American Express Fixed Income Presentation. September 2008 Update (revised November 2009)

Transcription

1 American Express Fixed Income Presentation September 2008 Update (revised November 2009)

2 Agenda AXP Overview Performance AXP Capital & Funding Management 2

3 Company Overview ($ in Millions) AMERICAN EXPRESS COMPANY 2007 YTD 2008 Revenues net of interest exp. $27,731 $14,670 Income from Continuing Ops $4,048 $1,629 Net Income $4,012 $1,644 ROE * 37% 31% U.S. Card Services International Card Services Global Commercial Services Global Network & Merchant Services Corporate & Other 2007 YTD YTD YTD YTD YTD 2008 Revenues net of interest exp. $14,222 $7,315 $4,331 $2,451 $4,269 $2,452 $3,864 $2,086 $1,045 $366 Segment Income $1,823 $544 $291 $248 $536 $378 $1,022 $522 $376 ($63) Return on Segment Capital ** 40% 25% 15% 16% 25% 24% 91% 88% U.S. Proprietary Consumer and Small Business Cards and Services U.S. Consumer Travel Network Int l Proprietary Consumer and Small Business Cards and Services Int l Consumer Travel Network Corporate Card Corporate Purchasing Solutions Business Travel Services Global Merchant Services Global Network Services Global Network Card Partnerships Corporate HQ Global Travelers Cheque and Prepaid Services Publishing AEIDC *Computed on a trailing 12-month basis using net income over average shareholders equity (including discontinued operations). **Computed on a trailing 12-month basis using segment income and equity capital allocated to segments based upon specific business operational needs, risk measures and regulatory capital requirements. 3

4 AXP Franchise American Express is the world s largest issuer of charge and credit cards as measured by purchase volume. Our focus on the premium market sector enables us to have best in class credit quality. Average spending per card is substantially higher for us versus our competitors. The global diversity of our business includes: 90 million cards in force worldwide, More than 115 card issuing or merchant acquiring arrangements with banks and other institutions, Over 650 American Express network branded products. American Express is a brand recognized around the world for exceptional service and customer care. American Express is ranked #1 as the Most Admired megabank/credit card company according to Fortune magazine s 2008 annual survey. Our spend-centric model is a significant competitive advantage. 4

5 Spend-Centric Model The AXP spend-centric business model focuses primarily on generating revenues by driving spending on our cards, and secondarily finance charges and fees, allowing us to grow market share in the payments industry. Investments in Premium Value Attractive Customer Base Premium Economics High Average Spending 5

6 Customer Focus Advantages Global Consumer Global Business to Business Affluent global base Marketing expertise Acquisition channels Risk capabilities Corporate, merchant and GNS relationships Sales & client management expertise Processing Return on Equity Blue Box Advantages: Brand Premium positioning Rewards platforms Reengineering Servicing Information management 6

7 Agenda AXP Overview Performance AXP Capital & Funding Management 7

8 Performance vs. Targets Target Q1'08 Q2'08 Revenue Net of Interest Expense 8% 12% 10% 11% 8% Diluted EPS % 20% 16% (7%) (35%) ROE 33-36% 35% 37% 36% 31% 1. Targets are on average, over time. 2. Based on income from continuing operations. EPS growth on a net income basis was 1% in 2006, 12% in 2007, (2%) in Q1 08 and (36%) in Q

9 Metric Trends Billed Business* Cards In Force Avg. Basic Cardmember Spending** Mgd. Cardmember Loans*** Credit Performance Q1'08 16% 15% 15% 14% 10% 11% 10% 7% 8% 6% 17% 22% 19% Q % 10% 5% 12% *Card billed business includes activities (including cash advances) related to proprietary cards, cards issued under network partnership agreements, and certain insurance fees charged on proprietary cards. **Computed from proprietary card activities only. ***Managed basis includes owned and securitized loans. On a GAAP basis, owned loan growth was 31% in 2006, 26% in 2007, 17% in Q1'08 and 3% in Q

10 Q2'08 Worldwide Key Metric Comparison Total Billed Business Total Managed Loans $181 ($B) $201 ($B) $163 $155 $116 $94 $61 $77 $68 $27 $23 $47 Growth vs. LY AXP Citi JPMorgan* Bank of America** Cap One*** Discover 12% 6% 6% 0% (1%) 2% Growth vs. LY Citi Bank of America** JPMorgan AXP Cap One*** Discover 11% 10% 5% 12% 2% 1% *Billed business is charge volume; disclosed sales volume growth was 7%. **US Consumer & Business Card. ***US Card. Fiscal year ends November 30. US Card. Billed business is credit card sales volume; disclosed credit card volume was $26B and declined 3%. Average Loans. On a GAAP basis, owned loans were $50B and increased 3%. 10

11 Q2 08 Worldwide Key Metric Comparison Lending Managed Net Write-off Rates Lending Managed Net Interest Margin 6.7% 6.4% 6.3% 6.3% 11.7% 5.1% 5.0% 9.5% 9.0% 8.6% 8.1% 7.9% Bank of America* Citi AXP** Cap One*** Discover JPMorgan Citi AXP** Cap One*** Discover Bank of America* *Net write-off rate is US Consumer & Business Card and net interest margin is Card Services. **On a GAAP basis, owned net write-off rate and net interest margin were 6.7% and 9.4%, respectively. ***US Card. Fiscal year ends November 30. US Card. JPMorgan 11

12 Lending Managed Net Write-off Rates 6.5% 6.0% 6.3% 3.7% 2.9% 5.3% 4.3% 5.3% Excluding accrued interest & fees 5.1% 5.2% 4.0% 5.3% US Card Services International Card Services Total AXP Q2 07 Q1 08 Q208 See Annex 1 for owned basis. There are no off-balance sheet International Card Services securitizations; therefore, the net write-off rates for International Card Services are on an owned basis. 12

13 US Card Services Lending Managed Net Write-off Rate 4.3% 5.3% 5.7% 5.2% 6.7% 3.6% 6.3% 5.9% 4.5% 5.8% 6.5% 5.1% 5.0% 4.4% 4.4% 4.0% 3.6% 2.9% US Card Services* Bank of America** Cap One Citi*** Discover JPMorgan Q2'07 Q1'08 Q2'08 *Excluding write-offs of accrued interest and fees. See Annex 1 for owned basis. **US Consumer and Business Card. ***Citi North America. US Card. Fiscal year ends November 30 and Q2 ends May 31. Includes some international volume. 13

14 US Card Services Managed 30 Day Past Due Rate 5.3% 5.9% 5.9% 2.6% 4.0% 3.9% 3.7% 3.7% 3.9% 3.9% 3.7% 3.0% 3.0% 3.0% 3.5% US Card Services* Bank of America** Cap One Discover*** JPMorgan**** Q2'07 Q1'08 Q2'08 *See Annex 1 for owned basis. **US Consumer and Business Card. ***Fiscal year ends November 30. ****Includes some international volumes. 14

15 FICO Score Peer Comparison The following peer comparison is based on US Lending & Charge Trust Data*: FICO < 660 ( Sub-prime ) FICO > 720 ( Super-prime ) 26.0% 26.7% 29.1% 29.3% 67.4% 55.8% 53.6% 17.3% 18.5% 42.8% 40.4% 39.2% 34.8% 10.3% AEIT AMXCA JP Morgan*** Citi Discover Cap One Bank of America AEIT** JP AMXCA** Cap One Discover Citi Bank of Morgan*** America Trust data as of June 2008 for AEIT, AMXCA, JP Morgan and Bank of America, May 2008 for Discover, and March 2008 for Citi and Capital One. ** AEIT and AMXCA FICO > 720 ( Super-prime ) category includes 2/3 s of the A/R within the category. *** JP Morgan only includes data for CHAIT, whereby all issuances are occurring, vs. FUSAM and CHAMT. 15

16 Agenda AXP Overview Performance AXP Capital & Funding Management 16

17 Capital Management We continuously monitor our aggregate and subsidiary capital positions to ensure we: Maintain our debt rating Meet all statutory, regulatory and tax requirements Cover our exposures across credit, market and operational risk Support business growth Maintain flexibility in our capital plan and structure American Express has historically generated capital well in excess of its needs. 17

18 Liquidity Management Throughout the year we have maintained cash and cash equivalents significantly above historical levels. We estimate that we have access to additional sources of cash as part of our contingent liquidity plan that would enable us to meet our daily obligations when access to unsecured or secured funds in the debt capital markets becomes impaired. Sources include, but are not limited to: Liquidity investment portfolio ($5B) Undrawn committed bank credit facilities ($9B) Committed lending asset backed conduit funding facility ($5B) We also have substantial flexibility to manage our cash requirements: Share repurchases Discretionary expenses and investments Substantial intra-company ability to mobilize liquidity where needed Liquidity is managed through the breadth of sources of our funding programs, as well as through the quality and liquidity of our funded assets. 18

19 AXP Debt Funding Strategy Category Short-Term Our short-term funding programs are used primarily to meet working capital needs. Unsecured Term Term ABS Our 2008 long-term issuance plan provides for the refinancing of maturities and funding for business growth. Our goal is to achieve this through a broad and globally diversified mix of maturities, markets, and securities, including issuance from both lending and charge receivables trusts. We plan to issue large, liquid benchmark issues and to continue to efficiently leverage a multiissuer strategy. 19

20 American Express Primary Issuance Structure American Express Company (AXP) Total Assets 1,2 : $164B Credit Ratings 3 : A1/A+/A+/A(High) Regulated By: SEC & OTS American Express Issuance Trust (AEIT) American Express Travel Related Services (TRS) Total Assets 1,2 : $157B Credit Ratings 3 : Aa3/A+/A+/A(High) Regulated By: State Money Transmitter Laws American Express Credit Corporation (Credco) Total Assets 1 : $47B Credit Ratings 3 : Aa3/A+/A+/A(High) Regulated By: SEC American Express Centurion Bank (AECB) Total Assets 1,2 : $43B Credit Ratings 3 : Aa3/A+/A+ Regulated By: FDIC & Utah State American Express Bank, Federal Savings Bank (AEFSB) Total Assets 1,2 : $35B Credit Ratings 3 : Aa3/A+/A+ Regulated By: OTS American Express Credit Account Master Trust (AMXCA) 1) Total Assets as of June 30, ) Includes off-balance sheet loans of $26.9 billion, $26.9 billion, $17.4 billion and $9.5 billion for AXP, TRS, AECB and AEFSB, respectively. 3) Credit Ratings indicated are from Moody s/s&p/fitch/dbrs. 20

21 AXP & TRS American Express Company (AXP) Credit Ratings*: A1/A+/A+/A(High) Leading global payments and travel company Finances through: Dividends from subsidiaries Unsecured long-term notes American Express Travel Related Services (TRS) Credit Ratings*: Aa3/A+/A+/A(High) Issues charge cards and traveler s cheques Sells charge card receivables to Credco Finances through: Unsecured medium and long-term notes Asset backed securities (ABS) American Express Issuance Trust *Credit Ratings indicated are from Moody s/s&p/fitch/dbrs. 21

22 Credco American Express Travel Related Services (TRS) American Express Credit Corporation (Credco) 100% owned by TRS Credit Ratings*: Aa3/A+/A+/A(High) Funds charge card products Sources of funding: Direct issuance of 3(a)(3) commercial paper (A-1/P-1/F1) Issuance of US and Non-US unsecured long term debt Asset backed securities (ABS) American Express Issuance Trust Intra-company borrowings Borrowings under bank credit facilities in certain international markets Credco purchases American Express card receivables from TRS, AECB, and AEFSB at a discounted rate that will yield earnings for fixed charges of not less than 1.25 times such charges. Credco - Ratio of Earnings to Fixed Charges Q208 YTD ** *Credit Ratings indicated are from Moody s/s&p/fitch/dbrs. **Revised following Credco s restatement 22

23 US Banks American Express Travel Related Services (TRS) American Express Centurion Bank (AECB) American Express Bank, Federal Savings Bank (AEFSB) 100% owned by TRS 100% owned by TRS Credit Ratings*: Aa3/A+/A+ Credit Ratings*: Aa3/A+/A+ Incorporated in 1987 Issues and funds revolving products Proprietary Lending Lending on Charge Finances receivables through: Deposits Short-term money market instruments Unsecured medium and long-term notes Asset Backed Securities (ABS) American Express Credit Account Master Trust *Credit Ratings indicated are from Moody s/s&p/fitch. Incorporated in 2000 Issues and funds revolving products Strategic Co-Brand OPEN (Small Business Services) Finances receivables through: Deposits Short-term money market instruments Unsecured medium and long-term notes Asset Backed Securities (ABS) American Express Credit Account Master Trust 23

24 Outstanding Funding Composition $ billions $111.2 $115.5 $ Deposits Commercial Paper Other Short-term Card ABS* Unsecured Term /31/06 12/31/07 6/30/08 * Card ABS reflects on and off balance sheet funding; on balance sheet ABS funding was $1.2 billion, $3.1 billion, and $4.0 billion at 12/31/06, 12/31/07, and 06/30/08, respectively. 24

25 Term Managed Debt Maturity Profile 06/30/08 $20.3 $ $ $ $ Card ABS Unsecured * ** Thereafter 12/31/07 $19.8 $ $ $ $ $ Card ABS Unsecured * ** Thereafter Numbers are presented on a GAAP basis except as follows: *2010 Unsecured Term Debt excludes $2.5 billion and $1.6 billion of on balance sheet Charge ABS debt at 6/30/08 and 12/31/07, respectively, which is included in the Card ABS number. **2012 Unsecured Term Debt excludes $1.6 billion of on balance sheet Charge ABS debt at both 6/30/08 and 12/31/07, which is included in the Card ABS number. 25

26 2008 Projected Managed Funding Our 2008 funding plan includes approximately $25 to $30 billion of term debt to: Refinance maturing debt Replace a portion of maturing short-term debt with long-term debt Fund business growth Global Term Unsecured & Card ABS Issuance * $ billions Unsecured Card ABS $30.1 $29.5 $ $ ** 2007*** 2008 Forecast 2008 to Date (9/30) Objectives for 2008 issuance: Lengthen our weighted average maturities Expand non-usd funding Expand alternative funding sources *Except as further noted below, unsecured term debt is presented on a managed basis. On a GAAP basis, the corresponding amounts are $18.6 billion, $20.9 billion, $16.7 billion and $13.0 billion in 2006, 2007, 2008 Forecast and 2008 YTD Actuals, respectively. **2006 Unsecured Term Debt includes $2.0 billion of remarketed floating rate notes and $6.0 billion of other term debt classified as short-term for GAAP purposes. ***2007 Unsecured Term Debt includes $2.6 billion of other term debt classified as short-term for GAAP purposes and excludes $2.0 billion of on balance sheet Charge ABS Debt, which is included in the Card ABS number Forecast Unsecured Term Debt excludes $2.0 billion of on balance sheet Charge ABS Debt, which is included in the Card ABS number YTD Actuals Unsecured Term Debt excludes $2.0 billion of on balance sheet Charge ABS Debt, which is included in the Card ABS number. 26

27 American Express ABS Trusts American Express Credit Account Master Trust (AMXCA) American Express Issuance Trust (AEIT) Trust Established Vehicle Purpose Eligible Receivables Assets currently in trust Trust Size: - Principal AR* Investor Interest* Seller Interest* Accounting Treatment Minimum Sellers Interest Credit Enhancement (Floating Rate) 1996 Ongoing funding and contingent funding capacity All US lending receivables Consumer lending $42.4 billion - $28.3 billion - $14.1 billion Securitized receivables accounted for offbalance sheet Gain on sale at issuance 7% of outstanding debt 12% (Class B is 5.5% and Class C is 6.5%) 2005 Ongoing funding and contingent funding capacity All US charge receivables Consumer and small business charge $7.1 billion - $5.2 billion - $1.9 billion Securitized receivables accounted for onbalance sheet as a secured financing No gain on sale at issuance 15% of trust principal 7% (Class B is 3% and Class C is 4%) * As of July 31, Adjusted for AEIT and AMXCA issuances in August

28 Credit Account Master Trust Performance Trend* 30+ Days Delinquencies & Past Due Rate Ending Balance & Default Rates $1500 MM $1300 MM $1100 MM $900 MM $700 MM $500 MM 6/07 7/07 8/07 9/07 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 3.6% 3.4% 3.2% 3.0% 2.8% 2.6% 2.4% 2.2% 2.0% $45 B $40 B $35 B $30 B $25 B $20 B 6/07 7/07 8/07 9/07 10/07 11/0712/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 6% 5% 4% 3% 2% 1% 0% 30+ days Delinquent Past Due Rate (Calculated) Principal Balance (ending) Annualized Default Rate, Gross Monthly Payment Rate Yield 28% 20% 26% 24% 15% 22% 20% 6/07 7/07 8/07 9/07 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 10% 6/07 7/07 8/07 9/07 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 * Source: 10D AMXCA Monthly Filings. 28

29 Issuance Trust Performance Trend* 30+ Days Delinquencies & Past Due Rate Ending AR & Default Rates $300 MM 4% $10 B 4% $200 MM 3% $8 B 3% $100 MM 2% 1% $6 B $4 B 2% 1% $ MM 6/07 7/07 8/07 9/07 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 0% $2 B 6/07 7/07 8/07 9/07 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 0% 30+ Days Delinquent Past Due Rate (Calculated) Ending Receivables Annualized Default Rate, Net Monthly Payment Rate Yield 92% 35% 90% 30% 88% 86% 84% 25% 20% 82% 15% 80% 6/07 7/07 8/07 9/07 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 10% 6/07 7/07 8/07 9/07 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 * Source: 10D AEIT Monthly Filings. 29

30 Key Takeaways American Express has a: Spend-centric model which offers a substantial competitive advantage Balanced funding strategy in terms of mix, market and maturity Best in class credit quality portfolio Robust liquidity risk management program Brand recognized globally for excellent service and customer care American Express is committed to continued expansion of its debt investor relations program. 30

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32 Annex 1 2Q'07 1Q'08 2Q'08 FY06 FY07 Cardmember Lending Owned Basis Total Loans USCS AXP Days Past Due Loans as a % of Total USCS 2.7% 4.1% 4.1% 2.7% 3.5% AXP 2.8% 3.8% 3.9% 2.7% 3.4% Average Loans USCS AXP Net Write-off Rate USCS 3.7% 5.5% 7.1% * 3.0% 3.9% AXP 4.1% 5.5% 6.7% * 3.7% 4.2% Cardmember Lending Managed Basis Total Loans USCS AXP Days Past Due Loans as a % of Total USCS 2.6% 3.7% 3.7% 2.6% 3.2% AXP 2.6% 3.6% 3.6% 2.6% 3.2% Average Loans USCS AXP Net Write-off Rate USCS 3.7% 5.3% 6.5% 2.9% 3.8% AXP 4.0% 5.3% 6.3% 3.4% 4.1% *The 2Q 08 owned net write-off rates were elevated partially due to an addition of $10.2B of loans to the American Express Credit Account Master Trust (the Lending Trust ) on May 16, This resulted in decreased net write-off rates within the Lending Trust, and increased net write-off rates on an owned basis. The managed basis net write-off rates were not affected by this addition. 32

33 NOTE RELATING TO NON-GAAP FINANCIAL DISCLOSURES This presentation contains certain non-gaap financial disclosures, including the Company s pro forma return on equity, as well as information that is reported on a "managed" basis. Managed basis assumes no securitization transactions, i.e., all securitized loans and related income effects are reflected as if they were in the Company's balance sheet and income statement, respectively. Information relating to comparable GAAP financial measures may be found on the relevant slides both attached hereto and located on American Express Company's investor relations website at INFORMATION RELATING TO FORWARD LOOKING STATEMENTS This presentation includes forward looking statements, which are subject to risks and uncertainties. The words "believe," "expect," "anticipate," "optimistic," "objective," "intend," "plan," "will", "may," "could," "would," "likely" and similar expressions are intended to identify 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 were made. American Express 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, future business growth, market capacity and demand for securities offered by the Company, regulatory changes, ability to securitize and sell receivables and the performance of receivables previously sold in securitization transactions. A further discussion of these and other risks and uncertainties can be found in the reports of the Company filed with the U.S. Securities and Exchange Commission (including its annual report on Form 10-K for the fiscal year ended December 31, 2007). 33