FINANCIAL COMMUNITY MEETING Ed Gilligan - Talking Points August 6, 2008

Transcription

1 FINANCIAL COMMUNITY MEETING Ed Gilligan - Talking Points August 6, 2008 Slide 1 - American Express Global Business to Business Group Thank you, Al. I know you ve all been closely following the consumer card industry, especially in the United States, and are familiar with some of the more pressing issues. Al has just given you a very clear insight into our view of how the credit situation is affecting our consumer and small business portfolios in the US. You may not have heard as much about our B2B business, which is less well-known, but has been one of American Express s historical strengths with high growth rates and strong margins. We have an economic model that is different from the consumer side of the organization, and a mix of businesses that is unlike our competitors. B2B is in a strong position today, and we see great growth potential as we: benefit from the migration of payments to plastic, participate in the growth in emerging markets and expand our distribution footprint around the world. As Ken mentioned, we are increasing our investment in B2B to grow both organically, and through acquisitions and strategic investments. We would like you to know more about B2B, because it is an important part of American Express s growth strategy. So we think that the next 30 minutes should be a good investment of your time. Slide 2 Agenda: B2B Business Model I ll break this discussion into three parts: I ll start with a description of our business model. Then I ll go into some detail on the two reporting segments that comprise B2B. And I ll finish by talking about what the future might look like. 1

2 Slide 3 - B2B Overview Our group consists of four businesses, reported in two segments. Commercial Card and Business Travel make up the Global Commercial Services segment. Merchant Services and Global Network Services are in the Global Network and Merchant Services segment. Now let s go a little deeper into these businesses. Slide 4 - B2B Overview: Global Commercial Card I ll start with Global Commercial Card, the world s leading issuer of corporate cards. This is a charge card, pay-in-full portfolio. It had charge volume of $122 billion in Commercial Card issues local currency cards in 36 markets, and US dollar or Euro billed cards in a further 90 markets. We have what we believe is an unmatched set of customer relationships. Globally, we service 170,000 corporate customers, and work with more than 60% of the Fortune 500 companies. Our top 50 Commercial Card clients have been with us for an average of 22 years. Slide 5 - B2B Overview: Global Business Travel With Global Business Travel, we are the world s leading travel management company. In 2007, travel sales reached $24.6 billion. Our Travel business operates in 36 countries, and when you include our partner network, we serve clients in over 140 countries. Travel has relationships with over 20,000 clients globally. Now let s look at the second segment. Slide 6 - B2B Overview: Global Merchant Services There are two businesses in the GNMS segment. The first is Global Merchant Services which is a merchant acquirer, processor, and marketing partner for our merchants. In 2007, the combined global Billed Business volume that we processed from all issuers was $647 billion. The GMS business earns a piece of the discount rate on the proprietary merchant network. We operate on a proprietary basis in 22 markets. And we have bank partners that acquire local merchants in an additional 102 markets outside the United States. Global Merchant Services is a worldwide business with premium economics and merchant marketing capabilities. Slide 7 - B2B Overview: Global Network Services Our fourth business is Global Network Services. 2

3 Through GNS, we are a network player similar to Visa and MasterCard. And after only 10 years of existence, GNS last year reached $53 billion in annual billings. We are in 126 markets with 122 partners, who offer 710 American Express products. Slide 8 - B2B Business Model: Customer We group these businesses I ve just described under the heading B2B, because our primary customer focus is on the institutions we serve, whether they are our corporate clients, bank partners that issue cards, or merchants that accept the Card for payment. But B2B is not just an organization structure. It is a different business model than that of our consumer business. We have one of the largest global networks of business customer relationships with millions of clients worldwide in all sizes, and across all industries. This is a very powerful differentiator for us. Moreover, we have developed significant assets to support our business customer orientation. We are sales and client focused. We have more than 4,500 sales and client managers globally, complemented by a global network of strong business partners. We have developed a set of premium B2B products. And we have created global B2B marketing capabilities to deliver added value to clients and strengthen our premium positioning. Slide 9 - B2B Business Model: Financial Our B2B business model also has some distinct and attractive financial characteristics: low credit risk, low capital requirements, and high returns. And I should point out that while we have high margins, we also enjoy high growth rates. This is a rare situation in business today. This business is highly scalable, so as we grow, our margins should continue to expand. Finally, B2B also has geographically diversified revenue streams. I will spend more time on some of these traits over the next few slides. Slide 10 - B2B Business Model: Low Credit Risk First, let s take a look at credit. As you can see, B2B does not have the same credit risk profile as do our consumer businesses, so provision for loss in the two B2B segments GCS and GNMS is substantially lower than in our US or International consumer businesses. 3

4 Slide 11 - B2B Business Model: Low Credit Risk Clearly our US consumer business is currently being impacted by a tough economic environment. Over the last three years, provision for loss as a percentage of Net Revenue has ranged from 13% to 21%. In B2B, provision has remained substantially lower, and relatively stable as a percentage of Net Revenue. In each B2B segment, it s been at or below 5% of Net Revenue for the last three years. Slide 12 - B2B Business Model: High Returns American Express as a whole and our B2B businesses in particular have high returns. Performance is even stronger when you look at Return on Tangible Equity, which is a key measure in evaluating underlying performance and cash flows. The difference between the two Return metrics is driven by acquisition goodwill and intangibles that we ve recorded over the years. On an absolute basis, all of our businesses generate strong returns, with B2B delivering a Return on Tangible Segment Capital of 67% at the end of Slide 13 - B2B Business Model: High Returns and also as of the end of Q Slide 14 - B2B Business Model: Geographical Diversity B2B is also more geographically diversified, with an increasing proportion of our Net Revenue generated outside of the US. 45% of B2B s Net Revenue is international. And it is growing faster at 26%, vs. 9% for B2B s US business this year. We have a very powerful business model with attractive and valuable characteristics. Now let s look at the contribution B2B makes to American Express. 1 Refer to Annex 1 for a reconciliation of Return on Tangible Equity to Return on Equity, as of Q and a reconciliation of Return on Tangible Segment Capital to Return on Segment Capital. 2 Refer to Annex 2 for a reconciliation of Return on Tangible Equity to Return on Equity as of Q2 2008, and a reconciliation of Return on Tangible Segment Capital to Return on Segment Capital. 4

5 Slide 15 - B2B Contribution to AXP B2B generates 31% of the company s total Net Revenue. And we are a high margin business that has contributed 55% of the company s YTD Net Income. Clearly, this has been an unusual year. In a more normal credit environment like we had in 2007, B2B contributed 38% of American Express s Net Income, as Ken mentioned earlier. Slide 16 - B2B Contribution to AXP Over the years, we have played a consistently large role in American Express s performance, both from a top and a bottom line perspective. And our contribution has continued to grow. Slide 17 - B2B Performance Turning now to our year to date performance, we have had strong top and bottom line growth. Year to Date, Net Revenue reached $4.5 billion across B2B and is up 16%. Segment Income grew 13% to $900 million. And we have sustained this level of performance over time with 11% compounded growth in Net Revenue and 25% growth in Segment Income over the past 2 years. Slide 18 - B2B Growth We continue to maintain strong double-digit volume growth across all of our businesses. We ve made good progress against our strategic priorities. And I think it s safe to say that, despite the current economic environment, we ve had a good first half of the year. In a few minutes, I ll talk about the keys to our success, and the areas in which we are focusing to accelerate our growth. Slide 19 - Payments Landscape But before I do that, I d like to lay out for you how B2B fits on the payments landscape. At a high level, there are a number of different business models across the payments industry, and they all make money in different ways. 5

6 You might be familiar with merchant acquirers and processors who operate on one end of the chain, and payment issuers that operate on the other end. This all comes together at the network level, which functions as a switch to move transactions and data among all the parties in the network. Our B2B businesses span the payments landscape as a merchant acquirer and processor, as a payment issuer and processor, and as a network. Slide 20 - Payments Landscape Visa and MasterCard operate in the network space where our GNS business competes with them. Merchant acquirers and processors include companies listed here. Our Global Merchant Services business operates in this space, but with one important difference. These other companies compete with each other to process portions of Visa s and MasterCard s volume. Global Merchant Services is the primary American Express acquiring and processing engine across all of our businesses. You re well aware of the companies that operate on the issuing side of the business. In B2B, our Global Commercial Card business operates in this space both as an issuer and a processor of its own transactions. Collectively, B2B covers the entire payments spectrum. Slide 21 Agenda: Tale of Two Segments That s a summary of our business model. Next, using our two reporting segments as a guide, I ll take a closer look at the businesses that make up B2B and discuss some of the keys to our success. Slide 22 Global Commercial Services Segment Overview Our first segment is GCS or Global Commercial Services which includes Commercial Card and Business Travel. It is growing top and bottom line by double digits. GCS s performance in 2008 has been driven by strong global billings growth, and strengthened by: our acquisition of GE s Corporate Payment Services, a weaker US dollar, 6

7 lower costs of funds in the US, and a relatively stable corporate credit environment. This segment has an impressive roster of clients, and has developed an innovative set of products for corporate customers. The returns in this segment are high. It has the highest share of goodwill, given a historically higher level of acquisition. Without goodwill and intangibles, Return on Tangible Segment Capital is 47%. 3 Slide 23 - Corporate Card Middle Market Growth Over the past 5 years, we have successfully targeted new high-growth segments. The Corporate Card middle market business has been a particularly successful area of growth for us. In 2002, and again in 2005, we told the analyst community that we were targeting this segment by building a dedicated sales and product infrastructure around the world. As Ken mentioned, we made these investments even in a thentough economic environment. Here s an update on our progress. We have expanded beyond the US and now operate a middle market business in 25 countries. We ve built a solid track record. We ve been growing this business at a compounded rate of 19% over the last five years, and middle market is now more than 40% of Global Commercial Card Billed Business. Importantly, this segment has higher average spend, and is even more profitable than our large corporate business. And there is still plenty of room for more growth, as the middle market is relatively under-penetrated by plastic. As we have told you before, we believe this could be a potential $950 billion global spending opportunity, with less than 15% of that on plastic. Slide 24 - Global Network and Merchant Services Segment Overview I ll turn now to the GNMS segment that reflects the performance of our Global Merchant Services and our Global Network Services businesses. 3 Refer to Annex 2 for a reconciliation of Return on Tangible Equity to Return on Equity as of Q2 2008, and a reconciliation of Return on Tangible Segment Capital to Return on Segment Capital. 7

8 As you can see, we ve had strong financial performance to date. Net Revenue grew at 16% in 2007 and at 13% YTD. Our Segment Income growth rates of 31% for last year, and 4% this year, reflect a number of unusual items, including timing of merchant-related reserves that we released in the first half of 2007, and gains from the sale of merchant operations in one international market last year. Excluding these two items, our growth rate would be slightly less than what s shown here for 2007, and would be in the low teens YTD. This segment has especially low capital requirements, and as a result, it achieves very high margins and returns. Return on Tangible Segment Capital is 91%. 4 Slide 25 - Attractive Margins As I mentioned, our GNMS segment is two distinct businesses and enjoys premium economics. Here we have compared our margins to other networks Visa and MasterCard and to other merchant acquirers and processors - FDC and Global Payments. From a network perspective, you can see our margins are comparable. 28% for GNMS vs. 28% for Visa, and 22% for MasterCard. These are their results for the most recent quarter, and include an adjustment made by MasterCard related to litigation settlements. Our margins also compare favorably from an acquirer and processor viewpoint. FDC s numbers reflect their earnings release for Year End 2007, and Global Payments margins are from their most recent quarterly results. Based on this comparison, our margins are strong and are comparable to those of our competitors. Slide 26 - GMS Business Model Let me pause here for a moment to provide further insight into our merchant business model which is unique in the industry. As I mentioned earlier, our merchant business acquires merchants and processes transactions for the American Express network. 4 Refer to Annex 2 for a reconciliation of Return on Tangible Equity to Return on Equity as of Q2 2008, and a reconciliation of Return on Tangible Segment Capital to Return on Segment Capital. 8

9 But we do a lot more than that, and this sets us apart from other industry players. We directly manage relationships with existing merchants. And we develop closed loop information that we use to benefit both merchants and cardmembers to run merchant-focused marketing campaigns. These capabilities allow us to set our merchant pricing based on the value we deliver to merchants. And this is what drives our premium discount rate and premium economics. It sets us apart from Visa and MasterCard whose pricing is complex and anything but transparent. And Global Merchant Services is a highly valuable business that strengthens American Express s position in the payments industry. Slide 27 - Leader in Premium Cards A key competitive advantage that plays a critical role in creating value for merchants is our high spending cardmember base. On average, American Express cardmembers spend around four times more than Visa s and MasterCard s credit cardholders. This helps us sustain our premium discount rate. Slide 28 - Growing Merchant Acceptance Base As I mentioned, we have strong global merchant relationships, and last year processed $647 billion of charge volume globally. A key growth opportunity for us is to expand this merchant network. Here s one way we measure growth. We call it New Booked Charge Volume, which measures the spend from newly signed merchants in the current year. As you can see, it has grown by double digits around the world. This not only shows that we are bringing more merchants onto the network, we are focusing on the right merchants who are benefiting from access to our affluent high-spending cardmembers, as well as from the total value we deliver as a partner to our merchants. Slide 29 - Multiple Channels to Grow Merchant Acceptance There are several ways that we grow our merchant network. An important channel is our proprietary salesforce that targets high-impact, high-volume merchants. We also work with a variety of partners to sign merchants. These channels include: external sales agents, bank partners, and telesales agents. Merchants also contact us to tell us they want to start accepting the Card. We call this the Want to Honor channel. Finally, our client managers work closely with existing merchants to expand acceptance within their businesses. 9

10 Slide 30 - Stable Discount Rate As a result of our proven ability to drive value to merchants, over the years we have been able to generate and sustain premium economics. Our discount rate varies slightly by quarter due to seasonality and mix of spend Slide 31 - Stable Discount Rate but on an annual basis, as you can see, it has remained relatively stable. Our US discount rate has trended up slightly due to some value recapture. And our international discount rate has trended down because of industry mix and external market dynamics. Over time, we would expect our global discount rate to trend down somewhat due to a change in spending mix and some targeted repricing. However, to date, we have been able to limit the erosion. Slide 32 - GNS Business Model Next let s look at our GNS business model. GNS competes with Visa and MasterCard to move volume onto our network. Around the world, we work with financial institutions that issue American Express Cards on our network. GNS manages those partner relationships and provides marketing expertise to help our partners grow their businesses. GNS also manages network functionality so that partners can connect with us seamlessly. Our GNS partners are the issuers and they carry the consumer credit risk not American Express. Slide 33 - High Quality, Committed GNS Partners I showed you before that GNS is a high-growth business. But we are very pleased that it s not just our top partners that are growing quickly. This is a high-growth business across the entire base. Our top 20 partners in terms of billings contribution grew volume on American Express by 45% YTD. The next 30 largest partners grew even faster at 51%, and the 50 after that grew by 42%. These GNS partners are truly committed to our network. In 2007, they invested more than $90 million to build American Express brand awareness and support the growth of our products around the world. Slide 34 - GNS Growth Trajectory As we look even further ahead, we see growth opportunities from both our existing partner base and new partnerships. 10

11 This business is 10 years old, and in 2007 we achieved $53 billion in billings. Year to date, GNS represents 10% of American Express s billings. In the last 10 years, GNS has grown billings at a compounded rate of 36% and over the last three years, that growth has accelerated to 44%. While I am not forecasting, if one were to assume that our growth rate were to decrease to 24% for the next three years which would be disappointing we would still hit $100 billion in Clearly this is not a niche business, and it is scaling nicely, with increasing returns. Slide 35 Agenda: Future Outlook Now that I ve explained a bit more about our separate businesses and our current performance, I ll talk for a few minutes about how we see the future of B2B. Slide 36 - Challenging Environment Let me start by talking about some of the challenges we see ahead. We are not immune to the softening of the economy, particularly in the US, which affects our business as spending slows down. Risk in the B2B business has some concentration. For example, merchant liquidation is a risk faced by every acquirer. Sudden liquidations could expose us to refunds for cardmembers who have paid for goods or services they have not yet received. For example, we have experienced 19 airline liquidations year to date most of these are small airlines spread around the world. We take steps to manage this exposure by monitoring them and covering our exposure in a timely way before they liquidate. As a result, our net exposure this year has been minimal. Another challenge the card industry faces is from increasing regulation that is creating downward pressure on interchange rates, and consequently on our discount rates. Significant regulatory and legislative activity is underway in several jurisdictions including the European Union, Australia, and more recently even in the United States. We are typically not the target of this regulation - Visa and MasterCard are - but we can feel its effects. We expect the pressure from regulators to continue for the foreseeable future. However, even in this environment, there are still many opportunities to grow our business. Slide 37 -.Yet Very Strong Growth Opportunities We have had strong historical performance across B2B, and are even more excited about our future. We are actively pursuing a number of significant growth opportunities in three broad areas: Penetrating new high growth areas of spend; 11

12 Expanding our distribution footprint; and Adding new products and services to our distribution channels. Slide 38 - B2B Growth Opportunities: Penetrate New High Growth Areas I m sure all of you have seen estimates of the potential for movement from cash and checks to plastic and other modes of payment. And I think we can all agree the opportunity is enormous. Slide 39 - B2B Payments One significant opportunity is the area of business to business payments estimated to be trillions of dollars. In the US, almost half of business to business spend is still on cash and checks. There is a trend toward more sophisticated payment methods such as plastic and ACH or wire transfer. And we are very focused on this opportunity. As an issuer in the Global Commercial Card business, we have expanded our product line to capture this spend with products like: purchasing card, vpayment which we acquired from GE, and an electronic payment product called Buyer Initiated Payments that we gained with our acquisition of Harbor Payments a few years ago. In our merchant business, we have enhanced our merchant network to make it more relevant to this growing opportunity, and have been successful in signing merchants in the B2B space. As an issuer and acquirer, we are able to effectively target and capture both sides of this opportunity. And this again is a very powerful differentiator for American Express. Slide 40 - Emerging Markets Another great opportunity for us to grow aggressively is in emerging markets. I just spoke about the shift from cash and checks to plastic. Nowhere is this trend more apparent than in emerging markets. Our GNS business has been a fantastic vehicle for us to participate in the growth of these markets with low capital investment and limited credit risk. We do this through local partners that are well-equipped to take advantage of local market dynamics. And we re seeing success. In 2007, 50% of GNS billings came from emerging markets. Let me give you an example of how we are growing in these markets today. 12

13 Slide 41 - Emerging Markets: Brazil Two years ago, we moved our proprietary business in Brazil to Banco Bradesco, who now issues American Express Cards on our network, and acquires local merchants. They paid us $470 million upfront, and we are now earning ongoing revenue under the GNS model. We are making exceptional progress in Brazil. We achieved this success through a few simple steps. We picked a great anchor partner with Bradesco. They have a broad distribution reach with 3000 branches throughout the country and have provided excellent brand support. Having established the business with Bradesco, we are now selectively adding more issuing partners like Itaú and HSBC. Collectively, these three GNS partners have enhanced our revenue streams and have accelerated merchant coverage. Brazil s performance has been outstanding across the board. In the two years since we moved the business: we have seen a cumulative 76% increase in Billed Business, we have doubled the number of new cards acquired, and we have grown our merchant network by 159%. And we are making even more money in the market today. Our pre-tax income in Brazil has increased by 180%. Brazil is just one example of where we are making great progress. We are also growing our business in other important emerging markets like Russia and China. And I m pleased to announce that yesterday, we signed an agreement with China Merchants Bank to issue American Express Cards in China. This is our third GNS partner in that market. Slide 42 - B2B Growth Opportunities: Expand Distribution Footprint Our next opportunity for growth is in expanding our distribution footprint. I ve already spoken about our extensive distribution capabilities - our salesforce, our client managers, and our partners. In our middle market corporate business, we have demonstrated we can achieve strong sustainable growth by investing in our salesforce. There is still a lot of opportunity in the middle market segment so we re going to continue to grow it. 13

14 However, let me give you another example of where we are using salesforce expansion as a growth catalyst in B2B. Slide 43 - Merchant Salesforce Expansion In the merchant business, we have started to expand our salesforce. Over the last decade, we invested moderately here and focused more on developing other channels. Now we have increased our investment to bring more high volume merchants onto our network. In international, we have almost doubled our salesforce since And even in the US, where our coverage footprint is more mature, we have grown by 20%. But we ve only just begun. I told you earlier that our New Booked Charge Volume is up between 10% and 26% globally, and I showed you the range of channels we re using. I d like to point out that New Booked Charge Volume coming just from our proprietary salesforce is up 53% YTD, which reflects our increased investment in this channel. Slide 44 - Partners Contribute to Network Expansion In addition to our salesforce expansion initiatives to grow the number of high-volume merchants on our network, we are working with partners to expand coverage. In the US, we are working in newly expanded ways with FDC, Elavon, and Heartland to help us increase acceptance among smaller merchants. And we are looking at similar options for our international businesses. We also rely on our bank partners to help expand the network in markets where we do not have a proprietary presence. Here are examples of markets where our bank partners are driving significant gains in merchant acceptance for American Express. Slide 45 - B2B Growth Opportunities: Add New Products & Services Finally, we see a significant opportunity to leverage our distribution capabilities to deliver new products and services to our B2B customer base. We are developing some of these products organically, but we are also looking externally for opportunities. Some of this growth could come via acquisitions and strategic investments. Now I d like to give you a few examples of deals we ve done. Slide 46 - Rearden Commerce We recently took an 11% stake in a small, innovative company called Rearden Commerce. This investment enabled us to develop a product called AXIOM, which is an online travel booking tool that 14

15 runs on the Rearden platform. It also distributes business services through the desktop to capture new sources of revenue growth for our travel business. Slide 47 - Concur Last week, we announced that we have taken a 13% stake in Concur Technologies, a large expense management technology firm. This investment allows us to introduce software as a service into our corporate offering, and create a new revenue stream for the Commercial Card business. It s a logical and important addition to our expense management portfolio. Our experience shows that every time our Commercial Card clients implement expense management, we see an average spend lift of 15% per account. Slide 48 - GE Corporate Payment Services Another key avenue of growth for us has been acquisitions that add volume and key capabilities to our business. In March, we acquired GE s Corporate Payment Services business. Like our Corporate Card business, this portfolio has the same dynamics of: high growth, high returns, low capital utilization, and low credit losses. At the end of 2007, Billed Business was growing at a 5-year compounded rate of 18%. The GE business includes three products - corporate card, purchasing card and the patented vpayment technology that extends purchasing card capabilities online. Conversion of the over 300 large GE accounts onto our network is underway, and we are making good progress. Slide 49 - B2B Criteria These three transactions demonstrate that we re aggressively building out B2B capabilities. But we re not finished yet. We re looking for opportunities that are adjacent to our current business. We can expand by leveraging our core assets such as our: customer base, global distribution capabilities, 15

16 expense management expertise, closed loop information insights, and global acquiring and processing footprint. We are interested in companies that share our B2B business model characteristics which are low credit risk, high returns, high growth, and geographic diversity. Slide 50 - B2B Growth Opportunities I ve highlighted just a few of our significant growth opportunities. We are confident that these areas present enormous potential for continued profitable growth of our B2B business. Slide 51 - B2B Summary I hope this has helped you become more familiar with the B2B side of American Express. We ve built a solid track record - with an extensive, global customer network, and a strong global distribution footprint. Our business fundamentals are attractive, and we have significant growth opportunities ahead. As I said at the beginning, we have been an important contributor historically to the company. Our growth rates are high, and our margins are strong. And with our current momentum and a growing share of the company s investment dollars, we are well poised to play an even bigger role in the future. Thank you. And now Ken, Al, and Dan Henry our CFO will join me on the stage to take your questions. 16

17 Annex 1 Return on equity for the Company on a consolidated basis is calculated by dividing (i) net income for the relevant one year period by (ii) average total stockholders equity for the relevant one year period, in accordance with GAAP. Return on tangible equity is computed in the same manner as return on equity except the computation of average stockholders equity excludes average goodwill and other intangibles for the relevant one year period. Return on segment capital for the Company s segments is calculated by dividing (i) segment income for the relevant one year period by (ii) average segment capital for the relevant one year period, in accordance with GAAP. Return on tangible segment capital is computed in the same manner as return on segment capital except the computation of average segment capital excludes average goodwill and other intangibles for the relevant one year period. The components of the Return on Equity, Return on Tangible Equity, Return on Segment Capital and Return on Tangible Segment Capital calculations as of Q4 07 are as follows: Net Income / Average Segment Income Stockholders Equity / Average Segment Capital Average Goodwill & Other Intangibles ROE / Return on Segment Capital ROTE / Return on Tangible Segment Capital AXP $4.0 $10.8 $1.6 37% 44% Global Consumer $2.1 $6.4 $0.7 33% 37% Global B2B $1.6 $3.2 $0.9 48% 67% 17

18 Annex 2 Return on equity for the Company on a consolidated basis is calculated by dividing (i) net income for the relevant one year period by (ii) average total stockholders equity for the relevant one year period, in accordance with GAAP. Return on tangible equity is computed in the same manner as return on equity except the computation of average stockholders equity excludes average goodwill and other intangibles for the relevant one year period. Return on segment capital for the Company s segments is calculated by dividing (i) segment income for the relevant one year period by (ii) average segment capital for the relevant one year period, in accordance with GAAP. Return on tangible segment capital is computed in the same manner as return on segment capital except the computation of average segment capital excludes average goodwill and other intangibles for the relevant one year period. The components of the Return on Equity, Return on Tangible Equity, Return on Segment Capital and Return on Tangible Segment Capital calculations as of Q2 08 are as follows: Net Income / Segment Income Average Stockholders Equity / Average Segment Capital Average Goodwill & Other Intangibles ROE / Return on Segment Capital ROTE / Return on Tangible Segment Capital AXP $3.5 $11.4 $2.0 31% 38% Global Consumer $1.5 $6.6 $0.7 22% 25% Global B2B $1.7 $3.8 $1.3 44% 67% GCS $0.6 $2.6 $1.3 24% 47% GNMS $1.0 $1.2 $0.0 88% 91% 18