|
|
6.83
|
%
|
|
|
6.01
|
%
|
Subordinated
Debentures
(d)
|
|
2036
|
|
|
745
|
|
|
|
6.80
|
%
|
|
|
|
|
|
|
744
|
|
|
|
6.80
|
%
|
|
|
|
|
American Express Travel Related Services Company Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
2011
|
|
|
700
|
|
|
|
5.25
|
%
|
|
|
|
|
|
|
700
|
|
|
|
5.25
|
%
|
|
|
|
|
Floating Rate Senior Notes
|
|
2011
|
|
|
500
|
|
|
|
0.47
|
%
|
|
|
5.63
|
%
|
|
|
500
|
|
|
|
0.44
|
%
|
|
|
5.63
|
%
|
American Express Credit Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
2011-2015
|
|
|
12,406
|
|
|
|
5.15
|
%
|
|
|
3.07
|
%
|
|
|
11,478
|
|
|
|
5.58
|
%
|
|
|
3.26
|
%
|
Floating Rate Senior Notes
|
|
2011-2013
|
|
|
2,480
|
|
|
|
1.51
|
%
|
|
|
|
|
|
|
4,761
|
|
|
|
1.30
|
%
|
|
|
|
|
Borrowings under Bank Credit Facilities
|
|
2012
|
|
|
4,118
|
|
|
|
5.33
|
%
|
|
|
5.38
|
%
|
|
|
3,232
|
|
|
|
4.23
|
%
|
|
|
4.52
|
%
|
American Express Centurion Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
2012-2017
|
|
|
2,166
|
|
|
|
5.83
|
%
|
|
|
3.31
|
%
|
|
|
2,726
|
|
|
|
5.69
|
%
|
|
|
2.86
|
%
|
Floating Rate Senior Notes
|
|
2012
|
|
|
400
|
|
|
|
0.41
|
%
|
|
|
|
|
|
|
1,975
|
|
|
|
0.31
|
%
|
|
|
|
|
American Express Bank, FSB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
2011-2017
|
|
|
7,168
|
|
|
|
4.40
|
%
|
|
|
2.72
|
%
|
|
|
7,137
|
|
|
|
4.40
|
%
|
|
|
2.70
|
%
|
Floating Rate Senior Notes
|
|
2011-2017
|
|
|
2,750
|
|
|
|
0.92
|
%
|
|
|
|
|
|
|
4,502
|
|
|
|
0.80
|
%
|
|
|
1.22
|
%
|
American Express Charge Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
4.02
|
%
|
|
|
|
|
Floating Rate Senior
Notes
(e)
|
|
2012-2014
|
|
|
3,988
|
|
|
|
0.51
|
%
|
|
|
|
|
|
|
3,826
|
|
|
|
0.57
|
%
|
|
|
|
|
Floating Rate Subordinated Notes
|
|
2012
|
|
|
72
|
|
|
|
0.74
|
%
|
|
|
|
|
|
|
144
|
|
|
|
0.67
|
%
|
|
|
|
|
American Express Lending
Trust
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Senior Notes
|
|
2011
|
|
|
437
|
|
|
|
5.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating Rate Senior Notes
|
|
2011-2018
|
|
|
17,516
|
|
|
|
0.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Subordinated Notes
|
|
2011
|
|
|
63
|
|
|
|
5.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating Rate Subordinated Notes
|
|
2011-2015
|
|
|
1,275
|
|
|
|
0.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
Instruments
(g)
|
|
2011-2022
|
|
|
141
|
|
|
|
5.64
|
%
|
|
|
|
|
|
|
114
|
|
|
|
4.98
|
%
|
|
|
|
|
Unamortized Underwriting Fees
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Debt
|
|
|
|
$
|
66,416
|
|
|
|
3.48
|
%
|
|
|
|
|
|
$
|
52,338
|
|
|
|
4.11
|
%
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The outstanding balances include
(i) unamortized discounts (ii) the impact of movements
in exchange rates on foreign currency denominated debt
($0.6 billion and $1.2 billion as of December 31,
2010 and 2009, respectively), and (iii) the impact of fair
value hedge accounting on certain fixed rate notes that have
been swapped to floating rate through the use of interest rate
swaps. Under fair value hedge accounting, the outstanding
balances on these fixed rate notes are adjusted to reflect the
impact of changes in fair value due to changes in interest
rates. As of December 31, 2010 and 2009, the impact on
long-term debt due to fair value hedge accounting was an
increase of $0.8 billion and $0.6 billion,
respectively. Refer to Note 12 for more details on the
Companys treatment of fair value hedges.
|
(b)
|
|
For floating rate debt issuances,
the stated and effective interest rates are based on the
floating rates in effect as of December 31, 2010 and 2009,
respectively. These rates may not be indicative of future
interest rates.
|
(c)
|
|
Effective interest rates are only
presented when swaps are in place to hedge the underlying debt.
|
(d)
|
|
The maturity date will
automatically be extended to September 1, 2066, except in
the case of either (i) a prior redemption or (ii) a
default. See further discussion below.
|
(e)
|
|
The conduit facility expires on
December 15, 2013; the Company is required to pay down the
balance one month after the expiry of the facility.
|
(f)
|
|
Upon adoption of new GAAP effective
January 1, 2010, the Lending Trust was consolidated. The
December 31, 2009 non-consolidated outstanding balance was
$25.0 billion and the year-end stated rate was
0.87 percent.
|
(g)
|
|
Includes $132 million and
$87 million as of December 31, 2010 and 2009,
respectively, related to lease transactions.
|
90
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
As of December 31, 2010 and 2009, the Parent Company had
$750 million principal outstanding of Subordinated
Debentures that accrue interest at an annual rate of
6.8 percent until September 1, 2016, and at an annual
rate of three-month LIBOR plus 2.23 percent thereafter. At
the Companys option, the Subordinated Debentures are
redeemable for cash after September 1, 2016 at
100 percent of the principal amount plus any accrued but
unpaid interest. If the Company fails to achieve specified
performance measures, it will be required to issue common shares
and apply the net proceeds to make interest payments on the
Subordinated Debentures. No dividends on the Companys
common or preferred shares could be paid until such interest
payments are made. The Company would fail to meet these specific
performance measures if (i) the Companys tangible
common equity is less than 4 percent of total adjusted
assets for the most recent quarter or (ii) if the trailing
two quarters consolidated net income is equal to or less
than zero and tangible common equity as of the trigger
determination date, and as of the end of the quarter end six
months prior, has in each case declined by 10 percent or
more from tangible common equity as of the end of the quarter
18 months prior to the trigger determination date. The
Company met the specified performance measures in 2010.
As of December 31, 2010 and 2009, the Company was not in
violation of any of its debt covenants.
Aggregate annual maturities on long-term debt obligations (based
on final maturity dates) as of December 31, 2010 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
American Express Company (Parent Company only)
|
|
$
|
400
|
|
|
$
|
|
|
|
$
|
998
|
|
|
$
|
1,249
|
|
|
$
|
|
|
|
$
|
7,702
|
|
|
$
|
10,349
|
|
American Express Travel Related Services Company, Inc.
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200
|
|
American Express Credit Corporation
|
|
|
2,150
|
|
|
|
5,679
|
|
|
|
5,118
|
|
|
|
3,573
|
|
|
|
2,484
|
|
|
|
|
|
|
|
19,004
|
|
American Express Centurion Bank
|
|
|
|
|
|
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
1,354
|
|
|
|
2,566
|
|
American Express Bank, FSB
|
|
|
5,173
|
|
|
|
1,607
|
|
|
|
1,840
|
|
|
|
|
|
|
|
|
|
|
|
1,298
|
|
|
|
9,918
|
|
American Express Charge Trust
|
|
|
|
|
|
|
1,560
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
4,060
|
|
American Express Lending Trust
|
|
|
5,330
|
|
|
|
5,222
|
|
|
|
2,904
|
|
|
|
2,685
|
|
|
|
1,950
|
|
|
|
1,200
|
|
|
|
19,291
|
|
Other
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
47
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,263
|
|
|
$
|
15,275
|
|
|
$
|
10,860
|
|
|
$
|
10,091
|
|
|
$
|
4,439
|
|
|
$
|
11,601
|
|
|
$
|
66,529
|
|
|
|
|
|
|
|
Unamortized Underwriting Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,416
|
|
|
|
As of December 31, 2010 and 2009, the Company maintained
total bank lines of credit of $10.6 billion and
$12.2 billion, respectively. Of the total credit lines,
$6.5 billion and $9.0 billion were unutilized, and for
the years ended December 31, 2010 and 2009, respectively,
the Company paid $7.7 million and $6.8 million in fees
to maintain these lines. Unutilized amounts of $5.7 billion
and $8.2 billion supported commercial paper borrowings as
of December 31, 2010 and 2009, respectively. In 2011 and
2012, respectively, $3.3 billion and $7.3 billion of
these credit facilities will expire.
The availability of these credit lines is subject to the
Companys compliance with certain financial covenants,
including the maintenance by the Company of consolidated
tangible net worth of at least $4.1 billion, the
maintenance by American Express Credit Corporation (Credco) of a
1.25 ratio of combined earnings and fixed charges to fixed
charges, and the compliance by American Express Centurion Bank
(Centurion Bank) and American Express Bank, FSB (FSB) with
applicable regulatory capital adequacy guidelines. As of
December 31, 2010, the Companys consolidated tangible
net worth was approximately $13.1 billion, Credcos
ratio of combined earnings and fixed charges to fixed charges
was 1.54 and Centurion Bank and FSB each exceeded their
regulatory capital adequacy guidelines.
Additionally, the Company maintained a
3-year
committed, revolving, secured financing facility which gives the
Company the right to sell up to $3.0 billion face amount of
eligible notes issued from the Charge Trust at any time through
December 16, 2013. As of December 31, 2010,
$2.5 billion was drawn on this facility.
These committed facilities do not contain material adverse
change clauses and the facilities may not be terminated should
there be a change in the Companys credit rating.
The Company paid total interest primarily related to short- and
long-term debt, corresponding interest rate swaps and customer
deposits of $2.4 billion, $2.3 billion and
$3.5 billion in 2010, 2009 and 2008, respectively.
91
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 11
OTHER
LIABILITIES
The following is a summary of other liabilities as of December
31:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Membership Rewards liabilities
|
|
$
|
4,500
|
|
|
$
|
4,303
|
|
Employee-related
liabilities
(a)
|
|
|
2,026
|
|
|
|
1,877
|
|
Book overdraft balances
|
|
|
1,538
|
|
|
|
1,422
|
|
Rebate
accruals
(b)
|
|
|
1,475
|
|
|
|
1,309
|
|
Deferred charge card fees, net
|
|
|
1,036
|
|
|
|
1,034
|
|
Other
(c)
|
|
|
5,371
|
|
|
|
4,785
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,946
|
|
|
$
|
14,730
|
|
|
|
|
|
|
(a)
|
|
Employee-related liabilities
include employee benefit plan obligations and incentive
compensation.
|
(b)
|
|
Rebate accruals include payments to
third-party card issuing partners and cash-back reward costs.
|
(c)
|
|
Other includes accruals for general
operating expenses, litigation, client incentives, advertising
and promotion, derivatives, restructuring and reengineering
reserves.
|
MEMBERSHIP
REWARDS
The Membership Rewards program allows enrolled cardmembers to
earn points that can be redeemed for a broad range of rewards
including travel, entertainment, retail certificates and
merchandise. The Company establishes balance sheet liabilities
which represent the estimated cost of points earned to date that
are ultimately expected to be redeemed. These liabilities
reflect managements best estimate of the cost of future
redemptions. An ultimate redemption rate and weighted average
cost per point are key factors used to approximate the
Membership Rewards liability. Management uses models to estimate
ultimate redemption rates based on historical redemption data,
card product type, year of program enrollment, enrollment tenure
and card spend levels. The weighted-average cost per point is
determined using actual redemptions during the previous
12 months, adjusted as appropriate for recent changes in
redemption costs.
The provision for the cost of Membership Rewards points is
included in marketing, promotion, rewards and cardmember
services. The Company continually evaluates its reserve
methodology and assumptions based on developments in redemption
patterns, cost per point redeemed, contract changes and other
factors.
DEFERRED
CHARGE CARD FEES
The carrying amount of deferred charge card and other fees, net
of direct acquisition costs and reserves for membership
cancellations as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Deferred charge card and other
fees
(a)
|
|
$
|
1,194
|
|
|
$
|
1,213
|
|
Deferred direct acquisition costs
|
|
|
(67
|
)
|
|
|
(60
|
)
|
Reserves for membership cancellations
|
|
|
(91
|
)
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
Deferred charge card fees and other, net of direct acquisition
costs and reserves
|
|
$
|
1,036
|
|
|
$
|
1,034
|
|
|
|
|
|
|
(a)
|
|
Includes deferred fees for
Membership Rewards program participants.
|
NOTE 12
DERIVATIVES
AND HEDGING
ACTIVITIES
The Company uses derivative financial instruments (derivatives)
to manage exposure to various market risks. Market risk is the
risk to earnings or value resulting from movements in market
prices. The Companys market risk exposure is primarily
generated by:
|
|
|
Interest rate risk in its card, insurance and Travelers Cheque
businesses, as well as its investment portfolios; and
|
|
|
Foreign exchange risk in its operations outside the United
States.
|
General principles and the overall framework for managing market
risk across the Company are defined in the Market Risk Policy,
which is the responsibility of the Asset-Liability Committee
(ALCO). Market risk limits and escalation triggers in that
policy are approved by the ALCO and by the Enterprise-wide Risk
Management Committee (ERMC). Market risk is centrally monitored
for compliance with policy and limits by the Market Risk
Committee, which reports into the ALCO and is chaired by the
Chief Market Risk Officer. Market risk management is also guided
by policies covering the use of derivatives, funding and
liquidity and investments. Derivatives derive their value from
an underlying variable or multiple variables, including interest
rate, foreign exchange, and equity indices or prices. These
instruments enable end users to increase, reduce or alter
exposure to various market risks and, for that reason, are an
integral component of the Companys market risk management.
The Company does not engage in derivatives for trading purposes.
The Companys market exposures are in large part byproducts
of the delivery of its products and services. Interest rate risk
arises through the funding of cardmember receivables and
fixed-rate loans with variable-rate borrowings as well as
through the risk to net interest margin from changes in the
relationship between benchmark rates such as Prime and LIBOR.
Interest rate exposure within the Companys charge card and
fixed-rate lending products is managed by varying the proportion
of total funding provided by short-term and variable-rate debt
and deposits compared to fixed-rate debt and deposits. In
addition, interest rate swaps are used from time to time to
effectively convert fixed-rate debt to variable-rate or to
convert variable-rate debt to fixed rate. The Company may change
the mix between variable-rate and fixed-rate funding based on
changes in business volumes and mix, among other factors.
Foreign exchange risk is generated by cardmember cross-currency
charges, foreign currency balance sheet exposures, foreign
subsidiary equity, and foreign currency earnings in units
outside the United States. The Companys foreign exchange
risk is managed primarily by entering into agreements to buy and
sell currencies on a spot basis or by hedging this market
exposure to the extent it is economically
92
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
justified through various means, including the use of
derivatives such as foreign exchange forward, and cross-currency
swap contracts, which can help lock in the value of
the Companys exposure to specific currencies.
Derivatives may give rise to counterparty credit risk. The
Company manages this risk by considering the current exposure,
which is the replacement cost of contracts on the measurement
date, as well as estimating the maximum potential value of the
contracts over the next 12 months, considering such factors
as the volatility of the underlying or reference index. To
mitigate derivative credit risk, counterparties are required to
be pre-approved and rated as investment grade. Counterparty risk
exposures are monitored by the Companys Institutional Risk
Management Committee (IRMC). The IRMC formally reviews large
institutional exposures to ensure compliance with the
Companys ERMC guidelines and procedures and determines the
risk mitigation actions, when necessary. Additionally, in order
to mitigate the bilateral counterparty credit risk associated
with derivatives, the Company has, in certain limited instances,
entered into agreements with its derivative counterparties
including master netting agreements, which may provide a right
of offset for certain exposures between the parties.
In relation to the Companys credit risk, under the terms
of the derivative agreements it has with its various
counterparties, the Company is not required to either
immediately settle any outstanding liability balances or post
collateral upon the occurrence of a specified credit
risk-related event. In relation to counterparty credit risk, as
of December 31, 2010 and 2009, such risk associated with
the Companys derivatives was not significant. The
Companys derivatives are carried at fair value on the
Consolidated Balance Sheets. The accounting for changes in fair
value depends on the instruments intended use and the
resulting hedge designation, if any, as discussed below. Refer
to Note 3 for a description of the Companys
methodology for determining the fair value of its derivatives.
The following table summarizes the total gross fair value,
excluding interest accruals, of derivative assets and
liabilities as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
Other Liabilities
|
|
|
|
Fair Value
|
|
|
Fair Value
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
$
|
909
|
|
|
$
|
632
|
|
|
$
|
38
|
|
|
$
|
6
|
|
Cash flow hedges
|
|
|
2
|
|
|
|
1
|
|
|
|
13
|
|
|
|
44
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges
|
|
|
66
|
|
|
|
132
|
|
|
|
272
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
$
|
977
|
|
|
$
|
765
|
|
|
$
|
323
|
|
|
$
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
3
|
|
|
$
|
11
|
|
|
$
|
3
|
|
|
$
|
5
|
|
Foreign exchange contracts, including certain embedded
derivatives
(a)
|
|
|
109
|
|
|
|
57
|
|
|
|
91
|
|
|
|
95
|
|
Equity-linked embedded
derivative
(b)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
112
|
|
|
|
68
|
|
|
|
96
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives
(c)
|
|
$
|
1,089
|
|
|
$
|
833
|
|
|
$
|
419
|
|
|
$
|
283
|
|
|
|
|
|
|
(a)
|
|
Includes foreign currency
derivatives embedded in certain operating agreements.
|
(b)
|
|
Represents an equity-linked
derivative embedded in one of the Companys investment
securities.
|
(c)
|
|
GAAP permits the netting of
derivative assets and derivative liabilities when a legally
enforceable master netting agreement exists between the Company
and its derivative counterparty. As of December 31, 2010
and 2009, $18 million and $33 million, respectively,
of derivative assets and liabilities have been offset and
presented net on the Consolidated Balance Sheets.
|
DERIVATIVE
FINANCIAL INSTRUMENTS THAT QUALIFY FOR HEDGE ACCOUNTING
Derivatives executed for hedge accounting purposes are
documented and designated as such when the Company enters into
the contracts. In accordance with its risk management policies,
the Company structures its hedges with very similar terms to the
hedged items. The Company formally assesses, at inception of the
hedge accounting relationship and on a quarterly basis, whether
derivatives designated as hedges are highly effective in
offsetting the fair value or cash flows of the hedged items.
These assessments usually are made through the application of
the regression analysis method. If it is determined that a
derivative is not highly effective as a hedge, the Company will
discontinue the application of hedge accounting.
FAIR
VALUE HEDGES
A fair value hedge involves a derivative designated to hedge the
Companys exposure to future changes in the fair value of
an asset or a liability, or an identified portion thereof that
is attributable to a particular risk. The Company is exposed to
interest rate risk associated with its fixed-rate long-term
debt. The Company uses interest rate swaps to convert certain
fixed-rate long-term debt to floating-rate at the time of
issuance. As of December 31, 2010 and 2009, the Company
hedged $15.9 billion
93
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
and $15.1 billion, respectively, of its fixed-rate debt to
floating-rate debt using interest rate swaps.
To the extent the fair value hedge is effective, the gain or
loss on the hedging instrument offsets the loss or gain on the
hedged item attributable to the hedged risk. Any difference
between the changes in the fair value of the derivative and the
hedged item is referred to as hedge ineffectiveness and is
reflected in earnings as a component of other, net expenses.
Hedge ineffectiveness may be caused by differences between the
debts interest coupon and the benchmark rate, which are
primarily due to credit spreads at inception of the hedging
relationship that are not reflected in the valuation of the
interest rate swap. Furthermore, hedge ineffectiveness may be
caused by changes in the relationship between
3-month
LIBOR and
1-month
LIBOR rates, as these so-called basis spreads may impact the
valuation of the interest rate swap without causing an
offsetting impact in the value of the hedged debt. If a fair
value hedge is de-designated or no longer considered to be
effective, changes in fair value of the derivative continue to
be recorded through earnings but the hedged asset or liability
is no longer adjusted for changes in fair value due to changes
in interest rates. The existing basis adjustment of the hedged
asset or liability is then amortized or accreted as an
adjustment to yield over the remaining life of that asset or
liability.
The following table summarizes the impact on the Consolidated
Statements of Income associated with the Companys hedges
of fixed-rate long-term debt described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31:
|
|
(Millions)
|
|
Gains (losses) recognized in income
|
|
|
|
Derivative contract
|
|
|
Hedged item
|
|
|
Net hedge
|
|
|
|
|
|
Amount
|
|
|
|
|
Amount
|
|
|
ineffectiveness
|
|
Derivative relationship
|
|
Location
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Location
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest rate contracts
|
|
Other, net expenses
|
|
$
|
246
|
|
|
$
|
(446
|
)
|
|
$
|
967
|
|
|
Other, net expenses
|
|
$
|
(233
|
)
|
|
$
|
437
|
|
|
$
|
(898
|
)
|
|
$
|
13
|
|
|
$
|
(9
|
)
|
|
$
|
69
|
|
|
|
The Company also recognized a net reduction in interest expense
on long-term debt and other of $522 million,
$464 million and $122 million for the three years
ended December 31, 2010, 2009 and 2008, respectively,
primarily related to the net settlements (interest accruals) on
the Companys interest rate derivatives designated as fair
value hedges.
CASH
FLOW HEDGES
A cash flow hedge involves a derivative designated to hedge the
Companys exposure to variable future cash flows
attributable to a particular risk. Such exposures may relate to
either an existing recognized asset or liability or a forecasted
transaction. The Company hedges existing long-term variable-rate
debt, the rollover of short-term borrowings and the anticipated
forecasted issuance of additional funding through the use of
derivatives, primarily interest rate swaps. These derivative
instruments effectively convert floating-rate debt to fixed-rate
debt for the duration of the instrument. As of December 31,
2010 and 2009, the Company hedged $1.3 billion and
$1.6 billion, respectively, of its floating debt using
interest rate swaps.
For derivatives designated as cash flow hedges, the effective
portion of the gain or loss on the derivatives is recorded in
AOCI and reclassified into earnings when the hedged cash flows
are recognized in earnings. The amount that is reclassified into
earnings is presented in the Consolidated Statements of Income
in the same line item in which the hedged instrument or
transaction is recognized, primarily in interest expense. Any
ineffective portion of the gain or loss on the derivatives is
reported as a component of other, net expenses. If a cash flow
hedge is de-designated or terminated prior to maturity, the
amount previously recorded in AOCI is recognized into earnings
over the period that the hedged item impacts earnings. If a
hedge relationship is discontinued because it is probable that
the forecasted transaction will not occur according to the
original strategy, any related amounts previously recorded in
AOCI are recognized into earnings immediately.
In the normal course of business, as the hedged cash flows are
recognized into earnings, the Company expects to reclassify
$11 million of net pretax losses on derivatives from AOCI
into earnings during the next 12 months.
NET
INVESTMENT HEDGES
A net investment hedge is used to hedge future changes in
currency exposure of a net investment in a foreign operation.
The Company primarily designates foreign currency derivatives,
typically foreign exchange forwards, and on occasion foreign
currency denominated debt, as hedges of net investments in
certain foreign operations. These instruments reduce exposure to
changes in currency exchange rates on the Companys
investments in
non-U.S. subsidiaries.
The effective portion of the gain or loss on net investment
hedges is recorded in AOCI as part of the cumulative translation
adjustment. Any ineffective portion of the gain or loss on net
investment hedges is recognized in other, net expenses during
the period of change.
94
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table summarizes the impact of cash flow hedges
and net investment hedges on the Consolidated Statements of
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31:
|
|
|
|
Gains (losses) recognized in income
|
|
|
|
|
|
Amount reclassified
|
|
|
|
|
|
|
|
|
|
|
from AOCI into
|
|
|
|
|
Net hedge
|
|
|
|
|
|
income
|
|
|
|
|
ineffectiveness
|
|
(Millions)
|
|
Location
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Location
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flow
hedges:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Interest expense
|
|
$
|
(36
|
)
|
|
$
|
(115
|
)
|
|
$
|
(247
|
)
|
|
Other, net expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other, net expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
Other, net expenses
|
|
$
|
(3
|
)
|
|
$
|
(1
|
)
|
|
$
|
3
|
|
|
|
|
|
|
(a)
|
|
During the years ended
December 31, 2010, 2009 and 2008, there were no forecasted
transactions that were considered no longer probable to occur.
|
DERIVATIVES
NOT DESIGNATED AS HEDGES
The Company has derivatives that act as economic hedges but are
not designated for hedge accounting purposes. Foreign currency
transactions and
non-U.S. dollar
cash flow exposures from time to time may be partially or fully
economically hedged through foreign currency contracts,
primarily foreign exchange forwards, options and cross-currency
swaps. These hedges generally mature within one year. Foreign
currency contracts involve the purchase and sale of a designated
currency at an agreed upon rate for settlement on a specified
date. The changes in the fair value of the derivatives
effectively offset the related foreign exchange gains or losses
on the underlying balance sheet exposures. From time to time,
the Company may enter into interest rate swaps to specifically
manage funding costs related to its proprietary card business.
The Company has certain operating agreements whose payments may
be linked to a market rate or price, primarily foreign currency
rates. The payment components of these agreements may meet the
definition of an embedded derivative, which is assessed to
determine if it requires separate accounting and reporting. If
so, the embedded derivative is accounted for separately and is
classified as a foreign exchange contract based on its primary
risk exposure. In addition, the Company also holds an investment
security containing an embedded equity-linked derivative.
For derivatives that are not designated as hedges, changes in
fair value are reported in current period earnings.
The following table summarizes the impact of derivatives not
designated as hedges on the Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31:
|
|
(Millions)
|
|
Gains (losses) recognized in income
|
|
|
|
|
|
Amount
|
|
|
|
Location
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest rate contracts
|
|
Other, net expenses
|
|
$
|
(8
|
)
|
|
$
|
17
|
|
|
$
|
(33
|
)
|
Foreign exchange
contracts
(a)
|
|
Other non-interest revenues
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
Interest and dividends on investment securities
|
|
|
4
|
|
|
|
4
|
|
|
|
13
|
|
|
|
Interest expense on short-term borrowings
|
|
|
7
|
|
|
|
5
|
|
|
|
(7
|
)
|
|
|
Interest expense on long-term debt and other
|
|
|
93
|
|
|
|
35
|
|
|
|
22
|
|
|
|
Other, net expenses
|
|
|
(3
|
)
|
|
|
(8
|
)
|
|
|
(38
|
)
|
Equity-linked contract
|
|
Other non-interest revenues
|
|
|
(6
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
87
|
|
|
$
|
53
|
|
|
$
|
(43
|
)
|
|
|
|
|
|
(a)
|
|
For the years ended
December 31, 2010 and 2009, foreign exchange contracts
include embedded foreign currency derivatives. Gains (losses) on
these embedded derivatives are included in other, net expenses.
|
95
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 13
GUARANTEES
The Company provides cardmember protection plans that cover
losses associated with purchased products, as well as certain
other guarantees in the ordinary course of business which are
within the scope of GAAP governing the accounting for
guarantees. For the Company, guarantees primarily consist of
card and travel protection programs, including:
|
|
|
Credit Card Registry cancels and requests
replacement of lost or stolen cards, and provides for fraud
liability coverage;
|
|
|
Return Protection refunds the price of eligible
purchases made with the card where the merchant will not accept
the return for up to 90 days from the date of purchase;
|
|
|
Account Protection provides account protection in
the event that a cardmember is unable to make payments on the
account due to unforeseen hardship; and,
|
|
|
Merchant Protection protects cardmembers primarily
against non-delivery of goods and services, usually in the event
of bankruptcy or liquidation of a merchant. In the event that a
dispute is resolved in the cardmembers favor, the Company
will generally credit the cardmember account for the amount of
the purchase and will seek recovery from the merchant. If the
Company is unable to collect the amount from the merchant, it
will bear the loss for the amount credited to the cardmember.
The Company mitigates this risk by withholding settlement from
the merchant or obtaining deposits and other guarantees from
merchants considered higher risk due to various factors. The
amounts being held by the Company are not significant when
compared to the maximum potential amount of undiscounted future
payments.
|
In relation to its maximum amount of undiscounted future
payments as seen in the table that follows, to date the Company
has not experienced any significant losses related to
guarantees. The Companys initial recognition of guarantees
is at fair value, which has been determined in accordance with
GAAP governing fair value measurement. In addition, the Company
establishes reserves when an unfavorable outcome is probable and
the amount of the loss can be reasonably estimated.
The following table provides information related to such
guarantees as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum amount of
|
|
|
|
|
|
|
undiscounted future
|
|
|
Amount of related
|
|
|
|
payments
(a)
|
|
|
liability
(b)
|
|
|
|
(Billions)
|
|
|
(Millions)
|
|
Type of Guarantee
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Card and travel
operations
(c)
|
|
$
|
67
|
|
|
$
|
66
|
|
|
$
|
114
|
|
|
$
|
112
|
|
Other
(d)
|
|
|
1
|
|
|
|
1
|
|
|
|
99
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68
|
|
|
$
|
67
|
|
|
$
|
213
|
|
|
$
|
186
|
|
|
|
|
|
|
(a)
|
|
Represents the notional amounts
that could be lost under the guarantees and indemnifications if
there were a total default by the guaranteed parties. The
Merchant Protection guarantee is calculated using
managements best estimate of maximum exposure based on all
eligible claims as measured against annual billed business
volumes.
|
(b)
|
|
Included as part of other
liabilities on the Companys Consolidated Balance Sheets.
|
(c)
|
|
Includes Credit Card Registry,
Return Protection, Account Protection and Merchant Protection,
which the Company offers directly to cardmembers.
|
(d)
|
|
Primarily includes guarantees
related to the Companys business dispositions, real estate
and tax, as well as contingent consideration obligations, each
of which are individually smaller indemnifications.
|
Refer to Note 26 for a discussion of additional guarantees
of the Company as of December 31, 2010 and 2009.
96
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 14
COMMON
AND PREFERRED SHARES AND WARRANTS
As of December 31, 2010, the Company has 86 million
common shares remaining under share repurchase authorizations.
Such authorizations do not have an expiration date, and at
present, there is no intention to modify or otherwise rescind
the current authorizations.
Common shares are generally retired by the Company upon
repurchase (except for 4.7 million, 5.0 million and
0.4 million shares held as treasury shares as of
December 31, 2010, 2009 and 2008, respectively); retired
common shares and treasury shares are excluded from the shares
outstanding in the table below. The treasury shares, with a cost
basis of $219 million, $235 million and
$21 million as of December 31, 2010, 2009 and 2008,
respectively, are included as a reduction to additional paid-in
capital in shareholders equity on the Consolidated Balance
Sheets.
The following table shows authorized shares and provides a
reconciliation of common shares issued and outstanding for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except where indicated)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Common shares authorized
(billions)
(a)
|
|
|
3.6
|
|
|
|
3.6
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding at beginning of year
|
|
|
1,192
|
|
|
|
1,160
|
|
|
|
1,158
|
|
(Repurchases) Issuances of common shares
|
|
|
(14
|
)
|
|
|
22
|
|
|
|
(5
|
)
|
Other, primarily stock option exercises and RSAs granted
|
|
|
19
|
|
|
|
10
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding as of December 31
|
|
|
1,197
|
|
|
|
1,192
|
|
|
|
1,160
|
|
|
|
|
|
|
(a)
|
|
Of the common shares authorized but
unissued as of December 31, 2010, approximately
104 million shares were reserved for issuance under
employee stock and employee benefit plans.
|
The Board of Directors is authorized to permit the Company to
issue up to 20 million preferred shares at a par value of
$1.66
2
/
3
without further shareholder approval.
On January 9, 2009, under the United States Department of
the Treasury (Treasury Department) Capital Purchase Program
(CPP), the Company issued to the Treasury Department as
consideration for aggregate proceeds of $3.39 billion:
(1) 3.39 million shares of Fixed Rate (5 percent)
Cumulative Perpetual Preferred Shares Series A (the
Preferred Shares), and (2) a ten-year warrant (the Warrant)
for the Treasury Department to purchase up to 24 million
common shares at an exercise price of $20.95 per share.
On June 17, 2009, the Company repurchased the Preferred
Shares at their face value of $3.39 billion and the
$212 million in excess of the amortized carrying amount
represented an in-substance Preferred Share dividend that
reduced earnings per share (EPS) attributable to common
shareholders by $0.18 for the year ended December 31, 2009.
Refer to Note 18.
On July 29, 2009, the Company repurchased the Warrant for
$340 million. There were no preferred shares or warrants
issued and outstanding as of December 31, 2010 and 2009.
97
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 15
CHANGES
IN ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
AOCI is a balance sheet item in the Shareholders Equity
section of the Companys Consolidated Balance Sheets. It is
comprised of items that have not been recognized in earnings but
may be recognized in earnings in the future when certain events
occur. Changes in each component of AOCI for the three years
ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
|
|
Gains (Losses) on
|
|
|
Net Unrealized
|
|
|
Foreign Currency
|
|
|
Pension and Other
|
|
|
Accumulated Other
|
|
|
|
Investment
|
|
|
Gains (Losses) on
|
|
|
Translation
|
|
|
Postretirement
|
|
|
Comprehensive
|
|
(Millions, net of
tax)
(a)
|
|
Securities
|
|
|
Cash Flow Hedges
|
|
|
Adjustments
|
|
|
Benefit Losses
|
|
|
(Loss) Income
|
|
|
Balances as of December 31, 2007
|
|
$
|
12
|
|
|
$
|
(71
|
)
|
|
$
|
(255
|
)
|
|
$
|
(128
|
)
|
|
$
|
(442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
|
(718
|
)
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
(888
|
)
|
Reclassification for realized (gains) losses into earnings
|
|
|
(8
|
)
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
Net translation of investments in foreign operations
|
|
|
|
|
|
|
|
|
|
|
(1,102
|
)
|
|
|
|
|
|
|
(1,102
|
)
|
Net gains related to hedges of investment in foreign operations
|
|
|
|
|
|
|
|
|
|
|
961
|
|
|
|
|
|
|
|
961
|
|
Pension and other postretirement benefit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
(329
|
)
|
Discontinued
operations
(b)
|
|
|
15
|
|
|
|
|
|
|
|
28
|
|
|
|
(2
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive (loss) income
|
|
|
(711
|
)
|
|
|
(9
|
)
|
|
|
(113
|
)
|
|
|
(331
|
)
|
|
|
(1,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2008
|
|
|
(699
|
)
|
|
|
(80
|
)
|
|
|
(368
|
)
|
|
|
(459
|
)
|
|
|
(1,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
|
1,351
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
1,329
|
|
Reclassification for realized (gains) losses into earnings
|
|
|
(145
|
)
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
Net translation of investments in foreign
operations
(c)
|
|
|
|
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
523
|
|
Net losses related to hedges of investment in foreign operations
|
|
|
|
|
|
|
|
|
|
|
(877
|
)
|
|
|
|
|
|
|
(877
|
)
|
Pension and other postretirement benefit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive (loss) income
|
|
|
1,206
|
|
|
|
52
|
|
|
|
(354
|
)
|
|
|
(10
|
)
|
|
|
894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2009
|
|
|
507
|
|
|
|
(28
|
)
|
|
|
(722
|
)
|
|
|
(469
|
)
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of the Adoption of new
GAAP
(d)
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(315
|
)
|
Net unrealized gains (losses)
|
|
|
(139
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
Reclassification for realized (gains) losses into earnings
|
|
|
4
|
|
|
|
23
|
|
|
|
1
|
|
|
|
|
|
|
|
28
|
|
Net translation of investments in foreign operations
|
|
|
|
|
|
|
|
|
|
|
189
|
|
|
|
|
|
|
|
189
|
|
Net gains related to hedges of investment in foreign operations
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
29
|
|
Pension and other postretirement benefit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive (loss) income
|
|
|
(450
|
)
|
|
|
21
|
|
|
|
219
|
|
|
|
5
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2010
|
|
$
|
57
|
|
|
$
|
(7
|
)
|
|
$
|
(503
|
)
|
|
$
|
(464
|
)
|
|
$
|
(917
|
)
|
|
|
|
|
|
(a)
|
|
The following table shows the tax
impact for the three years ended December 31 for the changes in
each component of accumulated other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Investment securities
|
|
$
|
(272
|
)
|
|
$
|
749
|
|
|
$
|
(472
|
)
|
Cash flow hedges
|
|
|
11
|
|
|
|
29
|
|
|
|
(4
|
)
|
Foreign currency translation adjustments
|
|
|
22
|
|
|
|
33
|
|
|
|
(66
|
)
|
Net investment hedges
|
|
|
(396
|
)
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefit losses
|
|
|
18
|
|
|
|
(28
|
)
|
|
|
(159
|
)
|
Discontinued
operations
(b)
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax impact
|
|
$
|
(617
|
)
|
|
$
|
783
|
|
|
$
|
(685
|
)
|
|
|
|
|
|
(b)
|
|
Relates to the change in
accumulated other comprehensive (loss) income prior to the
dispositions of AEB and AEIDC.
|
(c)
|
|
Includes a $190 million other
comprehensive loss, recorded in the third quarter of 2009,
representing the correction of an error related to the
accounting in prior periods for cumulative translation
adjustments associated with a net investment in foreign
subsidiaries. (Refer to Note 19 for further details).
|
(d)
|
|
As described further in
Notes 6 and 7, as a result of the adoption of new GAAP
effective January 1, 2010, the Company no longer presents
within its Consolidated Financial Statements the effects of the
retained subordinated securities issued by previously
unconsolidated VIEs related to the Companys cardmember
loan securitization programs.
|
98
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 16
RESTRUCTURING
CHARGES
During 2010, the Company recorded $96 million of
restructuring charges, net of adjustments of previously accrued
amounts due to revisions of prior estimates. The 2010 activity
primarily relates to a $98 million charge reflecting
employee severance obligations to consolidate certain facilities
within the Companys global servicing network. In addition,
the Company expects to record further charges in one or more
quarterly periods during 2011 relating to these facility
consolidations totaling between $60 million and
$80 million. The total expected additional charges include
lease exit (approximately 60 percent) and employee
compensation (approximately 40 percent) costs. It is
estimated that these costs will be recorded to the business
units as follows: USCS (73 percent), International Card
Services (ICS) (5 percent), GCS (12 percent), and
Global Network Merchant Services (GNMS) (10 percent). As a
result of this initiative, approximately 3,200 positions will be
eliminated; however, overall staffing levels are expected to
decrease by approximately 400 positions on a net basis as new
employees are hired at the locations to which work is being
transferred. The remaining 2010 activity includes
$25 million of additional charges comprised of several
smaller initiatives which were more than offset by adjustments
of $(27) million that relate to revisions of prior
estimates for higher employee redeployments to other positions
within the Company and modifications to existing initiatives.
During 2009, the Company recorded $185 million of
restructuring charges, net of adjustments of previously accrued
amounts due to revisions of prior estimates. The 2009 activity
primarily relates to the $199 million of restructuring
charges the Company recorded in the second quarter to further
reduce its operating costs by downsizing and reorganizing
certain operations. These restructuring activities were for the
elimination of approximately 4,000 positions or about
6 percent of the Companys total worldwide workforce
and occurred across all business units, markets and staff
groups. Additional restructuring charges of $38 million
taken in the third and fourth quarters of 2009 relate
principally to the reorganization of certain senior leadership
positions, as well as the exit of a business in the GNMS
segment. The Company also recorded adjustments of
$(52) million during 2009 that primarily relate to
revisions of prior estimates for higher employee redeployments
to other positions within the Company, business changes and
modifications to existing initiatives. These modifications do
not constitute a significant change in the original
restructuring plan from an overall Company perspective.
During 2008, the Company recorded restructuring charges of
$434 million, net of adjustments of previously accrued
amounts due to revisions of prior estimates. While the
Companys restructuring activity in the first and third
quarters of 2008 primarily related to exiting certain
international banking businesses, the Company recorded
$410 million of restructuring charges in the fourth quarter
of 2008 in order to further reduce the Companys cost
structure. This restructuring was for the elimination of
approximately 7,000 positions or approximately 10 percent
of its total worldwide workforce. These reductions primarily
occurred across business units, markets and staff groups
focusing on management and other positions that do not interact
directly with customers, and related to reorganizing or
automating certain internal processes; outsourcing certain
operations to third parties; and discontinuing or relocating
business activities to other locations.
Restructuring charges related to severance obligations are
included in salaries and employee benefits and discontinued
operations in the Companys Consolidated Statements of
Income, while charges pertaining to other exit costs are
included in occupancy and equipment, professional services,
other, net expenses and discontinued operations.
99
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table summarizes the Companys restructuring
reserves activity for the years ended December 31, 2010,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Severance
(a)
|
|
|
Other
(b)
|
|
|
Total
|
|
|
Liability balance as of December 31, 2007
|
|
$
|
60
|
|
|
$
|
9
|
|
|
$
|
69
|
|
Restructuring charges, net of $10 in
adjustments
(c)(d)
|
|
|
366
|
|
|
|
68
|
|
|
|
434
|
|
Payments
|
|
|
(63
|
)
|
|
|
(13
|
)
|
|
|
(76
|
)
|
Other
non-cash
(e)
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance as of December 31, 2008
|
|
|
365
|
|
|
|
62
|
|
|
|
427
|
|
Restructuring charges, net of $52 in
adjustments
(c)
|
|
|
161
|
|
|
|
24
|
|
|
|
185
|
|
Payments
|
|
|
(287
|
)
|
|
|
(45
|
)
|
|
|
(332
|
)
|
Other
non-cash
(e)
|
|
|
14
|
|
|
|
(9
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance as of December 31, 2009
|
|
|
253
|
|
|
|
32
|
|
|
|
285
|
|
Restructuring charges, net of $27 in
adjustments
(f)
|
|
|
98
|
|
|
|
(2
|
)
|
|
|
96
|
|
Payments
|
|
|
(141
|
)
|
|
|
(14
|
)
|
|
|
(155
|
)
|
Other
non-cash
(e)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance as of December 31,
2010
(g)
|
|
$
|
199
|
|
|
$
|
16
|
|
|
$
|
215
|
|
|
|
|
|
|
(a)
|
|
Accounted for in accordance with
the GAAP governing the accounting for nonretirement
postemployment benefits and for costs associated with exit or
disposal activities.
|
(b)
|
|
Other primarily includes facility
exit, asset impairment and contract termination costs.
|
(c)
|
|
Adjustments primarily relate to
higher than anticipated redeployments of displaced employees to
other positions within the Company.
|
(d)
|
|
Includes $17 million related
to discontinued operations.
|
(e)
|
|
Consists primarily of foreign
exchange impacts. During 2009, the amounts in other also include
asset impairments directly related to restructuring activity.
|
(f)
|
|
Net adjustments of $27 million
were recorded in the Companys reportable operating
segments as follows: $4 million in USCS, $13 million
in ICS, $(2) million in GCS, and $12 million in
Corporate & Other. These adjustments primarily relate
to higher employee redeployments to other positions within the
Company, business changes and modifications to existing
initiatives.
|
(g)
|
|
The majority of cash payments
related to the remaining restructuring liabilities are expected
to be completed in 2012, with the exception of certain smaller
amounts related to contractual long-term severance arrangements
which are expected to be completed in 2013, and certain lease
obligations which will continue until their expiration in 2018.
|
The following table summarizes the Companys restructuring
charges, net of adjustments, by reportable segment for the year
ended December 31, 2010, and the cumulative amounts
relating to the restructuring programs that were in progress
during 2010 and initiated at various dates between 2007 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Restructuring Expense Incurred To Date On
|
|
|
|
2010
|
|
|
In-Progress Restructuring Programs
|
|
|
|
Total Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges net of
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
adjustments
|
|
|
Severance
|
|
|
Other
|
|
|
Total
|
|
|
USCS
|
|
$
|
52
|
|
|
$
|
99
|
|
|
$
|
6
|
|
|
$
|
105
|
|
ICS
|
|
|
12
|
|
|
|
92
|
|
|
|
3
|
|
|
|
95
|
|
GCS
|
|
|
21
|
|
|
|
241
|
|
|
|
31
|
|
|
|
272
|
|
GNMS
|
|
|
16
|
|
|
|
64
|
|
|
|
9
|
|
|
|
73
|
|
Corporate & Other
|
|
|
(5
|
)
|
|
|
116
|
|
|
|
33
|
|
|
|
149
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
96
|
|
|
$
|
612
|
|
|
$
|
82
|
|
|
$
|
694
|
(b)
|
|
|
|
|
|
(a)
|
|
The Corporate & Other
segment includes certain severance and other charges of
$125 million, related to Company-wide support functions
which were not allocated to the Companys operating
segments, as these were corporate initiatives, which is
consistent with how such charges were reported internally.
|
(b)
|
|
As of December 31, 2010, the
total expenses to be incurred for previously approved
restructuring activities that were in progress are not expected
to be materially different than the cumulative expenses incurred
to date for these programs, except for those 2011 charges noted
above.
|
100
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 17
INCOME
TAXES
The components of income tax expense for the years ended
December 31 included in the Consolidated Statements of Income
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
532
|
|
|
$
|
661
|
|
|
$
|
735
|
|
U.S. state and local
|
|
|
110
|
|
|
|
40
|
|
|
|
(28
|
)
|
Non-U.S.
|
|
|
508
|
|
|
|
295
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax expense
|
|
|
1,150
|
|
|
|
996
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
782
|
|
|
|
(231
|
)
|
|
|
(150
|
)
|
U.S. state and local
|
|
|
78
|
|
|
|
24
|
|
|
|
(84
|
)
|
Non-U.S.
|
|
|
(103
|
)
|
|
|
(85
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax expense (benefit)
|
|
|
757
|
|
|
|
(292
|
)
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense on continuing operations
|
|
$
|
1,907
|
|
|
$
|
704
|
|
|
$
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from discontinued operations
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
12
|
|
|
|
A reconciliation of the U.S. federal statutory rate of
35 percent to the Companys actual income tax rate for
the years ended December 31 on continuing operations was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Combined tax at U.S. statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (Decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt income
|
|
|
(1.9
|
)
|
|
|
(4.6
|
)
|
|
|
(3.9
|
)
|
State and local income taxes, net of federal benefit
|
|
|
2.7
|
|
|
|
2.7
|
|
|
|
1.6
|
|
Non-U.S.
subsidiaries earnings
|
|
|
(3.1
|
)
|
|
|
(6.8
|
)
|
|
|
(8.4
|
)
|
Tax
settlements
(a)
|
|
|
(1.3
|
)
|
|
|
(1.4
|
)
|
|
|
(5.5
|
)
|
All other
|
|
|
0.6
|
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax rates
|
|
|
32.0
|
%
|
|
|
24.8
|
%
|
|
|
19.8
|
%
|
|
|
|
|
|
(a)
|
|
Relates to the resolution of tax
matters in various jurisdictions.
|
The Company records a deferred income tax (benefit) provision
when there are differences between assets and liabilities
measured for financial reporting and for income tax return
purposes. These temporary differences result in taxable or
deductible amounts in future years and are measured using the
tax rates and laws that will be in effect when such differences
are expected to reverse.
The significant components of deferred tax assets and
liabilities as of December 31 are reflected in the following
table:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserves not yet deducted for tax purposes
|
|
$
|
3,789
|
|
|
$
|
3,495
|
|
Employee compensation and benefits
|
|
|
741
|
|
|
|
717
|
|
Other
|
|
|
290
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
4,820
|
|
|
|
4,326
|
|
Valuation allowance
|
|
|
(104
|
)
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets after valuation allowance
|
|
|
4,716
|
|
|
|
4,266
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles and fixed assets
|
|
|
834
|
|
|
|
744
|
|
Deferred revenue
|
|
|
36
|
|
|
|
49
|
|
Asset securitizations
|
|
|
43
|
|
|
|
70
|
|
Net unrealized securities gains
|
|
|
19
|
|
|
|
291
|
|
Other
|
|
|
387
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
1,319
|
|
|
|
1,287
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
3,397
|
|
|
$
|
2,979
|
|
|
|
A valuation allowance is established when management determines
that it is more likely than not that all or some portion of the
benefit of the deferred tax assets will not be realized. The
valuation allowances as of December 31, 2010 and 2009 are
associated with net operating losses and other deferred tax
assets in certain
non-U.S. operations
of the Company.
Accumulated earnings of certain
non-U.S. subsidiaries,
which totaled approximately $7.4 billion as of
December 31, 2010, are intended to be permanently
reinvested outside the United States. The Company does not
provide for federal income taxes on foreign earnings intended to
be permanently reinvested outside the United States.
Accordingly, federal taxes, which would have aggregated
approximately $1.9 billion as of December 31, 2010,
have not been provided on those earnings.
Net income taxes paid by the Company (including amounts related
to discontinued operations) during 2010, 2009 and 2008, were
approximately $0.8 billion, $0.4 billion and
$2.0 billion, respectively. These amounts include estimated
tax payments and cash settlements relating to prior tax years.
The Company, its wholly-owned U.S. subsidiaries, and
certain
non-U.S. subsidiaries
file a consolidated federal income tax return. The Company is
subject to the income tax laws of the United States, its states
and municipalities and those of the foreign jurisdictions in
which the Company operates. These tax laws are complex, and the
manner in which they apply to the taxpayers facts is
sometimes open to interpretation. Given these inherent
complexities, the Company must make judgments in assessing the
likelihood that a tax position will be sustained upon
examination by the taxing authorities based on the technical
merits of the tax position. A tax position is recognized only
when, based on managements judgment regarding the
application of income tax laws, it is more likely
101
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
than not that the tax position will be sustained upon
examination. The amount of benefit recognized for financial
reporting purposes is based on managements best judgment
of the most likely outcome resulting from examination given the
facts, circumstances and information available at the reporting
date. The Company adjusts the level of unrecognized tax benefits
when there is new information available to assess the likelihood
of the outcome.
The Company is under continuous examination by the Internal
Revenue Service (IRS) and tax authorities in other countries and
states in which the Company has significant business operations.
The tax years under examination and open for examination vary by
jurisdiction. In June 2008, the IRS completed its field
examination of the Companys federal tax returns for the
years 1997 through 2002. In July 2009, the IRS completed its
field examination of the Companys federal tax returns for
the years 2003 and 2004. However, all of these years continue to
remain open as a consequence of certain issues under appeal. The
Company is currently under examination by the IRS for the years
2005 through 2007.
The following table presents changes in unrecognized tax
benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance, January 1
|
|
$
|
1,081
|
|
|
$
|
1,176
|
|
|
$
|
1,112
|
|
Increases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year tax positions
|
|
|
182
|
|
|
|
39
|
|
|
|
81
|
|
Tax positions related to prior years
|
|
|
403
|
|
|
|
161
|
|
|
|
409
|
|
Effects of foreign currency translations
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Decreases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax positions related to prior years
|
|
|
(145
|
)
|
|
|
(197
|
)
|
|
|
(208
|
)
|
Settlements with tax authorities
|
|
|
(138
|
)
|
|
|
(97
|
)
|
|
|
(213
|
)
|
Lapse of statute of limitations
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Effects of foreign currency translations
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
1,377
|
|
|
$
|
1,081
|
|
|
$
|
1,176
|
|
|
|
Included in the $1.4 billion, $1.1 billion and
$1.2 billion of unrecognized tax benefits as of
December 31, 2010, 2009 and 2008, respectively, are
approximately $476 million, $480 million and
$452 million, respectively, that, if recognized, would
favorably affect the effective tax rate in a future period.
The Company believes it is reasonably possible that the
unrecognized tax benefits could decrease within the next
12 months by as much as $991 million principally as a
result of potential resolutions of prior years tax items
with various taxing authorities. The prior years tax items
include unrecognized tax benefits relating to the timing of
recognition of certain gross income, the deductibility of
certain expenses or losses and the attribution of taxable income
to a particular jurisdiction or jurisdictions. Of the
$991 million of unrecognized tax benefits, approximately
$320 million relates to temporary differences that, if
recognized, would only impact the effective rate due to net
interest assessments and state tax rate differentials and
approximately $404 million relates to amounts recorded to
equity that, if recognized, would not impact the effective rate.
With respect to the remaining decrease of $267 million, it
is not possible to quantify the impact that the decrease could
have on the effective tax rate and net income due to the
inherent complexities and the number of tax years open for
examination in multiple jurisdictions. Resolution of the prior
years items that comprise this remaining amount could have
an impact on the effective tax rate and on net income, either
favorably (principally as a result of settlements that are less
than the liability for unrecognized tax benefits) or unfavorably
(if such settlements exceed the liability for unrecognized tax
benefits).
Interest and penalties relating to unrecognized tax benefits are
reported in the income tax provision.
During
the years ended December 31, 2010, 2009 and 2008, the
Company recognized approximately $31 million,
$1 million and $60 million, respectively, of interest
and penalties. The Company has approximately $226 million
and $282 million accrued for the payment of interest and
penalties as of December 31, 2010 and 2009, respectively.
102
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 18
EARNINGS
PER COMMON SHARE
The computations of basic and diluted EPS for the years ended
December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except per share amounts)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
4,057
|
|
|
$
|
2,137
|
|
|
$
|
2,871
|
|
Preferred shares dividends, accretion and recognition of
remaining
unaccreted
dividends
(a)
|
|
|
|
|
|
|
(306
|
)
|
|
|
|
|
Earnings allocated to participating share awards and other
items
(b)
|
|
|
(51
|
)
|
|
|
(22
|
)
|
|
|
(15
|
)
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
(7
|
)
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
4,006
|
|
|
$
|
1,802
|
|
|
$
|
2,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: Weighted-average common stock
|
|
|
1,188
|
|
|
|
1,168
|
|
|
|
1,154
|
|
Add: Weighted-average stock options and
warrants
(c)
|
|
|
7
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
1,195
|
|
|
|
1,171
|
|
|
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common
shareholders
|
|
$
|
3.37
|
|
|
$
|
1.55
|
|
|
$
|
2.47
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
3.37
|
|
|
$
|
1.54
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common
shareholders
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
$
|
2.47
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
$
|
2.32
|
|
|
|
|
|
|
(a)
|
|
Includes the accelerated preferred
dividend accretion of $212 million for the year ended
December 31, 2009, due to the repurchase of
$3.39 billion of preferred shares on June 17, 2009
issued as part of the CPP. Also includes $74 million of
preferred dividends paid and $20 million of preferred
dividend accretion during 2009.
|
(b)
|
|
The Companys unvested
restricted stock awards, which include the right to receive
non-forfeitable dividends or dividend equivalents, are
considered participating securities. Calculations of EPS under
the two-class method (i) exclude any dividends paid or owed
on participating securities and any undistributed earnings
considered to be attributable to participating securities from
the numerator and (ii) exclude the participating securities
from the denominator.
|
(c)
|
|
For the years ended
December 31, 2010, 2009 and 2008, the dilutive effect of
unexercised stock options excludes 36 million,
71 million and 45 million options, respectively, from
the computation of EPS because inclusion of the options would
have been anti-dilutive.
|
Subordinated debentures of $750 million issued by the
Company in 2006 would affect the EPS computation only in the
unlikely event the Company fails to achieve specified
performance measures related to the Companys tangible
common equity and consolidated net income. In that circumstance
the Company would reflect the additional common shares in the
EPS computation.
NOTE 19
DETAILS
OF CERTAIN CONSOLIDATED
STATEMENTS OF INCOME LINES
The following is a detail of other commissions and fees for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Foreign currency conversion revenue
|
|
$
|
838
|
|
|
$
|
672
|
|
|
$
|
755
|
|
Delinquency fees
|
|
|
605
|
|
|
|
526
|
|
|
|
852
|
|
Service fees
|
|
|
328
|
|
|
|
335
|
|
|
|
459
|
|
Other
|
|
|
260
|
|
|
|
245
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other commissions and fees
|
|
$
|
2,031
|
|
|
$
|
1,778
|
|
|
$
|
2,307
|
|
|
|
The following is a detail of other revenues for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Global Network Services partner revenues
|
|
$
|
530
|
|
|
$
|
463
|
|
|
$
|
420
|
|
Insurance premium revenue
|
|
|
255
|
|
|
|
293
|
|
|
|
326
|
|
Publishing revenue
|
|
|
228
|
|
|
|
224
|
|
|
|
327
|
|
(Loss) Gain on investment securities
|
|
|
(5
|
)
|
|
|
225
|
|
|
|
12
|
|
Other
|
|
|
919
|
|
|
|
882
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
$
|
1,927
|
|
|
$
|
2,087
|
|
|
$
|
2,157
|
|
|
|
Other revenues include insurance premiums earned from cardmember
travel and other insurance programs, publishing revenues,
revenues arising from contracts with Global Network Services
(GNS) partners including royalties and signing fees, and other
miscellaneous revenue and fees.
The following is a detail of marketing, promotion, rewards and
cardmember services for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Marketing and promotion
|
|
$
|
3,054
|
|
|
$
|
1,914
|
|
|
$
|
2,430
|
|
Cardmember rewards
|
|
|
5,029
|
|
|
|
4,036
|
|
|
|
4,389
|
|
Cardmember services
|
|
|
561
|
|
|
|
517
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketing, promotion, rewards and cardmember services
|
|
$
|
8,644
|
|
|
$
|
6,467
|
|
|
$
|
7,361
|
|
|
|
Marketing and promotion expense includes advertising costs,
which are expensed in the year in which the advertising first
takes place. Cardmember rewards expense includes the costs of
rewards programs (including Membership Rewards, discussed in
Note 11). Cardmember services expense includes protection
plans and complimentary services provided to cardmembers.
103
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following is a detail of other, net expense for the years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Occupancy and equipment
|
|
$
|
1,562
|
|
|
$
|
1,619
|
|
|
$
|
1,641
|
|
Communications
|
|
|
383
|
|
|
|
414
|
|
|
|
466
|
|
MasterCard and Visa settlements
|
|
|
(852
|
)
|
|
|
(852
|
)
|
|
|
(571
|
)
|
Other
(a)
|
|
|
1,539
|
|
|
|
1,233
|
|
|
|
1,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other, net expense
|
|
$
|
2,632
|
|
|
$
|
2,414
|
|
|
$
|
3,122
|
|
|
|
|
|
|
(a)
|
|
Includes in 2009, (i) a
$135 million benefit representing the correction of an
error related to the accounting for cumulative translation
adjustments associated with a net investment in foreign
subsidiaries, (ii) a $45 million benefit resulting
from the change in the fair value of certain forward exchange
contracts, (iii) a $59 million benefit related to the
completion of certain account reconciliations and
(iv) lower travel and entertainment and other expenses due
to the Companys reengineering activities.
|
Other, net expense includes general operating expenses, gains
(losses) on sale of assets or businesses not classified as
discontinued operations, and litigation and insurance costs or
settlements.
NOTE 20
STOCK
PLANS
STOCK
OPTION AND AWARD PROGRAMS
Under the 2007 Incentive Compensation Plan and previously under
the 1998 Incentive Compensation Plan, awards may be granted to
employees and other key individuals who perform services for the
Company and its participating subsidiaries. These awards may be
in the form of stock options, restricted stock awards or units
(RSAs), portfolio grants (PGs) or other incentives, and similar
awards designed to meet the requirements of
non-U.S. jurisdictions.
For the Companys Incentive Compensation Plans, there were
a total of 40 million, 37 million and 45 million
common shares unissued and available for grant as of
December 31, 2010, 2009 and 2008, respectively, as
authorized by the Companys Board of Directors and
shareholders.
The Company granted stock option awards to its Chief Executive
Officer (CEO) in November 2007 and January 2008 that have
performance-based and market-based conditions. These option
awards are separately described and are excluded from the
information and tables presented in the following paragraphs.
A summary of stock option and RSA activity as of
December 31, 2010, and changes during the year ended is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
RSAs
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Grant
|
|
(Shares in thousands)
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding as of December 31, 2009
|
|
|
79,694
|
|
|
$
|
39.18
|
|
|
|
15,682
|
|
|
$
|
26.90
|
|
Granted
|
|
|
3,205
|
|
|
$
|
37.11
|
|
|
|
4,886
|
|
|
$
|
38.63
|
|
Exercised/vested
|
|
|
(16,987
|
)
|
|
$
|
36.45
|
|
|
|
(4,586
|
)
|
|
$
|
31.70
|
|
Forfeited
|
|
|
(975
|
)
|
|
$
|
42.82
|
|
|
|
(908
|
)
|
|
$
|
27.81
|
|
Expired
|
|
|
(7,974
|
)
|
|
$
|
41.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2010
|
|
|
56,963
|
|
|
$
|
39.54
|
|
|
|
15,074
|
|
|
$
|
28.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest as of December 31, 2010
|
|
|
56,681
|
|
|
$
|
39.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable as of December 31, 2010
|
|
|
44,871
|
|
|
$
|
40.88
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognizes the cost of employee stock awards granted
in exchange for employee services based on the grant-date fair
value of the award, net of expected forfeitures. Those costs are
recognized ratably over the vesting period.
STOCK
OPTIONS
Each stock option has an exercise price equal to the market
price of the Companys common stock on the date of grant
and a contractual term of 10 years from the date of grant.
Stock options generally vest 25 percent per year beginning
with the first anniversary of the grant date.
The weighted-average remaining contractual life and the
aggregate intrinsic value (the amount by which the fair value of
the Companys stock exceeds the exercise price of the
option) of the stock options outstanding, exercisable, and
vested and expected to vest as of December 31, 2010 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and
|
|
|
|
|
|
|
|
|
|
Expected to
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Vest
|
|
|
Weighted-average remaining contractual life
(in years)
|
|
|
4.6
|
|
|
|
3.7
|
|
|
|
4.6
|
|
Aggregate intrinsic value
(millions)
|
|
$
|
390
|
|
|
$
|
251
|
|
|
$
|
386
|
|
|
|
The intrinsic value for options exercised during 2010, 2009 and
2008 was $130 million, $11 million and
$79 million, respectively (based upon the fair value of the
Companys stock price at the date of exercise). Cash
received from the exercise of stock options in 2010, 2009 and
2008 was $619 million, $83 million and
$176 million, respectively. The tax benefit realized from
income tax deductions from stock option exercises, which was
recorded in additional paid-in capital, in 2010, 2009 and 2008
was $35 million, $2 million and $21 million,
respectively.
104
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The fair value of each option is estimated on the date of grant
using a Black-Scholes-Merton option-pricing model. The following
weighted-average assumptions are used for grants issued in 2010,
2009 and 2008, the majority of which were granted in the
beginning of each year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Dividend yield
|
|
|
1.8
|
%
|
|
|
4.1
|
%
|
|
|
1.5
|
%
|
Expected
volatility
(a)
|
|
|
41
|
%
|
|
|
36
|
%
|
|
|
19
|
%
|
Risk-free interest rate
|
|
|
2.8
|
%
|
|
|
2.1
|
%
|
|
|
2.8
|
%
|
Expected life of stock option
(in
years)
(b)
|
|
|
6.2
|
|
|
|
4.8
|
|
|
|
4.7
|
|
Weighted-average fair value per option
|
|
$
|
14.11
|
|
|
$
|
4.54
|
|
|
$
|
8.24
|
|
|
|
|
|
|
(a)
|
|
The expected volatility is based on
weighted historical and implied volatilities of the
Companys common stock price.
|
(b)
|
|
In 2010, the expected life of stock
options was determined using historical data and expectations of
options currently outstanding. In 2009 and 2008, the expected
life of stock options was determined using historical data.
|
STOCK
OPTIONS WITH PERFORMANCE-BASED AND MARKET-BASED CONDITIONS
On November 30, 2007 and January 31, 2008, the
Companys CEO was granted in the aggregate 2,750,000 of
non-qualified stock option awards with performance-based and
market-based conditions. Both awards have a contractual term of
10 years and a vesting period of 6 years.
The aggregate grant date fair value of options with performance
based conditions was approximately $33.8 million.
Compensation expense for these awards will be recognized over
the vesting period when it is determined it is probable that the
performance metrics will be achieved. No compensation expense
for these awards was recorded in 2010, 2009 and 2008.
The aggregate grant date fair value of options with market-based
conditions was approximately $10.5 million. Compensation
expense for these awards is recognized ratably over the vesting
period irrespective of the probability of the market metric
being achieved. Total compensation expense of $2.4 million
was recorded in each of the years 2010, 2009 and 2008.
RESTRICTED
STOCK AWARDS
RSAs are valued based on the stock price on the date of grant
and generally vest 25 percent per year, beginning with the
first anniversary of the grant date. RSA holders receive
non-forfeitable dividends or dividend equivalents. The total
fair value of shares vested during 2010, 2009 and 2008 was
$175 million, $44 million and $134 million,
respectively (based upon the Companys stock price at the
vesting date).
The weighted-average grant date fair value of RSAs granted in
2010, 2009 and 2008, is $38.63, $18.04 and $48.29, respectively.
LIABILITY
BASED AWARDS
Certain employees are awarded PGs and other incentive awards
that can be settled with cash or equity shares at the
Companys discretion and final Compensation and Benefits
Committee payout approval. These awards earn value based on
performance and service conditions and vest over periods of one
to three years.
PGs and other incentive awards are classified as liabilities
and, therefore, the fair value is determined at the date of
grant and remeasured quarterly as part of compensation expense
over the performance and service periods. Cash paid upon vesting
of these awards was $64 million, $71 million and
$78 million in 2010, 2009 and 2008, respectively.
SUMMARY
OF STOCK PLAN EXPENSE
The components of the Companys total stock-based
compensation expense (net of cancellations) for the years ended
December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Restricted stock
awards
(a)
|
|
$
|
163
|
|
|
$
|
135
|
|
|
$
|
141
|
|
Stock
options
(a)
|
|
|
58
|
|
|
|
55
|
|
|
|
73
|
|
Liability-based awards
|
|
|
64
|
|
|
|
38
|
|
|
|
40
|
|
Performance/market-based stock options
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
expense
(b)
|
|
$
|
287
|
|
|
$
|
230
|
|
|
$
|
256
|
|
|
|
|
|
|
(a)
|
|
As of December 31, 2010, the
total unrecognized compensation cost related to unvested RSAs
and options was $257 million and $59 million,
respectively. The unrecognized cost for RSAs and options will be
recognized ratably over the remaining vesting period. The
weighted-average remaining vesting period for RSAs and options
is 3.5 years and 2.3 years, respectively.
|
(b)
|
|
The total income tax benefit
recognized in the income statement for stock-based compensation
arrangements in December 31, 2010, 2009 and 2008 was
$100 million, $81 million and $90 million,
respectively.
|
NOTE 21
RETIREMENT
PLANS
The Company sponsors defined benefit pension plans, defined
contribution plans, and other postretirement benefit plans for
its employees. The following table provides a summary of the
total cost related to these plans for the years ended December
31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Defined benefit pension plan cost
|
|
$
|
40
|
|
|
$
|
21
|
|
|
$
|
13
|
|
Defined contribution plan cost
|
|
|
217
|
|
|
|
118
|
|
|
|
211
|
|
Other postretirement benefit plan cost
|
|
|
25
|
|
|
|
29
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
282
|
|
|
$
|
168
|
|
|
$
|
251
|
|
|
|
The expenses in the above table are recorded in salaries and
employee benefits in the Consolidated Statements of Income.
DEFINED
BENEFIT PENSION PLANS
The Companys significant defined benefit pension plans
cover certain employees in the United States and United Kingdom.
Most employees outside the United States and United Kingdom are
covered by local retirement plans, some of which are funded,
while other employees receive payments at the time of retirement
or termination under applicable labor laws or agreements. The
Company complies with the minimum funding requirements in all
countries.
105
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The Company sponsors the U.S. American Express Retirement
Plan (the Plan) for eligible employees in the United States. The
Plan is a noncontributory defined benefit plan and a
tax-qualified retirement plan subject to the Employee Retirement
Income Security Act of 1974, as amended (ERISA). The Plan is
closed to new entrants and existing participants no longer
accrue future benefits. The Company funds retirement costs
through a trust and complies with the applicable minimum funding
requirements specified by ERISA. The funded status of the Plan
on an ERISA basis as of October 1, 2010 (applicable plan
year) is 95 percent. The calculation assumptions for ERISA
differ from the calculation of the net funded status for GAAP
purposes (see Net Funded Status as of December 31, 2010 and
2009 in the table below).
The Plan is a cash balance plan and employees accrued
benefits are based on notional account balances, which are
maintained for each individual. Employees balances are
credited daily with interest at a fixed-rate. The interest rate
varies from a minimum of 5 percent to a maximum equal to
the lesser of (i) 10 percent or (ii) the
applicable interest rate set forth in the Plan.
The Company also sponsors an unfunded non-qualified plan, which
was renamed the Retirement Restoration Plan (the RRP) effective
January 1, 2011, for employees compensated above a certain
level to supplement their pension benefits that are limited by
the Internal Revenue Code. The RRPs terms generally
parallel those of the Plan, except that the definitions of
compensation and payment options differ.
For each plan, the net funded status is defined by GAAP
governing retirement benefits as the difference between the fair
value of plan assets and the respective plans projected
benefit obligation.
As of December 31, 2010, the net funded status related to
the defined benefit pension plans was underfunded by
$383 million, as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Net funded status, beginning of year
|
|
$
|
(406
|
)
|
|
$
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
Increase in fair value of plan assets
|
|
|
63
|
|
|
|
296
|
|
Increase in projected benefit obligation
|
|
|
(40
|
)
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
23
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Net funded status, end of year
|
|
$
|
(383
|
)
|
|
$
|
(406
|
)
|
|
|
The net funded status amounts as of December 31, 2010 and
2009 are recognized in the Consolidated Balance Sheets in other
liabilities.
Plan
Assets and Obligations
The following tables provide a reconciliation of changes in the
fair value of plan assets and projected benefit obligations for
all defined benefit pension plans as of December 31:
Reconciliation
of Change in Fair Value of Plan Assets
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
1,989
|
|
|
$
|
1,693
|
|
Actual return on plan assets
|
|
|
177
|
|
|
|
290
|
|
Employer contributions
|
|
|
50
|
|
|
|
74
|
|
Benefits paid
|
|
|
(55
|
)
|
|
|
(59
|
)
|
Settlements
|
|
|
(81
|
)
|
|
|
(81
|
)
|
Foreign currency exchange rate changes
|
|
|
(28
|
)
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
63
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
2,052
|
|
|
$
|
1,989
|
|
|
|
Reconciliation
of Change in Projected Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
2,395
|
|
|
$
|
2,134
|
|
Service cost
|
|
|
19
|
|
|
|
14
|
|
Interest cost
|
|
|
126
|
|
|
|
127
|
|
Benefits paid
|
|
|
(55
|
)
|
|
|
(59
|
)
|
Actuarial loss
|
|
|
66
|
|
|
|
189
|
|
Settlements
|
|
|
(81
|
)
|
|
|
(81
|
)
|
Curtailments
|
|
|
|
|
|
|
(14
|
)
|
Foreign currency exchange rate changes
|
|
|
(35
|
)
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
40
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
$
|
2,435
|
|
|
$
|
2,395
|
|
|
|
Accumulated
Other Comprehensive Loss
The following table provides the amounts comprising accumulated
other comprehensive loss, which are not yet recognized as
components of net periodic pension benefit cost as of December
31:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Net actuarial loss
|
|
$
|
648
|
|
|
$
|
655
|
|
Net prior service cost
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Total, pretax effect
|
|
|
646
|
|
|
|
652
|
|
Tax impact
|
|
|
(213
|
)
|
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
Total, net of taxes
|
|
$
|
433
|
|
|
$
|
433
|
|
|
|
The estimated portion of the net actuarial loss and net prior
service cost that is expected to be recognized as a component of
net periodic pension benefit cost in 2011 is $28 million
and nil, respectively.
106
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table lists the amounts recognized in other
comprehensive loss in 2010:
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
Net actuarial loss:
|
|
|
|
|
Reclassified to earnings from
equity
(a)
|
|
$
|
(41
|
)
|
Losses in current
year
(b)
|
|
|
34
|
|
|
|
|
|
|
Net actuarial loss, pretax
|
|
|
(7
|
)
|
Net prior service cost:
|
|
|
|
|
Reclassified to earnings from equity
|
|
|
1
|
|
|
|
|
|
|
Total, pretax
|
|
$
|
(6
|
)
|
|
|
|
|
|
(a)
|
|
Amortization of actuarial losses
and recognition of losses related to lump sum settlements.
|
(b)
|
|
Deferral of actuarial losses.
|
Benefit
Obligations
The accumulated benefit obligation in a defined benefit pension
plan is the present value of benefits earned to date by plan
participants computed based on current compensation levels as
contrasted to the projected benefit obligation, which is the
present value of benefits earned to date by plan participants
based on their expected future compensation at their projected
retirement date.
The accumulated and projected benefit obligations for all
defined benefit pension plans as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Accumulated benefit obligation
|
|
$
|
2,353
|
|
|
$
|
2,327
|
|
Projected benefit obligation
|
|
$
|
2,435
|
|
|
$
|
2,395
|
|
|
|
The accumulated benefit obligation and fair value of plan assets
for pension plans with accumulated benefit obligation that
exceeds the fair value of plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Accumulated benefit obligation
|
|
$
|
1,407
|
|
|
$
|
1,369
|
|
Fair value of plan assets
|
|
$
|
1,091
|
|
|
$
|
1,020
|
|
|
|
The projected benefit obligation and fair value of plan assets
for pension plans with projected benefit obligation that exceeds
the fair value of plan assets as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Projected benefit obligation
|
|
$
|
2,435
|
|
|
$
|
2,395
|
|
Fair value of plan assets
|
|
$
|
2,052
|
|
|
$
|
1,989
|
|
|
|
Net
Periodic Pension Benefit Cost
The components of the net periodic pension benefit cost for all
defined benefit pension plans for the years ended December 31
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Service
cost
(a)
|
|
$
|
19
|
|
|
$
|
14
|
|
|
$
|
23
|
|
Interest
cost
(b)
|
|
|
126
|
|
|
|
127
|
|
|
|
136
|
|
Expected return on plan
assets
(c)
|
|
|
(145
|
)
|
|
|
(146
|
)
|
|
|
(169
|
)
|
Amortization of prior service
cost
(d)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Recognized net actuarial
loss
(e)
|
|
|
23
|
|
|
|
10
|
|
|
|
17
|
|
Settlements
losses
(f)
|
|
|
18
|
|
|
|
19
|
|
|
|
5
|
|
Curtailment (gains)
losses
(g)
|
|
|
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit cost
|
|
$
|
40
|
|
|
$
|
21
|
|
|
$
|
13
|
|
|
|
|
|
|
(a)
|
|
Current value of benefits earned by
employees during the period.
|
(b)
|
|
Estimated interest incurred on the
outstanding projected benefit obligation during the period.
|
(c)
|
|
Expected return on the market
related value of plan assets.
|
(d)
|
|
Costs that result from plan
amendments, which are amortized over the expected future service
period of the employees impacted.
|
(e)
|
|
Amortization of the accumulated
losses which exceed 10 percent of the greater of the
projected benefit obligation or the market related value of plan
assets.
|
(f)
|
|
Recognition of the actuarial losses
resulting from lump sum settlements of the benefit obligation.
|
(g)
|
|
Gains resulting from a reduction in
the benefit obligation due to a decrease in the expected years
of future service of current plan participants.
|
Assumptions
The weighted-average assumptions used to determine defined
benefit pension obligations as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Discount rates
|
|
|
5.3
|
%
|
|
|
5.3
|
%
|
Rates of increase in compensation levels
|
|
|
4.0
|
%
|
|
|
3.6
|
%
|
|
|
The weighted-average assumptions used to determine net periodic
pension benefit costs as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Discount rates
|
|
|
5.3
|
%
|
|
|
5.9
|
%
|
|
|
5.8
|
%
|
Rates of increase in compensation levels
|
|
|
3.6
|
%
|
|
|
3.9
|
%
|
|
|
4.2
|
%
|
Expected long-term rates of return on assets
|
|
|
6.9
|
%
|
|
|
6.9
|
%
|
|
|
7.6
|
%
|
|
|
The Company assumes a long-term rate of return on assets on a
weighted-average basis. In developing this assumption,
management considers expected and historical returns over 5 to
15 years based on the mix of assets in its plans.
The discount rate assumptions are determined using a model
consisting of bond portfolios that match the cash flows of the
plans projected benefit payments based on the plan
participants service to date and their expected future
compensation. Use of the rate produced by this model generates a
projected benefit obligation that equals the current market
value of a portfolio of high-quality zero-coupon bonds whose
maturity dates and amounts match the timing and amount of
expected future benefit payments.
107
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Asset
Allocation and Fair Value
The Benefit Plans Investment Committee (BPIC) is appointed by
the Compensation and Benefits Committee of the Companys
Board of Directors and has the responsibility of reviewing and
approving the investment policies related to plan assets for the
Companys defined benefit pension plans; evaluating the
performance of the investments in accordance with the investment
policy; reviewing the investment objectives, risk
characteristics, expenses and historical performance; and
selecting, removing and evaluating the investment managers. The
BPIC typically meets quarterly to review the performance of the
various investment managers and service providers as well as
other investment related matters. The Companys significant
defined benefit pension plans have investment policies, which
prescribe targets for the amount of assets that can be invested
in a security class in order to mitigate the detrimental impact
of adverse or unexpected results with respect to any individual
security class on the overall portfolio. The portfolios are
diversified by asset type, risk characteristics and
concentration of investments. Refer to Note 3 for a
discussion related to valuation techniques used to measure fair
value, including a description of the three-level fair value
hierarchy of inputs.
The following tables summarize the target allocation and
categorization of all defined benefit pension plan assets
measured at fair value on a recurring basis by GAAPs
valuation hierarchy:
As of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant
|
|
|
Significant
|
|
|
|
Target
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Allocation
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Millions, except percentages)
|
|
2011
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
U.S. equity securities
|
|
|
15
|
%
|
|
$
|
331
|
|
|
$
|
331
|
|
|
$
|
|
|
|
$
|
|
|
International equity
securities
(a)
|
|
|
30
|
%
|
|
|
704
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
U.S. fixed income securities
|
|
|
30
|
%
|
|
|
522
|
|
|
|
|
|
|
|
522
|
|
|
|
|
|
International fixed income
securities
(a)
|
|
|
15
|
%
|
|
|
318
|
|
|
|
|
|
|
|
318
|
|
|
|
|
|
Balanced funds
|
|
|
5
|
%
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Other
(b)
|
|
|
5
|
%
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
$
|
2,052
|
|
|
$
|
1,046
|
|
|
$
|
905
|
|
|
$
|
101
|
|
|
|
|
|
|
(a)
|
|
A significant portion of
international investments are in U.K. companies and U.K.
government and agency securities.
|
(b)
|
|
Consists of investments in private
equity and real estate funds measured at reported net asset
value.
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant
|
|
|
Significant
|
|
|
|
Target
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Allocation
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Millions, except percentages)
|
|
2010
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
U.S. equity securities
|
|
|
15
|
%
|
|
$
|
334
|
|
|
$
|
334
|
|
|
$
|
|
|
|
$
|
|
|
International equity
securities
(a)
|
|
|
30
|
%
|
|
|
626
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
U.S. fixed income securities
|
|
|
30
|
%
|
|
|
553
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
International fixed income
securities
(a)
|
|
|
15
|
%
|
|
|
301
|
|
|
|
|
|
|
|
301
|
|
|
|
|
|
Balanced funds
|
|
|
5
|
%
|
|
|
62
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Other
(b)
|
|
|
5
|
%
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
$
|
1,989
|
|
|
$
|
975
|
|
|
$
|
916
|
|
|
$
|
98
|
|
|
|
|
|
|
(a)
|
|
A significant portion of
international investments are in U.K. companies and U.K.
government and agency securities.
|
(b)
|
|
Consists of investments in private
equity, real estate and hedge funds measured at reported net
asset value.
|
108
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The fair value measurement of all defined benefit pension plan
assets using significant unobservable inputs
(Level 3) changed during the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Beginning fair value, January 1
|
|
$
|
98
|
|
|
$
|
187
|
|
Actual net gains (losses) on plan assets:
|
|
|
|
|
|
|
|
|
Held at the end of the year
|
|
|
11
|
|
|
|
(38
|
)
|
Sold during the year
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Total net gains (losses)
|
|
|
11
|
|
|
|
(48
|
)
|
Net purchases (sales and settlements)
|
|
|
(8
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
|
3
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
Ending fair value, December 31
|
|
$
|
101
|
|
|
$
|
98
|
|
|
|
Benefit
Payments
The Companys defined benefit pension plans expect to make
benefit payments to retirees as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
(Millions)
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2020
|
|
|
Expected payments
|
|
$
|
145
|
|
|
$
|
148
|
|
|
$
|
149
|
|
|
$
|
155
|
|
|
$
|
171
|
|
|
$
|
890
|
|
|
|
In addition, the Company expects to contribute $46 million
to its defined benefit pension plans in 2011.
DEFINED
CONTRIBUTION RETIREMENT PLANS
The Company sponsors defined contribution retirement plans, the
principal plan being the Retirement Savings Plan (RSP), a 401(k)
savings plan with a profit sharing component. The RSP is a
tax-qualified retirement plan subject to ERISA and covers most
employees in the United States. The RSP held 12 million and
13 million shares of American Express Common Stock as of
December 31, 2010 and 2009, respectively, beneficially for
employees. The Company matches employee contributions to the
plan up to a maximum of 5 percent of total pay, subject to
the limitations under the Internal Revenue Code (IRC).
Additional annual conversion contributions of up to
8 percent of total pay are provided into the RSP for
eligible employees. The Company also sponsors an RSP RRP, which
is an unfunded non-qualified plan for employees whose RSP
benefits are limited by the IRC and its terms generally parallel
those of the RSP. In addition, the RSP RRP was amended effective
January 1, 2011 such that the Company matches employee
contributions up to a maximum of 5 percent of total pay in
excess of IRC compensation limits only to the extent the
employee contributes to the plan.
The total expense for all defined contribution retirement plans
globally was $217 million, $118 million and
$211 million in 2010, 2009 and 2008, respectively. The
increase in expense in 2010 primarily reflects the
Companys reinstatement in January of the employer match
and conversion contributions.
OTHER
POSTRETIREMENT BENEFIT PLANS
The Company sponsors unfunded other postretirement benefit plans
that provide health care and life insurance to certain retired
U.S. employees.
Accumulated
Other Comprehensive Loss
The following table provides the amounts comprising accumulated
other comprehensive loss which are not yet recognized as
components of net periodic benefit cost as of December 31:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Net actuarial loss
|
|
$
|
50
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
Total, pretax effect
|
|
|
50
|
|
|
|
60
|
|
Tax impact
|
|
|
(19
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Total, net of taxes
|
|
$
|
31
|
|
|
$
|
36
|
|
|
|
The estimated portion of the net actuarial loss above that is
expected to be recognized as a component of net periodic benefit
cost in 2011 is $2 million.
The following table lists the amounts recognized in other
comprehensive loss in 2010:
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
Net actuarial loss:
|
|
|
|
|
Reclassified to earnings from equity
|
|
$
|
(2
|
)
|
Gains in current year
|
|
|
(8
|
)
|
|
|
|
|
|
Net actuarial loss, pretax
|
|
$
|
(10
|
)
|
|
|
Benefit
Obligations
The projected benefit obligation represents a liability based
upon estimated future medical and other benefits to be provided
to retirees.
The following table provides a reconciliation of the changes in
the projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
324
|
|
|
$
|
295
|
|
Service cost
|
|
|
6
|
|
|
|
5
|
|
Interest cost
|
|
|
17
|
|
|
|
18
|
|
Benefits paid
|
|
|
(20
|
)
|
|
|
(16
|
)
|
Actuarial (gain) loss
|
|
|
(8
|
)
|
|
|
16
|
|
Curtailment loss
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
(5
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
$
|
319
|
|
|
$
|
324
|
|
|
|
The plans are unfunded and the obligations as of
December 31, 2010 and 2009 are recognized in the
Consolidated Balance Sheets in other liabilities.
Net
Periodic Benefit Cost
GAAP provides for the delayed recognition of the net actuarial
loss and the net prior service credit remaining in accumulated
other comprehensive (loss) income.
109
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The components of the net periodic benefit cost for all other
postretirement benefit plans for the years ended December 31
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Service cost
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
6
|
|
Interest cost
|
|
|
17
|
|
|
|
18
|
|
|
|
19
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Recognized net actuarial loss
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
Curtailment loss
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
25
|
|
|
$
|
29
|
|
|
$
|
27
|
|
|
|
ASSUMPTIONS
The weighted-average assumptions used to determine benefit
obligations were:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Discount rates
|
|
|
5.2
|
%
|
|
|
5.4
|
%
|
Health care cost increase rate:
|
|
|
|
|
|
|
|
|
Following year
|
|
|
8.5
|
%
|
|
|
8.0
|
%
|
Decreasing to the year 2018
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
The weighted-average discount rate used to determine net
periodic benefit cost was 5.4 percent, 6.0 percent and
6.1 percent in 2010, 2009 and 2008, respectively. The
discount rate assumption is determined by using a model
consisting of bond portfolios that match the cash flows of the
plans projected benefit payments. Use of the rate produced
by this model generates a projected benefit obligation that
equals the current market value of a portfolio of high-quality
zero-coupon bonds whose maturity dates and amounts match the
timing and amount of expected future benefit payments.
A one percentage-point change in assumed health care cost trend
rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
|
|
|
One
|
|
|
|
percentage-
|
|
|
percentage-
|
|
|
|
point increase
|
|
|
point decrease
|
|
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Increase (decrease) on benefits earned and
interest cost for
U.S. plans
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
Increase (decrease) on postretirement benefit
obligation for U.S.
plans
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
(13
|
)
|
|
$
|
(14
|
)
|
|
|
Benefit
Payments
The Companys other postretirement benefit plans expect to
make benefit payments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
(Millions)
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2020
|
|
|
Expected payments
|
|
$
|
23
|
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
128
|
|
|
|
In addition, the Company expects to contribute $23 million
to its other postretirement benefit plans in 2011.
NOTE 22
SIGNIFICANT
CREDIT
CONCENTRATIONS
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of
counterparties whose aggregate credit exposure is material in
relation to American Express total credit exposure. The
Companys customers operate in diverse industries, economic
sectors and geographic regions.
The following table details the Companys maximum credit
exposure by category, including the credit exposure associated
with derivative financial instruments, as of December 31:
|
|
|
|
|
|
|
|
|
|
|
(Billions)
|
|
2010
|
|
|
2009
|
|
|
On-balance sheet:
|
|
|
|
|
|
|
|
|
Individuals
(a)
|
|
$
|
88
|
|
|
$
|
60
|
|
Financial
institutions
(b)
|
|
|
23
|
|
|
|
21
|
|
U.S. Government and
agencies
(c)
|
|
|
12
|
|
|
|
19
|
|
All
other
(d)
|
|
|
15
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total on-balance
sheet
(e)
|
|
$
|
138
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
Unused
lines-of-credit
individuals
(f)
|
|
$
|
226
|
|
|
$
|
222
|
|
|
|
|
|
|
(a)
|
|
Individuals primarily include
cardmember loans and receivables.
|
(b)
|
|
Financial institutions primarily
include debt obligations of banks, broker-dealers, insurance
companies and savings and loan associations.
|
(c)
|
|
U.S. Government and agencies
represent debt obligations of the U.S. Government and its
agencies, states and municipalities and government sponsored
entities.
|
(d)
|
|
All other primarily includes
cardmember receivables from other corporate institutions.
|
(e)
|
|
Certain distinctions between
categories require management judgment.
|
(f)
|
|
Because charge card products have
no preset spending limit, the associated credit limit on
cardmember receivables is not quantifiable. Therefore, the
quantified unused
line-of-credit
amounts only include the approximate credit line available on
cardmember loans (including both for on-balance sheet loans and
loans previously securitized).
|
As of December 31, 2010 and 2009, the Companys most
significant concentration of credit risk was with individuals,
including cardmember receivables and loans. These amounts are
generally advanced on an unsecured basis. However, the Company
reviews each potential customers credit application and
evaluates the applicants financial history and ability and
willingness to repay. The Company also considers credit
performance by customer tenure, industry and geographic location
in managing credit exposure.
110
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table details the Companys cardmember loans
and receivables exposure (including unused
lines-of-credit
on cardmember loans) in the United States and outside the United
States as of December 31:
|
|
|
|
|
|
|
|
|
|
|
(Billions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
On-balance sheet:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
77
|
|
|
$
|
47
|
|
Non-U.S.
|
|
|
21
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
On-balance
sheet
(a)
|
|
$
|
98
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
|
Unused
lines-of-credit
individuals:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
184
|
|
|
$
|
181
|
|
Non-U.S.
|
|
|
42
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Total unused
lines-of-credit
individuals
|
|
$
|
226
|
|
|
$
|
222
|
|
|
|
|
|
|
(a)
|
|
Represents cardmember loans to
individuals as well as receivables from individuals and
corporate institutions as discussed in footnotes (a) and
(d) from the previous table.
|
The remainder of the Companys on-balance sheet credit
exposure includes cash, investments, other loans, other
receivables and other assets, including derivative financial
instruments. These balances are primarily within the United
States.
EXPOSURE
TO AIRLINE INDUSTRY
The Company has multiple co-brand relationships and rewards
partners, of which airlines are one of the most important and
valuable. The Companys largest airline co-brand is Delta
Air Lines (Delta) and this relationship includes exclusive
co-brand credit card partnerships and other arrangements,
including Membership Rewards, merchant acceptance and travel.
American Express Delta SkyMiles Credit Card co-brand
portfolio accounts for approximately 5 percent of the
Companys worldwide billed business and less than
15 percent of worldwide cardmember lending receivables.
In recent years, there have been a significant number of airline
bankruptcies and liquidations, driven in part by volatile fuel
costs and weakening economies around the world. Historically,
the Company has not experienced significant revenue declines
when a particular airline scales back or ceases operations due
to a bankruptcy or other financial challenges because volumes
generated by that airline are typically shifted to other
participants in the industry that accept the Companys card
products. The Companys exposure to business and credit
risk in the airline industry is primarily through business
arrangements where the Company has remitted payment to the
airline for a cardmember purchase of tickets that have not yet
been used or flown. The Company mitigates this risk
by delaying payment to the airlines with deteriorating financial
situations, thereby increasing cash withheld to protect the
Company in the event the airline is liquidated. To date, the
Company has not experienced significant losses from airlines
that have ceased operations.
NOTE 23
REGULATORY
MATTERS AND CAPITAL
ADEQUACY
The Company is supervised and regulated by the Federal Reserve
and is subject to the Federal Reserves requirements for
risk-based capital and leverage ratios. The Companys two
U.S. bank operating subsidiaries, Centurion Bank and FSB
(collectively, the Banks), are subject to
supervision and regulation, including similar regulatory capital
requirements by the FDIC and the Office of Thrift Supervision
(OTS). As of July 21, 2011, subject to a possible six-month
extension, supervision and regulation of FSB will be transferred
to the Office of the Comptroller of the Currency (OCC), pursuant
to the Dodd-Frank Reform Act.
The Federal Reserves guidelines for capital adequacy
define two categories of risk-based capital: Tier 1 and
Tier 2 capital (as defined in the regulations). Under the
risk-based capital guidelines of the Federal Reserve, the
Company is required to maintain minimum ratios of Tier 1
and Total (Tier 1 plus Tier 2) capital to
risk-weighted assets, as well as a minimum leverage ratio
(Tier 1 capital to average adjusted on-balance sheet
assets).
Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional, discretionary
actions by regulators, that, if undertaken, could have a direct
material effect on the Companys and the Banks
operating activities.
As of December 31, 2010 and 2009, the Company and its Banks
were well-capitalized and met all capital requirements to which
each was subject. Management is not aware of any events
subsequent to December 31, 2010 that would materially,
adversely affect the Companys and the Banks 2010
capital ratios.
111
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table presents the regulatory capital ratios for
the Company and the Banks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1
|
|
|
Total
|
|
|
Tier 1 capital
|
|
|
Total capital
|
|
|
Tier 1
|
|
(Millions, except percentages)
|
|
capital
|
|
|
capital
|
|
|
ratio
|
|
|
ratio
|
|
|
leverage ratio
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Express Company
|
|
$
|
13,100
|
|
|
$
|
15,529
|
|
|
|
11.1
|
%
|
|
|
13.1
|
%
|
|
|
9.3
|
%
|
American Express Centurion Bank
|
|
$
|
5,771
|
|
|
$
|
6,170
|
|
|
|
18.3
|
%
|
|
|
19.5
|
%
|
|
|
19.4
|
%
|
American Express Bank, FSB
|
|
$
|
5,586
|
|
|
$
|
6,424
|
|
|
|
16.3
|
%
|
|
|
18.8
|
%
|
|
|
16.1
|
%
(a)
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Express Company
|
|
$
|
11,464
|
|
|
$
|
13,897
|
|
|
|
9.8
|
%
|
|
|
11.9
|
%
|
|
|
9.7
|
%
|
American Express Centurion
Bank
(b)
|
|
$
|
4,430
|
|
|
$
|
4,841
|
|
|
|
13.7
|
%
|
|
|
15.0
|
%
|
|
|
17.1
|
%
|
American Express Bank,
FSB
(b)
|
|
$
|
4,784
|
|
|
$
|
5,623
|
|
|
|
14.2
|
%
|
|
|
16.7
|
%
|
|
|
15.1
|
%
(a)
|
Well-capitalized
ratios
(c)
|
|
|
|
|
|
|
|
|
|
|
6.0
|
%
|
|
|
10.0
|
%
|
|
|
5.0
|
%
(d)
|
Minimum capital
ratios
(c)
|
|
|
|
|
|
|
|
|
|
|
4.0
|
%
|
|
|
8.0
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
(a)
|
|
FSB leverage ratio represents
Tier 1 core capital ratio (as defined by regulations issued
by the OTS), calculated similarly to Tier 1 leverage ratio.
|
(b)
|
|
Since January 2009, FSB has
committed to maintain a Total capital ratio of no less than
15 percent. During 2009, enhancements were made to the
American Express Credit Account Master Trust used to securitize
credit card receivables issued by both FSB and Centurion Bank.
As a result of these enhancements, the Banks began holding
capital against their off-balance sheet trust assets. The
Company infused $1.4 billion and $475 million of
additional capital into FSB and Centurion Bank, respectively,
during 2009 and in connection with the foregoing increased
capital commitment for FSB and the impact of the trust
enhancements for both FSB and Centurion Bank.
|
(c)
|
|
As defined by the regulations
issued by the Federal Reserve, OCC, OTS and FDIC.
|
(d)
|
|
Represents requirements for banking
subsidiaries to be considered well capitalized
pursuant to regulations issued under the Federal Deposit
Insurance Corporation Improvement Act. There is no well
capitalized definition for the Tier 1 leverage ratio
for a bank holding company.
|
RESTRICTED
NET ASSETS OF SUBSIDIARIES
Certain of the Companys subsidiaries are subject to
restrictions on the transfer of net assets under debt agreements
and regulatory requirements. These restrictions have not had any
effect on the Companys shareholder dividend policy and
management does not anticipate any impact in the future.
Procedures exist to transfer net assets between the Company and
its subsidiaries, while ensuring compliance with the various
contractual and regulatory constraints. As of December 31,
2010, the aggregate amount of net assets of subsidiaries that
are restricted to be transferred to American Express
Parent Company (Parent Company) was approximately
$9.3 billion.
BANK
HOLDING COMPANY DIVIDEND RESTRICTIONS
The Company is limited in its ability to pay dividends by the
Federal Reserve which could prohibit a dividend that would be
considered an unsafe or unsound banking practice. It is the
policy of the Federal Reserve that bank holding companies
generally should pay dividends on common stock only out of net
income available to common shareholders generated over the past
year, and only if prospective earnings retention is consistent
with the organizations current and expected future capital
needs, asset quality and overall financial condition. Moreover,
bank holding companies should not maintain dividend levels that
undermine a companys ability to be a source of strength to
its banking subsidiaries. Under guidance issued by the Federal
Reserve in November 2010, a large bank holding company will face
particularly close scrutiny for any proposed dividend that
exceeds 30 percent of after-tax net income.
BANKS
DIVIDEND RESTRICTIONS
In the year ended December 31, 2008, Centurion Bank and FSB
paid dividends from retained earnings to its parent of
$650 million and $150 million, respectively. No
dividends were paid in 2010 and 2009.
The Banks are subject to statutory and regulatory limitations on
their ability to pay dividends. The total amount of dividends
which may be paid at any date, subject to supervisory
considerations of the Banks regulators, is generally
limited to the retained earnings of the respective bank. As of
December 31, 2010 and 2009, the Banks retained
earnings, in the aggregate, available for the payment of
dividends were $3.6 billion and $2.1 billion,
respectively. In determining the dividends to pay its parent,
the Banks must also consider the effects on applicable
risk-based capital and leverage ratio requirements, as well as
policy statements of the federal regulatory agencies. In
addition, the Banks banking regulators have authority to
limit or prohibit the payment of a dividend by the Banks, if, in
the banking regulators opinion, payment of a dividend
would constitute an unsafe or unsound banking practice in light
of the financial condition of the banking organization.
112
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 24
COMMITMENTS
AND CONTINGENCIES
LEGAL
CONTINGENCIES
The Company and its subsidiaries are involved in a number of
legal proceedings concerning matters arising in connection with
the conduct of their respective business activities and are
periodically subject to governmental examinations (including by
regulatory authorities), information gathering requests,
subpoenas, inquiries and investigations (collectively,
governmental examinations). As of December 31,
2010, the Company and various of its subsidiaries were named as
a defendant or were otherwise involved in numerous legal
proceedings and governmental examinations in various
jurisdictions, both in the United States and outside the United
States. The Company discloses certain of its more significant
legal proceedings and governmental examinations under
Legal Proceedings in its Annual Report on
Form 10-K
for the year ended December 31, 2010 (Legal
Proceedings).
The Company has recorded liabilities for certain of its
outstanding legal proceedings and governmental examinations. A
liability is accrued when it is both (a) probable that a
loss with respect to the legal proceeding has occurred and
(b) the amount of loss can be reasonably estimated
(although, as discussed below, there may be an exposure to loss
in excess of the accrued liability). The Company evaluates, on a
quarterly basis, developments in legal proceedings and
governmental examinations that could cause an increase or
decrease in the amount of the liability that has been previously
accrued.
The Companys legal proceedings range from cases brought by
a single plaintiff to class actions with hundreds of thousands
of putative class members. These legal proceedings, as well as
governmental examinations, involve various lines of business of
the Company and a variety of claims (including, but not limited
to, common law tort, contract, antitrust and consumer protection
claims), some of which present novel factual allegations
and/or
unique legal theories. While some matters pending against the
Company specify the damages claimed by the plaintiff, many seek
a not-yet-quantified amount of damages or are at very early
stages of the legal process. Even when the amount of damages
claimed against the Company are stated, the claimed amount may
be exaggerated
and/or
unsupported. As a result, some matters have not yet progressed
sufficiently through discovery
and/or
development of important factual information and legal issues to
enable the Company to estimate a range of possible loss.
Other matters have progressed sufficiently through discovery
and/or
development of important factual information and legal issues
such that the Company is able to estimate a range of possible
loss. Accordingly, for those legal proceedings and governmental
examination disclosed in Legal Proceedings as to which a loss is
reasonably possible in future periods, whether in excess of a
related accrued liability or where there is no accrued
liability, and for which the Company is able to estimate a range
of possible loss, the current estimated range is zero to
$500 million in excess of the accrued liability (if any)
related to those matters. This aggregate range represents
managements estimate of possible loss with respect to
these matters and is based on currently available information.
This estimated range of possible loss does not represent the
Companys maximum loss exposure. The legal proceedings and
governmental examinations underlying the estimated range will
change from time to time and actual results may vary
significantly from the current estimate.
Based on its current knowledge, and taking into consideration
its litigation-related liabilities, the Company believes it is
not a party to, nor are any of its properties the subject of,
any pending legal proceeding or governmental examination that
would have a material adverse effect on the Companys
consolidated financial condition or liquidity. However, in light
of the uncertainties involved in such matters, the ultimate
outcome of a particular matter could be material to the
Companys operating results for a particular period
depending on, among other factors, the size of the loss or
liability imposed and the level of the Companys income for
that period.
VISA
AND MASTERCARD SETTLEMENTS
As previously disclosed, the Company reached settlement
agreements with Visa and MasterCard. Under the terms of the
settlement agreements, the Company will receive aggregate
maximum payments of $4.05 billion. The settlement with Visa
comprised an initial payment of $1.13 billion
($700 million after-tax) that was recorded as a gain in
2007. Having met quarterly performance criteria, the Company
recognized $280 million ($172 million after-tax) from
Visa in 2010, 2009 and 2008, and $600 million
($372 million after-tax) from MasterCard in 2010 and 2009,
respectively, and $300 million ($186 million
after-tax) in 2008. The remaining Visa and MasterCard quarterly
payments, subject to the Company achieving certain quarterly
performance criteria, continue through the fourth and second
quarters of 2011, respectively. These payments are included in
other, net expenses within the Corporate & Other
segment.
OTHER
CONTINGENCIES
The Company also has contingent obligations to make payments
under contractual agreements entered into as part of the ongoing
operation of the Companys business, primarily with
co-brand partners. The contingent obligations under such
arrangements were approximately $7.5 billion as of
December 31, 2010.
113
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
RENT
EXPENSE AND LEASE COMMITMENTS
The Company leases certain facilities and equipment under
noncancelable and cancelable agreements. The total rental
expense amounted to $250 million in 2010, $362 million
in 2009 (including lease termination penalties of
$36 million) and $337 million in 2008.
As of December 31, 2010, the minimum aggregate rental
commitment under all noncancelable operating leases (net of
subleases of $25 million) was as follows:
|
|
|
|
|
|
|
(Millions)
|
|
|
|
2011
|
|
$
|
222
|
|
2012
|
|
|
196
|
|
2013
|
|
|
183
|
|
2014
|
|
|
167
|
|
2015
|
|
|
138
|
|
Thereafter
|
|
|
1,071
|
|
|
|
|
|
|
Total
|
|
$
|
1,977
|
|
|
|
As of December 31, 2010, the Companys future minimum
lease payments under capital leases or other similar
arrangements is approximately $12 million per annum from
2011 through 2013, $14 million in 2014, $6 million in
2015 and $35 million thereafter.
NOTE 25
REPORTABLE
OPERATING SEGMENTS AND GEOGRAPHIC OPERATIONS
REPORTABLE
OPERATING SEGMENTS
The Company is a leading global payments and travel company that
is principally engaged in businesses comprising four reportable
operating segments: USCS, ICS, GCS and GNMS.
The Company considers a combination of factors when evaluating
the composition of its reportable operating segments, including
the results reviewed by the chief operating decision maker,
economic characteristics, products and services offered, classes
of customers, product distribution channels, geographic
considerations (primarily United States versus non-U.S.), and
regulatory environment considerations. The following is a brief
description of the primary business activities of the
Companys four reportable operating segments:
|
|
|
USCS issues a wide range of card products and services to
consumers and small businesses in the United States, and
provides consumer travel services to cardmembers and other
consumers.
|
|
|
ICS issues proprietary consumer and small business cards outside
the United States.
|
|
|
GCS offers global corporate payment and travel-related products
and services to large and mid-sized companies.
|
|
|
GNMS operates a global general-purpose charge and credit card
network, which includes both proprietary cards and cards issued
under network partnership agreements. It also manages merchant
services globally, which includes signing merchants to accept
cards as well as processing and settling card transactions for
those merchants. This segment also offers merchants
point-of-sale
products, servicing and settlements, and marketing and
information programs and services.
|
Corporate functions and auxiliary businesses, including the
Companys publishing business, the Enterprise Growth Group
(including the Global Prepaid Group), as well as other company
operations are included in Corporate & Other.
Beginning in the first quarter of 2010, the Company made changes
to the manner in which it allocates equity capital as well as
funding and the related interest expense charged to its
reportable operating segments. The changes reflect the inclusion
of additional factors in its allocation methodologies that the
Company believes more accurately reflect the capital
characteristics and funding requirements of its segments. The
segment results for 2009 and 2008 have been revised for this
change.
Beginning in 2009, the Company changed the manner by which it
assesses the performance of its reportable operating segments to
exclude the impact of its excess liquidity funding levels.
Accordingly, the debt, cash and investment balances associated
with the Companys excess liquidity funding and the related
net negative interest spread are not included within the
reportable operating segment results (primarily USCS and GCS
segments) and are reported in the Corporate & Other
segment for 2010 and 2009. The segment results for 2008 have not
been revised for this change.
114
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table presents certain selected financial
information as of December 31, 2010, 2009 and 2008 and for
each of the years then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate &
|
|
|
|
|
(Millions, except where indicated)
|
|
USCS
|
|
|
ICS
|
|
|
GCS
|
|
|
GNMS
|
|
|
Other
(a)
|
|
|
Consolidated
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
10,038
|
|
|
$
|
3,685
|
|
|
$
|
4,622
|
|
|
$
|
4,169
|
|
|
$
|
436
|
|
|
$
|
22,950
|
|
Interest income
|
|
|
5,390
|
|
|
|
1,393
|
|
|
|
7
|
|
|
|
4
|
|
|
|
498
|
|
|
|
7,292
|
|
Interest expense
|
|
|
812
|
|
|
|
428
|
|
|
|
227
|
|
|
|
(200
|
)
|
|
|
1,156
|
|
|
|
2,423
|
|
Total revenues net of interest expense
|
|
|
14,616
|
|
|
|
4,650
|
|
|
|
4,402
|
|
|
|
4,373
|
|
|
|
(222
|
)
|
|
|
27,819
|
|
Total provision
|
|
|
1,591
|
|
|
|
392
|
|
|
|
158
|
|
|
|
61
|
|
|
|
5
|
|
|
|
2,207
|
|
Pretax income (loss) from continuing operations
|
|
|
3,537
|
|
|
|
638
|
|
|
|
761
|
|
|
|
1,649
|
|
|
|
(621
|
)
|
|
|
5,964
|
|
Income tax provision (benefit)
|
|
|
1,291
|
|
|
|
72
|
|
|
|
287
|
|
|
|
586
|
|
|
|
(329
|
)
|
|
|
1,907
|
|
Income (loss) from continuing operations
|
|
$
|
2,246
|
|
|
$
|
566
|
|
|
$
|
474
|
|
|
$
|
1,063
|
|
|
$
|
(292
|
)
|
|
$
|
4,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
7.4
|
|
|
$
|
2.2
|
|
|
$
|
3.7
|
|
|
$
|
1.9
|
|
|
$
|
1.0
|
|
|
$
|
16.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
9,505
|
|
|
$
|
3,447
|
|
|
$
|
4,158
|
|
|
$
|
3,602
|
|
|
$
|
687
|
|
|
$
|
21,399
|
|
Interest income
|
|
|
3,216
|
|
|
|
1,509
|
|
|
|
5
|
|
|
|
1
|
|
|
|
600
|
|
|
|
5,331
|
|
Interest expense
|
|
|
568
|
|
|
|
427
|
|
|
|
180
|
|
|
|
(177
|
)
|
|
|
1,209
|
|
|
|
2,207
|
|
Total revenues net of interest expense
|
|
|
12,153
|
|
|
|
4,529
|
|
|
|
3,983
|
|
|
|
3,780
|
|
|
|
78
|
|
|
|
24,523
|
|
Total provision
|
|
|
3,769
|
|
|
|
1,211
|
|
|
|
177
|
|
|
|
135
|
|
|
|
21
|
|
|
|
5,313
|
|
Pretax income (loss) from continuing operations
|
|
|
586
|
|
|
|
276
|
|
|
|
505
|
|
|
|
1,445
|
|
|
|
29
|
|
|
|
2,841
|
|
Income tax provision (benefit)
|
|
|
175
|
|
|
|
(56
|
)
|
|
|
155
|
|
|
|
508
|
|
|
|
(78
|
)
|
|
|
704
|
|
Income (loss) from continuing operations
|
|
$
|
411
|
|
|
$
|
332
|
|
|
$
|
350
|
|
|
$
|
937
|
|
|
$
|
107
|
|
|
$
|
2,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
6.0
|
|
|
$
|
2.3
|
|
|
$
|
3.7
|
|
|
$
|
1.4
|
|
|
$
|
1.0
|
|
|
$
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
$
|
11,415
|
|
|
$
|
3,782
|
|
|
$
|
5,082
|
|
|
$
|
3,863
|
|
|
$
|
577
|
|
|
$
|
24,719
|
|
Interest income
|
|
|
4,425
|
|
|
|
1,720
|
|
|
|
6
|
|
|
|
|
|
|
|
1,050
|
|
|
|
7,201
|
|
Interest expense
|
|
|
1,641
|
|
|
|
770
|
|
|
|
471
|
|
|
|
(328
|
)
|
|
|
1,001
|
|
|
|
3,555
|
|
Total revenues net of interest expense
|
|
|
14,199
|
|
|
|
4,732
|
|
|
|
4,617
|
|
|
|
4,191
|
|
|
|
626
|
|
|
|
28,365
|
|
Total provision
|
|
|
4,389
|
|
|
|
1,030
|
|
|
|
231
|
|
|
|
127
|
|
|
|
21
|
|
|
|
5,798
|
|
Pretax income (loss) from continuing operations
|
|
|
1,343
|
|
|
|
104
|
|
|
|
614
|
|
|
|
1,579
|
|
|
|
(59
|
)
|
|
|
3,581
|
|
Income tax provision (benefit)
|
|
|
365
|
|
|
|
(217
|
)
|
|
|
160
|
|
|
|
529
|
|
|
|
(127
|
)
|
|
|
710
|
|
Income (loss) from continuing operations
|
|
$
|
978
|
|
|
$
|
321
|
|
|
$
|
454
|
|
|
$
|
1,050
|
|
|
$
|
68
|
|
|
$
|
2,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
(billions)
|
|
$
|
4.2
|
|
|
$
|
2.2
|
|
|
$
|
3.6
|
|
|
$
|
1.2
|
|
|
$
|
0.6
|
|
|
$
|
11.8
|
|
|
|
|
|
|
(a)
|
|
Corporate & Other
includes adjustments and eliminations for intersegment activity.
|
Total
Revenues Net of Interest Expense
The Company allocates discount revenue and certain other
revenues among segments using a transfer pricing methodology.
Segments earn discount revenue based on the volume of merchant
business generated by cardmembers. Within the USCS, ICS and GCS
segments, discount revenue reflects the issuer component of the
overall discount rate; within the GNMS segment, discount revenue
reflects the network and merchant component of the overall
discount rate. Total interest income and net card fees are
directly attributable to the segment in which they are reported.
Provisions
for Losses
The provisions for losses are directly attributable to the
segment in which they are reported.
Expenses
Marketing, promotion, rewards and cardmember services expenses
are reflected in each segment based on actual expenses incurred,
with the exception of brand advertising, which is reflected in
the GNMS segment. Rewards and cardmember services expenses are
reflected in each segment based on actual expenses incurred
within each segment. Salaries and employee benefits and other
operating expenses reflect expenses such as professional
services, occupancy and equipment and communications incurred
directly within each segment. In addition, expenses related to
the Companys support services, such as technology costs,
are allocated to each segment based on support service
activities directly attributable to the segment.
115
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Other overhead expenses, such as staff group support functions,
are allocated from Corporate & Other to the other
segments based on each segments relative level of pretax
income, with the exception of certain fourth quarter 2008
severance and other related charges of $133 million from
the Companys fourth quarter restructuring initiatives for
staff group support functions. This presentation is consistent
with how such charges were reported internally. See further
discussion in Note 16 regarding this corporate initiative.
Financing requirements are managed on a consolidated basis.
Funding costs are allocated based on segment funding
requirements.
Capital
Each business segment is allocated capital based on established
business model operating requirements, risk measures and
regulatory capital requirements. Business model operating
requirements include capital needed to support operations and
specific balance sheet items. The risk measures include
considerations for credit, market and operational risk.
Income
Taxes
Income tax provision (benefit) is allocated to each business
segment based on the effective tax rates applicable to various
businesses that make up the segment.
GEOGRAPHIC
OPERATIONS
The following table presents the Companys total revenues
net of interest expense and pretax income (loss) from continuing
operations in different geographic regions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
(Millions)
|
|
United States
|
|
|
EMEA
(a)
|
|
|
JAPA
(a)
|
|
|
LACC
(a)
|
|
|
Unallocated
(b)
|
|
|
Consolidated
|
|
|
2010
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
20,246
|
|
|
$
|
3,297
|
|
|
$
|
2,701
|
|
|
$
|
2,449
|
|
|
$
|
(874
|
)
|
|
$
|
27,819
|
|
Pretax income (loss) from continuing operations
|
|
$
|
6,112
|
|
|
$
|
572
|
|
|
$
|
304
|
|
|
$
|
503
|
|
|
$
|
(1,527
|
)
|
|
$
|
5,964
|
|
2009
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
17,489
|
|
|
$
|
3,286
|
|
|
$
|
2,294
|
|
|
$
|
2,315
|
|
|
$
|
(861
|
)
|
|
$
|
24,523
|
|
Pretax income (loss) from continuing operations
|
|
$
|
3,131
|
|
|
$
|
407
|
|
|
$
|
188
|
|
|
$
|
277
|
|
|
$
|
(1,162
|
)
|
|
$
|
2,841
|
|
2008
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
19,792
|
|
|
$
|
3,693
|
|
|
$
|
2,414
|
|
|
$
|
2,511
|
|
|
$
|
(45
|
)
|
|
$
|
28,365
|
|
Pretax income (loss) from continuing operations
|
|
$
|
3,322
|
|
|
$
|
373
|
|
|
$
|
122
|
|
|
$
|
291
|
|
|
$
|
(527
|
)
|
|
$
|
3,581
|
|
|
|
|
|
|
(a)
|
|
EMEA represents Europe, Middle East
and Africa, JAPA represents Japan, Asia/Pacific and Australia
and LACC represents Latin America, Canada and Caribbean.
|
(b)
|
|
Other Unallocated includes net
costs which are not directly allocable to specific geographic
regions, including costs related to the net negative interest
spread on excess liquidity funding and executive office
operations expenses.
|
(c)
|
|
The data in the above table is, in
part, based upon internal allocations, which necessarily involve
managements judgment. Certain revisions and
reclassifications have been made to 2009 and 2008 to conform to
2010 classifications and internal allocation methodology.
|
116
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 26
PARENT
COMPANY
Parent
Company Condensed Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of securities
|
|
$
|
|
|
|
$
|
211
|
|
|
$
|
|
|
Other
|
|
|
8
|
|
|
|
4
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenues
|
|
|
8
|
|
|
|
215
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
136
|
|
|
|
142
|
|
|
|
286
|
|
Interest expense
|
|
|
(638
|
)
|
|
|
(562
|
)
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
|
(494
|
)
|
|
|
(205
|
)
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
153
|
|
|
|
111
|
|
|
|
129
|
|
Other
|
|
|
117
|
|
|
|
161
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
270
|
|
|
|
272
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
|
(764
|
)
|
|
|
(477
|
)
|
|
|
(418
|
)
|
Income tax benefit
|
|
|
(292
|
)
|
|
|
(164
|
)
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before equity in net income of subsidiaries and
affiliates
|
|
|
(472
|
)
|
|
|
(313
|
)
|
|
|
(242
|
)
|
Equity in net income of subsidiaries and affiliates
|
|
|
4,529
|
|
|
|
2,450
|
|
|
|
3,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
4,057
|
|
|
|
2,137
|
|
|
|
2,871
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
(7
|
)
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
2,130
|
|
|
$
|
2,699
|
|
|
|
Parent
Company Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
As of December 31
(Millions)
|
|
2010
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,267
|
|
|
$
|
5,679
|
|
Investment securities
|
|
|
475
|
|
|
|
530
|
|
Equity in net assets of subsidiaries and affiliates of
continuing operations
|
|
|
15,603
|
|
|
|
14,677
|
|
Accounts receivable, less reserves
|
|
|
831
|
|
|
|
523
|
|
Premises and equipment at cost, less accumulated
depreciation: 2010, $41; 2009, $34
|
|
|
73
|
|
|
|
52
|
|
Loans to affiliates
|
|
|
4,942
|
|
|
|
3,879
|
|
Due from subsidiaries
|
|
|
1,196
|
|
|
|
402
|
|
Other assets
|
|
|
458
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
28,845
|
|
|
$
|
26,131
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
1,366
|
|
|
$
|
1,398
|
|
Due to affiliates
|
|
|
911
|
|
|
|
69
|
|
Long-term affiliate debt
|
|
|
|
|
|
|
15
|
|
Long-term debt
|
|
|
10,338
|
|
|
|
10,243
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,615
|
|
|
|
11,725
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
238
|
|
|
|
237
|
|
Additional paid-in capital
|
|
|
11,937
|
|
|
|
11,144
|
|
Retained earnings
|
|
|
4,972
|
|
|
|
3,737
|
|
Accumulated other comprehensive loss
|
|
|
(917
|
)
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
16,230
|
|
|
|
14,406
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
28,845
|
|
|
$
|
26,131
|
|
|
|
SUPPLEMENTAL
DISCLOSURE
The Parent Company guarantees up to $107 million of
indebtedness under lines of credit that subsidiaries have with
various banks. As of December 31, 2010, there were no draw
downs against these lines.
117
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Parent
Company Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
(Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
2,130
|
|
|
$
|
2,699
|
|
Adjustments to reconcile net income to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net (income) loss of subsidiaries and affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(4,530
|
)
|
|
|
(2,450
|
)
|
|
|
(3,113
|
)
|
Discontinued operations
|
|
|
|
|
|
|
7
|
|
|
|
172
|
|
Dividends received from subsidiaries and affiliates
|
|
|
1,999
|
|
|
|
1,103
|
|
|
|
2,340
|
|
Gain on sale of securities
|
|
|
|
|
|
|
(211
|
)
|
|
|
|
|
Other operating activities, primarily with subsidiaries
|
|
|
(39
|
)
|
|
|
246
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,487
|
|
|
|
825
|
|
|
|
2,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale/redemption of investments
|
|
|
9
|
|
|
|
361
|
|
|
|
|
|
Premises and equipment
|
|
|
(32
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
Loans to affiliates
|
|
|
(1,064
|
)
|
|
|
2,665
|
|
|
|
(2,008
|
)
|
Loan, affiliate in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(238
|
)
|
Purchase of investments
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Investments in affiliates
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,090
|
)
|
|
|
3,006
|
|
|
|
(2,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt
|
|
|
|
|
|
|
3,000
|
|
|
|
3,000
|
|
Principal payment of debt
|
|
|
|
|
|
|
(505
|
)
|
|
|
(1,995
|
)
|
Long-term affiliate debt
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
Issuance of American Express Series A preferred shares and
warrants
|
|
|
|
|
|
|
3,389
|
|
|
|
|
|
Issuance of American Express common shares and other
|
|
|
663
|
|
|
|
614
|
|
|
|
176
|
|
Repurchase of American Express Series A preferred shares
|
|
|
|
|
|
|
(3,389
|
)
|
|
|
|
|
Repurchase of American Express stock warrants
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
Repurchase of American Express common shares
|
|
|
(590
|
)
|
|
|
|
|
|
|
(218
|
)
|
Dividends paid
|
|
|
(867
|
)
|
|
|
(924
|
)
|
|
|
(836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(809
|
)
|
|
|
1,845
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(412
|
)
|
|
|
5,676
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
5,679
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
5,267
|
|
|
$
|
5,679
|
|
|
$
|
3
|
|
|
|
118
AMERICAN
EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 27
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except per share amounts)
|
|
2010
|
|
|
2009
|
|
Quarters Ended
|
|
12/31
(a)
|
|
|
9/30
|
|
|
6/30
|
|
|
3/31
|
|
|
12/31
|
|
|
9/30
(b)
|
|
|
6/30
(b)(c)
|
|
|
3/31
|
|
|
Total revenues net of interest expense
|
|
$
|
7,322
|
|
|
$
|
7,033
|
|
|
$
|
6,858
|
|
|
$
|
6,606
|
|
|
$
|
6,489
|
|
|
$
|
6,016
|
|
|
$
|
6,092
|
|
|
$
|
5,926
|
|
Pretax income from continuing operations
|
|
|
1,477
|
|
|
|
1,640
|
|
|
|
1,595
|
|
|
|
1,252
|
|
|
|
961
|
|
|
|
918
|
|
|
|
418
|
|
|
|
544
|
|
Income from continuing operations
|
|
|
1,062
|
|
|
|
1,093
|
|
|
|
1,017
|
|
|
|
885
|
|
|
|
710
|
|
|
|
642
|
|
|
|
342
|
|
|
|
443
|
|
Income (Loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
Net
income
(b)
|
|
|
1,062
|
|
|
|
1,093
|
|
|
|
1,017
|
|
|
|
885
|
|
|
|
716
|
|
|
|
640
|
|
|
|
337
|
|
|
|
437
|
|
Earnings Per Common Share Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.88
|
|
|
$
|
0.91
|
|
|
$
|
0.84
|
|
|
$
|
0.74
|
|
|
$
|
0.59
|
|
|
$
|
0.54
|
|
|
$
|
0.09
|
|
|
$
|
0.32
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.88
|
|
|
$
|
0.91
|
|
|
$
|
0.84
|
|
|
$
|
0.74
|
|
|
$
|
0.60
|
|
|
$
|
0.54
|
|
|
$
|
0.09
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.88
|
|
|
$
|
0.90
|
|
|
$
|
0.84
|
|
|
$
|
0.73
|
|
|
$
|
0.59
|
|
|
$
|
0.54
|
|
|
$
|
0.09
|
|
|
$
|
0.32
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.88
|
|
|
$
|
0.90
|
|
|
$
|
0.84
|
|
|
$
|
0.73
|
|
|
$
|
0.60
|
|
|
$
|
0.53
|
|
|
$
|
0.09
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
Common share price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
46.78
|
|
|
$
|
45.68
|
|
|
$
|
49.19
|
|
|
$
|
43.25
|
|
|
$
|
42.25
|
|
|
$
|
36.50
|
|
|
$
|
28.45
|
|
|
$
|
21.38
|
|
Low
|
|
$
|
37.33
|
|
|
$
|
38.42
|
|
|
$
|
37.13
|
|
|
$
|
36.60
|
|
|
$
|
31.69
|
|
|
$
|
22.00
|
|
|
$
|
13.08
|
|
|
$
|
9.71
|
|
|
|
|
|
|
(a)
|
|
The results of operations for the
quarter ended December 31, 2010 include restructuring
charges in the amount of $98 million. Refer to Note 16
for further discussion of these items.
|
(b)
|
|
The results for the quarter ended
September 30, 2009 include (i) a $135 million
benefit representing the correction of an error related to the
accounting for cumulative translation adjustments associated
with a net investment in foreign subsidiaries and (ii) a
$45 million benefit resulting from the change in the fair
value of certain forward exchange contracts. The results of
operations for the quarter ended June 30, 2009 include a
$59 million benefit related to the completion of certain
account reconciliations. Refer to Note 19 for further
discussion of these items.
|
(c)
|
|
The results of operations for the
quarter ended June 30, 2009 include restructuring charges
in the amount of $199 million. Refer to Note 16 for
further discussion of these items.
|
119
AMERICAN
EXPRESS COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions, except per share amounts, percentages, and where
indicated)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating
Results
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues net of interest expense
|
|
$
|
27,819
|
|
|
$
|
24,523
|
|
|
$
|
28,365
|
|
|
$
|
27,559
|
|
|
$
|
24,826
|
|
Expenses
|
|
|
19,648
|
|
|
|
16,369
|
|
|
|
18,986
|
|
|
|
17,762
|
|
|
|
17,008
|
|
Provisions for losses
|
|
|
2,207
|
|
|
|
5,313
|
|
|
|
5,798
|
|
|
|
4,103
|
|
|
|
2,666
|
|
Income from continuing operations
|
|
|
4,057
|
|
|
|
2,137
|
|
|
|
2,871
|
|
|
|
4,126
|
|
|
|
3,625
|
|
(Loss) Income from discontinued operations
|
|
|
|
|
|
|
(7
|
)
|
|
|
(172
|
)
|
|
|
(114
|
)
|
|
|
82
|
|
Net income
|
|
|
4,057
|
|
|
|
2,130
|
|
|
|
2,699
|
|
|
|
4,012
|
|
|
|
3,707
|
|
Return on average
equity
(b)
|
|
|
27.5
|
%
|
|
|
14.6
|
%
|
|
|
22.3
|
%
|
|
|
37.3
|
%
|
|
|
34.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
(c)
|
|
$
|
16,709
|
|
|
$
|
16,599
|
|
|
$
|
21,651
|
|
|
$
|
10,350
|
|
|
$
|
3,801
|
|
Accounts receivable, net
|
|
|
40,434
|
|
|
|
38,204
|
|
|
|
36,571
|
|
|
|
41,994
|
|
|
|
38,642
|
|
Loans,
net
(d)
|
|
|
57,616
|
|
|
|
30,010
|
|
|
|
40,659
|
|
|
|
53,339
|
|
|
|
43,034
|
|
Investment
securities
(d)
|
|
|
14,010
|
|
|
|
24,337
|
|
|
|
12,526
|
|
|
|
13,214
|
|
|
|
13,207
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
22,278
|
|
|
|
20,699
|
|
Total
assets
(c)(d)
|
|
|
147,042
|
|
|
|
125,145
|
|
|
|
127,178
|
|
|
|
151,215
|
|
|
|
128,262
|
|
Customer deposits
|
|
|
29,727
|
|
|
|
26,289
|
|
|
|
15,486
|
|
|
|
15,397
|
|
|
|
12,011
|
|
Travelers Cheques outstanding
|
|
|
5,618
|
|
|
|
5,975
|
|
|
|
6,433
|
|
|
|
7,197
|
|
|
|
7,215
|
|
Short-term borrowings
|
|
|
3,414
|
|
|
|
2,344
|
|
|
|
8,993
|
|
|
|
17,761
|
|
|
|
15,236
|
|
Long-term
debt
(d)
|
|
|
66,416
|
|
|
|
52,338
|
|
|
|
60,041
|
|
|
|
55,285
|
|
|
|
42,747
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
|
21,527
|
|
|
|
20,003
|
|
Shareholders
equity
(d)
|
|
|
16,230
|
|
|
|
14,406
|
|
|
|
11,841
|
|
|
|
11,029
|
|
|
|
10,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Share Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.37
|
|
|
$
|
1.55
|
|
|
$
|
2.47
|
|
|
$
|
3.49
|
|
|
$
|
2.97
|
|
Diluted
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
$
|
2.47
|
|
|
$
|
3.44
|
|
|
$
|
2.91
|
|
(Loss) Income from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.07
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.37
|
|
|
$
|
1.54
|
|
|
$
|
2.33
|
|
|
$
|
3.40
|
|
|
$
|
3.04
|
|
Diluted
|
|
$
|
3.35
|
|
|
$
|
1.54
|
|
|
$
|
2.32
|
|
|
$
|
3.34
|
|
|
$
|
2.98
|
|
Cash dividends declared per share
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
$
|
0.63
|
|
|
$
|
0.57
|
|
Book value per share
|
|
$
|
13.56
|
|
|
$
|
12.08
|
|
|
$
|
10.21
|
|
|
$
|
9.53
|
|
|
$
|
8.76
|
|
Market price per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
49.19
|
|
|
$
|
42.25
|
|
|
$
|
52.63
|
|
|
$
|
65.89
|
|
|
$
|
62.50
|
|
Low
|
|
$
|
36.60
|
|
|
$
|
9.71
|
|
|
$
|
16.55
|
|
|
$
|
50.37
|
|
|
$
|
49.73
|
|
Close
|
|
$
|
42.92
|
|
|
$
|
40.52
|
|
|
$
|
18.55
|
|
|
$
|
52.02
|
|
|
$
|
60.67
|
|
Average common shares outstanding for earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,188
|
|
|
|
1,168
|
|
|
|
1,154
|
|
|
|
1,173
|
|
|
|
1,212
|
|
Diluted
|
|
|
1,195
|
|
|
|
1,171
|
|
|
|
1,156
|
|
|
|
1,193
|
|
|
|
1,235
|
|
Shares outstanding at period end
|
|
|
1,197
|
|
|
|
1,192
|
|
|
|
1,160
|
|
|
|
1,158
|
|
|
|
1,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees at period end (thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
29
|
|
|
|
28
|
|
|
|
31
|
|
|
|
32
|
|
|
|
32
|
|
Outside the United States
|
|
|
32
|
|
|
|
31
|
|
|
|
35
|
|
|
|
36
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(e)
|
|
|
61
|
|
|
|
59
|
|
|
|
66
|
|
|
|
68
|
|
|
|
65
|
|
Number of shareholders of record
|
|
|
38,384
|
|
|
|
41,273
|
|
|
|
43,257
|
|
|
|
50,216
|
|
|
|
51,644
|
|
|
|
|
|
|
(a)
|
|
In 2007, the Company entered into
an agreement to sell its international banking subsidiary, AEB,
and its subsidiary that issues investment certificates to
AEBs customers, AEIDC, to Standard Chartered subject to
certain regulatory approvals. The results, assets and
liabilities of AEB (except for certain components of the
business which were not sold) are presented as discontinued
operations. Additionally, the spin-off of Ameriprise and certain
dispositions were completed in 2006 and 2005, and the results of
these operations are presented as discontinued operations. Refer
to Note 2 for additional information on discontinued
operations.
|
(b)
|
|
Return on average equity is
calculated by dividing one-year period of net income by one-year
average of total shareholders equity.
|
(c)
|
|
Prior to June 30, 2010, the
Company misclassified certain book overdraft balances against
cash balances on its Consolidated Balance Sheets. Such overdraft
balances have been reclassified to either accounts payable or
other liabilities as of December 31, 2009, 2008 and 2007.
|
(d)
|
|
Refer to Note 7 for discussion
of the impact of new GAAP effective January 1, 2010.
|
(e)
|
|
Amounts include employees from
discontinued operations.
|
120