Post#18 The following is brought to you by Intellivest Securities Research, Inc. The following is not intended as advertising by a broker-dealer and is not a research report. At the end of this Blog you will find a description of this week's profiled company, AXP American Express Company that is based first on an edited Wikipedia entry on AXP followed by an edited version of AXP's description of its business from its most recent Annual Report filed on Form 10-K with the SEC on 2/27/09 for the year ended 12/31/08 followed by an edited Wikipedia entry on its CEO Kenneth Chenualt and an edited description of Ken Chenault from the aforementioned Form 10-K. AXP closed Thursday at $29.45 +0.69 + 2.4% on volume of 19,645,072 NYSE. AXP's 2Q results were the only dissappointment yesterday as they missed analyst expectations with a 48% drop in net income and an 18% fall in rrevenue. AXP is the subject of the lead story in the "Money & Investing" Section of WSJ pC1 "AmEx Net Drops 48% As Charge-Offs Increase -Card Issuer Sees Moderating Trends in Delinquencies, Spending" as AXP's customers reduced their spending by 16% in 2Q. The good news for AXP is the number of bankruptcy filings, delinquencies and write offs were better than CEO Ken Chenault had expected. AXP reported 2Q net income of $337 million or 0.09 per share, down from $653 or 0.56 per share a year earlier. I think the most impressive thing you can learn at the end of today's Blog about AXP is their "closed loop" system where unlike Visa and Mastercard, AXP services the vendors using the card for payment for their services and goods and also services the cardmember so AXP gets valuable information at both ends of the transaction. Inv. Bus. Daily pA2 has an item "AmEx: Bad debt less than feared" that says AXP's results came in after the bell yesterday. USA Today at p1B says AXP's results included an 18 cents per share cost of buying back preferred shares from the US Treasury. Excluding that cost, earnings for AXP for 2Q was 0.27 per share.
Today's "Tao of the Dow" Thought for the Day: The Saturday Blog will be posted later than usual on Saturday because your Blogger will be in a triathlon in Appling, Ga. One technique I use to distract myself from the pain and sometimes boredom of passing the miles is to recite to myself the essentials of each of the Dow 30, symbol, CEO, trading range, etc. It works.
The Dow closed Thursday at 9069.29 up 188.03 or 2.12% of Wednesday's close of 8881.26. Of the 30 Dow Companies: 28 gained, KO Coke was unchanged and WMT Wal-Mart was down with the biggest gainer being CAT Caterpillar at $41.26 +2.60 6.73% 19,165,443 and the biggest and only loser being WMT $48.76 -0.41 0.83% 26,226,540 NYSE.
A read of Friday's 7/24/09 print editions of: Wall Street Journal, AJC, Financial Times, and USA Today yielded the following stories about Dow Jones 30 component companies:
Headline front page WSJ A3 "Stocks Recapture 9000 on Profit Surprise - Ford, AT&T Help Power Fastest Rebound since 1975; Bears Skeptical as Cost-Cutting Dominates, Microsfot Dissapoint" says driven by bettter than expected profit reports from Ford, eBay and T AT&T, the Dow closed above 9000 for the first time since early Jan. 3M MMM is prominently discussed especially their 2Q earnings of 1.20 per share on falling earnings which fell 17% but were still better than what analysts were expecting. MMM rose 7.4% to close 69.43 up 4.76. Good earnings reports from BA Boeing, KO Coke, JPM and mentioned with the only exception being our profiled stockAXP Amex missing expectations with a 48% drop in net income and an 18% fall in revenue. Related story on MMM at WSJ p4 "net Falls on Lower Demand But Still Tops Expectations" noting that MMM's 2Q earnings fell to $783 million or 1.12 per share, from $945 million or 1.33 a share, a year earlier. Related story at NYTimes pB1 "The Dow Sails Past 9,000 - Strong Profits Revive Bulls, but Bears See Hazards Ahead in Cost Cuts." Similar theme at USA Todayp1B "Rally pits optimists vs. skeptics" saying the Dow has been up 8 of 9 seesions.
Related Stories at Fin Times p20 "Upbeat earnings help push Dow to peak for year" and
at Inv Bus Daily pA3 "Stocks Surge But Late Selling Ominous."
Related Story, "Large Stock Focus" WSJ pC5 "3M Boosts the Dow; EBay Powers Nasdaq" and says MCD was the Dow's biggest decliner with earnings down 8% but meeting expecations while revenue missed projections. Also mentioned is MSFT's shares rising 3.1%. Inv. Bus Daily pA1 has an item "3M Beats, Raises '09 Guidance."
Related story at WSJ pB1 "Hit by PC Blight, Microsoft Profit skids 29%" says dragged down by a slump in PC demand, MSFT posted a 29% drop in 2Q profits and weak sales across all of its units. MSFT's revenue in 2Q was 13.1 billion, down from 15.8 billion a year ago and more than 41 billion less than what analysts had expected. MSFT closed at 25.56 up 0.76. Related story at Inv Bus Daily pA1 "Microsft's Sales Fall 17%, Miss." Related story at Inv Bus Dly pA4 "Microsoft Q4 Results Disappoint Investors; Profit, Sales tumble -Pall Cast on Recovery Hopes - CFO sees difficult rest of year but points to signs 'we have seen the worst'." Related story at NYT pB1 "Microsoft Can't Evade Downturn's Tight Grip." Similar theme at USA Today 1B "MSFT's quarterly profit off 29%" and pA16 AJC.
WSJ pB4 "Bristol-Myers, Wyeth Post Profit Gains" says Wyeth reported higher 2Q earnings, helped by cost cuts and rising sales of top products. Wyeth, of Madison, NJ, has agreed to be acquired by PFE Pfizer in a $68 billion deal expected to close later this year. Related story at Inv Bus Dly pA2 under "Business Briefs." Similar theme at NYT pB3 "Bristol-Myers and Wyeth Report Big Gains in Profit."
WSJ pB4 in a small item about Safey says Safeway, is the third largest US food retailer based on sales and WMT WalMart and Kroger.
WSJ pB5 "AT&T Gets Another iPhone Boost - Net Falls 15% but Wireless Subscriber ains Mitigate Erosion of Landlines" says T's 2Qprofit fell 15% as more customers decided to cut their phone cords, with many of them going only with a cellphone such as the iPhone. T posted income of $3.2 billion or 0.54 per share for 2Q down from $3.77 billion or 0.63 a year earlier. T closed at 25.48 up 0.6. The story says T is facing increased copetition from low end discount wireless service providers such as chief rival Verizon Wireless which is jointly owned by vZ Verizon Communications Inc. and Vodafone Group PLC. Related story Inv Bus Dly "AT&T Profit Falls, Still Beats Views - Record iPhone Activations - Price war in the low end of market took toll; number of prepaid users fell 412,000." Similar theme at NYT pB2 "ATT Earnings Drop 15% Partly on iPhone Subsidies" that notes that VZ Verizon reports its earnings on Monday and that T ws the first major telecommunications provider to post results for the season. Similar theme at AJC pA16.
Fin Times p10 "AT&T and the iPhone" talks about what will happen when T's exclusive iPhone contract lapses in about a year in light of the US Dept. of Justice taking an interest in exclusivity deals. It also says VZ, Verizon, which leads T in size and network capability is a logical iPhone partner. There are related stories at Fin Times p14 "iPhone sales give AT&T a respite," at Inv Bus Dly pA1 "AT&T Tops, iPhone A Big Factor," USA Today "Earnings Reports" p4B, and AJC pA16.
WSJ pB5 McDonald's Profit Declines" says MCD is beginning to feel the economy's pinch as consumers continue to lsoe jobs and cook at home. MCD had 2Q profits of $1.09 billion or 0.98 cents a share, down 8.4% from $1.19 billion or $1.04 a share a year earlier. MCD closed down 2.73 to 56.09. Related stories at Fin Times p14 "McDonald's sales keep growing" and Inv Bus Dly pA1 "McDonald's Q2 Doesn't Impress." Similar theme at USA Today p4B "Mcdonald's profit takes an 8% dip."
Inv Bus Dly pB3 in a story about Starbucks says it is looking over its shoulder at down market competitor MCD which is rolling out its own brand of espresso drinks in 14,000 US restaurants.
Same page in an item abou Netflix adding subscribers it says Netflix facing competition from online rental businesses such as Hulo, a joint venture from GE, Dis Walt Disney and New Corp.
WSJ pC9 in "Fund Track" by Jonathan Burton, it talks about Value Trust's (LMVTX) holding positions in HPQ Hewlett-Packard and CSCO and also mentions FINRA fined some broker dealers for bad supervision related to variable annuities, mutual funds and unit investment trusts including JPM JPM Morgan $250,000.
WSJ pC10 "Chevron Ecuador Woes Mask Potential" says CVX's stock has trailed since a long running environmental disput ein Ecuador resurfaced in the media in late April. T AT&T should take note of what is happening to CVX because they make have a similar storm brewing regarding their opposition of activists who are very upset over how AT&T, according to the activists, are not cooperating with the spirit of the law regarding public cable access for the public education and government channels (PEG access).
NYTimes front page has an interesting story about high frequency trading that takes advantage of a 30 second free look of trades in the pipeline and gives an example of how works with a recent INTC Intel trade. I do not understand why this is not front running but FINRA is looking into it according to the story.
The current divisor for the Dow found at today's page C4 of The Wall St. Jrnl is .132319125 unchanged. Thursday's Dow closing numerator was 1200.04 up 24.88 from Wednesday's Dow Closing numerator of 1175.16. This is the sum of all 30 closing prices. A short cut to the Dow numerator is to multiply the closing Dow by the Divisor.
Now, if you divide the Dow numerator increase of 24.88 by the divisor you get 188.03, the increase in Monday's Dow.
The average closing price (the closing numerator divided by 30) of Thursday's Dow Jones was 40.00 up 0.83 from Wednesday's Dow average closing price. The median closing price of Thursday's Dow Jones was 30.71 down 2.77 from Wednesday's median closing price.
The highest closing price Thursday was IBM $117.06 +1.49 1.29% 8,237,160 NYSE and the lowest closing price Thursday again was Alcoa AA $10.8 +0.60 5.88% 39,600,223 NYSE.
The lowest volume Thursday was again TRV Travelers $42.61 +1.25 3.02% 4,854,929 NYSE and the highest volume was again BAC Bank of Am $12.69 +0.46 3.76% 280,809,880 NYSE.
If Thursday morning before the market opened you had purchased $100 of each of the Dow 30 shares (assuming you could buy fractional shares and assuming no transaction costs) and sold at the close you would have made $2,490 ($120,000 - $117,510 - ).
Thursday's Closing Dow closing numbers:
Symb/Last/Change/% Change/Vol./Market
T $25.48 +0.64 2.58% 54,310,737 NYSE
AA $10.8 +0.60 5.88% 39,600,223 NYSE
AXP $29.45 +0.69 2.4% 19,645,072 NYSE
BAC $12.69 +0.46 3.76% 280,809,880 NYSE
BA $41.95 +0.05 0.12% 13,449,563 NYSE
CAT $41.26 +2.60 6.73% 19,165,443 NYSE
CVX $67.89 1+.95 2.96% 10,894,206 NYSE
CSCO $21.9 +0.45 2.1% 61,515,699 NASDAQ-GS
KO $49.18 +0.05 0.1% 13,046,397 NYSE
DIS $26.8 +1.42 5.59% 16,690,608 NYSE
DD $30.15 +1.68 5.9% 12,105,281 NYSE
XOM $71.61 +1.62 2.31% 26,124,228 NYSE
GE $11.95 0+.32 2.75% 98,590,105 NYSE
HPQ $41.64 +0.84 2.06% 18,575,244 NYSE
HD $25.28 +0.51 2.06% 20,548,741 NYSE
INTC $19.48 +0.34 1.78% 85,571,142 NASDAQ-GS
IBM $117.06 +1.49 1.29% 8,237,160 NYSE
JPM $38.15 +1.32 3.58% 55,518,633 NYSE
JNJ $60.22 +1.03 1.74% 11,846,079 NYSE
KFT $28.37 +0.45 1.61% 13,061,654 NYSE
PFE $16.15 +0.28 1.76% 57,855,812 NYSE
PG $55.16 +0.29 0.53% 14,542,932 NYSE
MMM $69.43 +4.76 7.36% 10,673,424 NYSE
TRV $42.61 +1.25 3.02% 4,854,929 NYSE
UTX $53.38 +0.26 0.49% 10,990,228 NYSE
VZ $31.27 +1.14 3.78% 24,770,040 NYSE
WMT $48.76 -0.41 0.83% 26,226,540 NYSE
Here are the latest SEC filings as of 7/15/09 other than ownership filings and, except for certain cases, I do not include third party shareholder proposals:
Symbol & Co. Name/Date of Filing/Form Filed/ Comments
T AT&T 6/30/09 11K Annual Report of Employee Stock Purchase Plan
AA Alcoa 7/13/09 8K 2nd Quarter Earnings Results
AXP 6/30/08 8K Settlement w/FDIC re: convenience checks
BAC Bank of Am 7/1/09 8A Regis. of Securities
BA Boeing 7/7/09 8K Acquisition of Vought Aircraft
CAT Caterpiller 6/23/09 11K Annual Report of Employee Stock Purchase Plan
CSCO Cisco 6/2/08 S8 Regis. of securities to employees
KO Coke 6/25/09 11K Annual Report of Employee Stock Purchase Plan
DIS Disney 6/26/09 11K Annual Report of Employee Stock Purchase Plan
DD DuPont 6/29/09 11K Annual Report of Employee Stock Purchase Plan
XOM Exxon 6/24/09 11K Annual Report of Employee Stock Purchase Plan
GE 6/25/09 11K Annual Report of Employee Stock Purchase Plan
HPQ Hewlett-Pack 6/30/09 11K Annual Report of Employee Stock Purchase Plan
HD Home Depot 6/29/09 11K Annual Report of Employee Stock Purchase Plan
INTC Intel 7/14/09 8K Financial results 3rd quarter
IBM 6/29/09 11K Annual Report of Employee Stock Purchase Plan
JPM JPMorgan 7/14/09 Freewriting Prospectus
JNJ Johnson 6/28/09 8K Press release re: financial results
KFT Kraft 6/22/09 8K re: personnel changes
MCD McDonalds 6/22/09 Prospectus
MRK Merck 7/1/09 8K Closing of sale of notes
MSFT Microsoft 6.29.09 11K Annual Report of Employee Stock Purchase Plan
PFE Pfizer 6/29/09 11K Annual Report of Employee Stock Purchase Plan
PG Procter Gam 7/13/09 8K re: 0.44 dividend
MMM 3M 7/7/09 8K settlement of shareholder derivative suit
TRV Travelers 6/24/09 11K Annual Report of Employee Stock Purchase Plan.
UTX United Tech 6/26/09 11K Annual Report of Employee Stock Purchase Plan
VZ Verizon 6/29 11K Annual Report of Employee Stock Purchase Plan
WMT Wal-Mart 6/5/09 10Q
Here are the CEOs of the Dow 30 Companies:
T Randall L. Stephenson
AA Klaus Kleinfeld
AXP Kenneth I. Chenault
BAC Kenneth D. Lewis
BA W. James McNerney, Jr.
CAT James W. Owens
CVX David O'Reilly
CSCO John Chambers
KO Muhtar Kent
DIS Rogert Iger
DD Ellen Kullman
XOM Rex W. Tillerson
GE Jeffrey R. Immelt
HPQ Mark Hurd
HD Frank Blake
INTC Paul S. Otellini
IBM Samuel J. Palmisano
JPM Jamie Dimon
JNJ William C. Weldon
KFT Irene Rosenfeld
MCD Jim Skinner
MRK Robert Clark
MSFT Steve Ballmer
PFE Jeffrey Kindler
PG Bob McDonald
MMM George W. Buckley
TRV Jay S. Fishman
UTX Louis Chenevert
VZ Ivan Seidenberg
WMT Mike Duke
American Express Company symbol AXP NYSE is our profiled Dow 30 company this week. The first description below is edited from Wikipedia followed by excerpts from AXP's Annual Report filed on Form 10-K for the year ending 12/31/08 that was filed with the SEC by AXP on 2/27/09. Following this description you will find a description of AXP Kenneth I. Chenault that is excerpted from Wikipedia and also the aforementioned Form 10-K.
AXP $ 29.45 0.69 2.4%
Jul. 23, 2009 Market Closed
AXP | American Express Company | Common Stock | Market : NYSE
Last Sale: $ 29.45
Share Volume: 20,437,727
Today's High: $ 30
Best Bid: N/A
52 Week High: $ 41.80
Market Value: $ 34,386,556,250
Earnings Per Share (EPS): $ 1.83
NASDAQ Official Open Price: $ 28.99
NASDAQ Official Close Price: $ 29.41
Net Change: 0.69 2.4%
Previous Close: $ 28.76
Today's Low: $ 28.62
Best Ask: N/A
52 Week Low: $ 9.71
Shares Outstanding: 1,167,625,000
P/E Ratio: 16.09
Date of Open Price: Jul. 23, 2009
Date of Close Price: Jul. 23, 2009
American Express
From Wikipedia, the free encyclopedia
Type Public (NYSE: AXP)
Founded 1850
Founders Henry Wells, William Fargo, and John Warren Butterfield
Headquarters: New York City, New York, United States
Area served Worldwide
Key people Kenneth Chenault
(Chairman & CEO)
Industry: Finance, insurance, and travel agencies
Products: Financial and travel services
Revenue: US$31.557 billion (2007)
Operating income: US$5.566 billion (2007)
Net income: US$4.012 billion (2007)
Total assets: US$149.830 billion (2007)
Total equity: US$11.029 billion (2007)
Employees: 67,700 (2008)
Website: www.AmericanExpress.com
American Express Company (NYSE: AXP), sometimes known as "AmEx" or "Amex", is a diversified global financial services company that is headquartered in New York City, New York. Founded in 1850, the company also has major offices in Fort Lauderdale, Florida; Salt Lake City, Utah; Greensboro, North Carolina; Phoenix, Arizona; Sydney, New South Wales, Australia; Markham, Ontario, Canada; London and Brighton, United Kingdom. The company is best known for its credit card, charge card, and traveler's cheque businesses.
The company's common stock trades on the New York Stock Exchange under the ticker symbol "AXP." It is one of the 30 components of the Dow Jones Industrial Average. In 2007, BusinessWeek and Interbrand ranked American Express as the fourteenth most valuable brand in the world, estimating it to be worth US$20.87 billion.
On November 10, 2008, during the financial crisis of 2008, the company won Federal Reserve System approval to convert to a bank holding company, making it eligible for government help under the Troubled Assets Relief Program. At that time, American Express had total consolidated assets of about $127 billion.
American Express's chief executive officer is Kenneth Chenault, who took over in 2001.
History
American Express Co. was started as an express mail business in Albany, New York, in 1850. It was founded as a joint stock corporation by the merger of the express companies owned by Henry Wells (Wells & Company), William Fargo (Livingston, Fargo & Company), and John Warren Butterfield (Wells, Butterfield & Company, the successor earlier in 1850 of Butterfield, Wasson & Company).The same founders also started Wells Fargo & Co. in 1852 when Butterfield and other directors objected to the proposal that American Express extend its operations to distant California.
American Express first established its headquarters in a building at the intersection of Jay Street and Hudson Street in what was later called the TriBeCa section of Manhattan. For years it enjoyed a virtual monopoly on the movement of express shipments (goods, securities, currency, etc.) throughout New York State. In 1874, American Express moved its headquarters to 65 Broadway in what was becoming the Financial District of Manhattan, a location it was to retain through two buildings.
American Express buildings
In 1854, the American Express Co. purchased a lot on Vesey Street in New York City as the site for its stables. The company's first New York headquarters were in an impressive marble Italianate palazzo at 55-61 Hudson Street between Thomas Street and Jay Street (1857–58, John Warren Ritch), which had a busy freight depot on the ground story with a spur line from the Hudson River Railroad. A stable was constructed nearby at 4-8 Hubert Street, between Hudson Street and Collister Street (1866–67, Ritch & Griffiths), five blocks north of the Hudson Street building.
The company prospered sufficiently that headquarters were moved in 1874 from the wholesale shipping district to the budding Financial District, and into rented offices in two five-story brownstone commercial buildings at 63 and 65 Broadway, between Exchange Alley and Rector Street, and between Broadway and Trinity Place that were owned by the Harmony family.
In 1880, American Express built a new warehouse behind the Broadway Building at 46 Trinity Place, between Exchange Alley and Rector Street. The designer is unknown, but it has a façade of brick arches that are redolent of pre-skyscraper New York. American Express has long been out of this building, but it still bears a terra cotta seal with the American Express Eagle. In 1890-91 the company constructed a new ten-story building by Edward H. Kendall on the site of its former headquarters on Hudson Street.
By 1903, the company had assets of some $28 million, second only to the National City Bank of New York among financial institutions in the city.To reflect this, the company purchased the Broadway buildings and site.
At the end of the Wells-Fargo reign in 1914, an aggressive new president, George Chadbourne Taylor (1868-1923), who had worked his way up through the company over the previous thirty years, decided to build a new headquarters. The old buildings, dubbed by the New York Times as "among the ancient landmarks" of lower Broadway, were inadequate for such a rapidly expanding concern. In March 1914, Renwick, Aspinwall & Tucker filed for the construction of a 32-story concrete-and steel-framed office tower in which all of the company's operations, then in four separate buildings, were to be consolidated. The building proposal of 1914 was abandoned, probably due to the war in Europe, but was resurrected two years later in a reduced form, at an estimated cost of $1 million.
65 Broadway was where the 21-story (plus basement), neo-classical, American Express Co. Building, was constructed in 1916-17 to the design of James L. Aspinwall, of the firm of Renwick, Aspinwall & Tucker, the successor to the architectural practice of the eminent James Renwick, Jr.. This building was part of the "Express Row" section of lower Broadway at the time. The concrete-and-steel-framed building has an H-shaped plan with tall slender wings arranged around central light courts, a type of plan employed from the 1880s through the 1910s to provide offices with maximum light and air. Faced in white brick and terra cotta above a granite base, both facades employ the tripartite composition of base-shaft-capital then popular for the articulation of skyscrapers, with a colonnaded base and upper portion. The famous American Express Eagle adorns the building twice: there is an asymmetric eagle on the lower arch, while a symmetric eagle adorns the arch atop the building. The Broadway entrance features a double-story Corinthian colonnade with large arched windows. The building completed the continuous masonry wall of its block-front poda nae and assisted in transforming Broadway into the "canyon" of neo-classical masonry office towers familiar to this day.
American Express sold this building in 1975, but retained travel services here. The building was also the headquarters over the years of other prominent firms, including investment bankers J.& W. Seligman & Co. (1940-74), the American Bureau of Shipping, a maritime concern (1977-86), and currently J.J. Kenny, and Standard & Poors, who has renamed the building for itself.
Nationwide expansion
American Express extended its reach nationwide by arranging affiliations with other express companies (including Wells Fargo – the replacement for the two former companies that merged to form American Express), railroads, and steamship companies.
Financial services
In 1882, American Express started its expansion in the area of financial services by launching a money order business to compete with the United States Post Office's money orders.
Sometime between 1888 and 1890, J.C. Fargo took a trip to Europe and returned frustrated and infuriated. Despite the fact that he was president of American Express and that he carried with him traditional letters of credit, he found it difficult to obtain cash anywhere except in major cities. Fargo went to Marcellus Flemming Berry and asked him to create a better solution than the traditional letter of credit. Berry introduced the American Express Traveler's Cheque which was launched in 1891 in denominations of $10, $20, $50, and $100.
Traveler's cheques established American Express as a truly international company. In 1914, at the outbreak of World War I, American Express offices in Europe were among the few companies to honor the letters of credit (issued by various banks) held by Americans in Europe, despite other financial institutions having refused to assist these stranded travelers.
Loss of railroad express business
American Express became one of the monopolies that President Theodore Roosevelt had the Interstate Commerce Commission investigate during his administration. The interest of the ICC was drawn to its strict control of the railroad express business. However, the solution did not come immediately to hand. The solution to this problem came as a coincidence to other problems during World War I.
During the winter of 1917, the US suffered a severe coal shortage and on December 26 President Woodrow Wilson commandeered the railroads on behalf of the US government to move US troops, their supplies, and coal. Treasury Secretary William Gibbs McAdoo was assigned the task of consolidating the railway lines for the war effort. All contracts between express companies and railroads were nullified and McAdoo proposed that all existing express companies be consolidated into a single company to serve the country's needs. This ended American Express's express business, and removed them from the ICC’s radar. The result was a new company called the American Railway Express Agency company formed in July 1918. The new entity took custody of all the pooled equipment and property of existing express companies (the largest share of which, 40%, came from American Express, who had owned the rights to the express business over 71,280 miles of railroad lines, and had 10,000 offices, with over 30,000 employees).
Company role in Cable TV
American Express formed a joint venture with Warner Communications in 1979 called Warner-Amex Satellite Entertainment, which created MTV, Nickelodeon and The Movie Channel. The partnership only lasted until 1984. The properties were sold to Viacom soon after.
American Express today
Current CEO Kenneth Chenault took over leadership of American Express in 2001 from Harvey Golub, CEO from 1993 to 2001. Prior to that, the company was headed by James D. Robinson III from 1977 to 1993.
Travel Division
American Express established a Travel Division in 1915 that tied together all of the earlier efforts at making travel easier, and soon established its first travel agencies.
Charge card services history
American Express executives discussed the possibility of launching a travel charge card as early as 1946, but it was not until Diners Club launched their card in March 1950 that American Express began to seriously consider the possibility. At the end of 1957, American Express CEO Ralph Reed decided to get into the card business, and by the launch date of October 1, 1958 public interest had become so significant that they issued 250,000 cards prior to the official launch date. The card was launched with an annual fee of $6, $1 higher than Diners Club, to be seen as a premium product. The first cards were paper, with the account number and cardmember's name typed. It was not until 1959 that American Express began issuing embossed ISO/IEC 7810 plastic cards, an industry first.
In 1966, American Express introduced the Gold Card and in 1984 the Platinum Card, clearly defining different market segments within its own business, a practice that has proliferated across a broad array of industries. The Platinum Card was billed as super-exclusive and had a $250 annual fee (it is currently $450). It was offered by invitation only to American Express customers with at least 2 years of tenure, significant spending, and excellent payment history.
In 1987, American Express introduced the Optima card, their first credit card product. Previously, all American Express cards had to be paid in full each month, but Optima allowed customers to carry a balance (the charge cards also now allow extended payment options on qualifying charges based on credit availability). Although Optima is no longer heavily promoted, Optima and Optima Platinum cards are still available on the American Express website. Today American Express offers a wide range of other credit card products including co-branded cards like the JetBlue Card and the Starwood Preferred Guest Card, as well as other credit cards promoting customer rewards like the Blue from American Express Card and the Blue Cash Rebate Card.
In 1994, the Optima True Grace card was introduced. The card was unique in that it offered a grace period on all purchases whether a balance was carried on the card or not (as opposed to traditional revolving credit cards which charge interest on new purchases if so much as $1 was carried over). The card was discontinued a few years later; however, the currently-available One from American Express card offers a similar feature called "Interest Protection."
In 1999, American Express introduced the Centurion Card which is often referred to as the "black card," catering to an even more affluent and elite customer segment. The card charged a $1,000 annual fee at the time of its introduction (today, it is $2,500 with an additional one-time initiation fee of $5000) and offered (and continues to offer) a variety of exclusive benefits. There have always been rumors of a super-exclusive card that gives American Express' richest and most powerful customers special perks. It was this rumor that caused Amex to profit from the word-of-mouth and sparked the launch of Centurion.
The company made another addition to its products in 1999 by introducing Blue from American Express, which quickly became a popular card among young adults due to an appealing marketing campaign directed towards a youthful demographic. Based on a successful product for the European market, Blue had no annual fee, a rewards program, and a multi-functional onboard chip. A cashback version, "Blue Cash", quickly followed.
American Express also launched an exclusive agreement with Costco in 1999, replacing their earlier agreement with Discover Card. Under the agreement, American Express cards replaced Discover as the only credit/charge card accepted at the warehouse club in the US, and American Express became the first credit/charge card accepted at Costco's locations outside the US. To introduce Costco members to American Express, a co-branded cashback credit card was also introduced with no annual fee with a valid Costco membership. An added benefit of the agreement is that Costco membership fees can also be paid for with the card. At present, the consumer version of the card offers 3% back on gasoline & dining out, 2% on travel, and 1% on other charges. Business versions of the card offer similar benefits, with the gasoline benefit earning 5% back instead of 3%. The cash back rebate is issued annually as part of the February statement in the form of a rebate check which must be redeemed at a Costco location. The rebate check can be redeemed for cash, merchandise, or any combination thereof. The agreement was highly successful and was renewed in 2004 for an additional 10 years.
Unfortunately for Costco members and staff, in 2008 as American Express began having financial problems, many people found themselves with suddenly-reduced American Express credit limits, sometimes to a very large degree. The impact on Costco's sales is yet to be determined.
As of 2005, the US Centurion card has a $2500 annual fee, while other American Express cards range between no annual fee (for Blue and many other consumer and business cards) and a $450 annual fee (for the Platinum Card). Annual fees for the Green card start at $95, while Gold card annual fees start at $150.
In 2005, American Express introduced Clear, advertised as the first credit card with no fees of any kind. It also incorporates the ExpressPay technology premiered with the Blue card. Also in 2005, American Express introduced One, a credit card with a "Savings Accelerator Plan" that contributes 1% of eligible purchases into an FDIC-insured High-Yield Savings Account. Other cards introduced in 2005 included "The Knot" and "The Nest" Credit Cards from American Express, co-branded cards developed with the wedding planning website theknot.com. They have also introduced City Reward Cards that earn INSIDE Rewards points to eat, drink, and play at New York, Chicago and LA hot spots. American Express began phasing out the INSIDE cards in mid-2008, with no new applications being taken as of July 2008.
Also in 2005, American Express introduced ExpressPay, a MasterCard PayPass clone, based on a wireless RFID payment method, that requires a card to simply be waved in front of a special reader and not swiped. This technology replaced the smart chip on the Blue card. Many U.S. merchant and restaurant partners including 7-Eleven, CVS/pharmacy, McDonald's, Regal Entertainment Group, and Ritz Camera, now offer ExpressPay at most or all of their locations. The technology was tested on the ski bus from Salt Lake City to local resorts.
In 2006, the UK division of American Express licensed the Product Red brand and began to issue a Red Card. With each card member purchase the company contributes to causes through The Global Fund to help African women and children suffering from HIV/AIDS, malaria, and other diseases.
In 2007, American Express again raised the annual fee for their American Platinum charge cards, moving the Personal cards fee to $450 and the Business division to $395. With the increase, customers now receive four complimentary companion coach tickets per calendar year. Additionally, a long-rumored "relationship" fee of $5,000 to establish a Centurion card was added. The annual fee of $2,500 remains the same, however. In late 2007, they announced their new Plum Card as the latest addition to their card line for small business owners. The card provides a 2% early pay discount or up to two months to defer payment on purchases. However, the 2% discount is only available for billing periods where the cardmember spends at least $5,000. The first 10,000 cards began to be issued to members on December 16, 2007.
In late 2008, American Express announced they were discontinuing their "domestic companion airfare" program, which previously offered four complimentary companion coach tickets per year.
Some versions of the card include various features such as damage waiver on cars rented with the card, and accident insurance during travel bought with the card.
"Boston Fee Party"
From early 1980s until the early 1990s, American Express was known for cutting its merchant fees (also known as a "discount rate") to merchants and restaurants if they accepted only American Express and no other credit or charge cards. This prompted competitors such as Visa and MasterCard to cry foul for a while as the tactics "locked" restaurants into American Express.
However, in 1991, several restaurants in Boston started accepting and encouraging the use of Visa and MasterCard because of their far lower fees as compared to American Express' fees at the time (which were about 4% for each transaction versus around 1.2% at the time for Visa and MasterCard). A few even stopped accepting American Express credit and charge cards. The revolt, known as the "Boston Fee Party" in reference to the Boston Tea Party, quickly spread nationwide to over 250 restaurants across the United States, including restaurants in other cities such as New York City, Chicago, and Los Angeles. In response, American Express decided to reduce its discount rate gradually to compete more effectively and add new merchants to its network such as supermarkets and drugstores. Many elements of the exclusive acceptance program were also phased out so American Express could effectively encourage businesses to add American Express cards to their existing list of payment options.
Currently, American Express' average US merchant rate is about 2.5%, while the average Visa and MasterCard U.S. merchant rate is about 2% (Visa/MasterCard signature debit cards are at 1.7%). Some merchant sectors, such as quick-service restaurants including McDonald's, have special reduced rates to accommodate business needs and profit margins.
Costco still has an exclusivity agreement with American Express; however, Costco's agreement with Amex was the result of a long negotiation process for exclusive acceptance with multiple parties that also included Visa, MasterCard, and Discover.
Financial services history
During the 1980s, American Express embarked on its dream to become a financial services supercompany. In mid-1981 it purchased Shearson Loeb Rhoades Inc the second largest securities firm in the United States. In 1984 it purchased the 90-year old Investors Diversified Services, bringing with it a fleet of financial advisors and investment products. Also in 1984, American Express acquired the investment banking and trading firm, Lehman Brothers Kuhn Loeb, and added it to the Shearson family, creating Shearson Lehman/American Express. In 1988, the Firm acquired E.F. Hutton, forming Shearson Lehman Hutton until 1990, when the Firm's name became Shearson Lehman Brothers. When Harvey Golub took the reins in 1993 he negotiated the sale of Shearson's retail brokerage and asset management business to Primerica and in following year, spun-off of the remaining investment banking and institutional businesses as Lehman Brothers Holdings Inc.
In April 1992, American Express spun off its subsidiary, First Data Corp., in an IPO. Then, in October 1996, the company distributed the remaining majority of its holdings in First Data Corp., reducing its ownership to less than 5%.
In December 2000, American Express agreed to acquire the credit card portfolio of Bank of Hawaii, then a division of Pacific Century Financial Corp. In January 2006, American Express sold its Bank of Hawaii card portfolio to Bank of America (MBNA). Bank of America will issue Visa and American Express cards under the Bank of Hawaii name.
Until 2004, Visa and MasterCard rules prohibited issuers of their cards from issuing American Express cards in the United States. This meant, as a practical matter, that U.S. banks could not issue American Express cards. These rules were struck down as a result of antitrust litigation brought by the U.S. Department of Justice, and are no longer in effect. In January 2004, American Express reached a deal to have its cards issued by a U.S. bank, MBNA America. Initially decried by MasterCard executives as nothing but an "experiment", these cards were released in October 2004. Some said that the relationship was going to be threatened by MBNA's merger with Bank of America, a major Visa issuer and original developer of Visa. However, an agreement was reached between American Express and Bank of America on December 21, 2005. Under the terms of the agreement, Bank of America will own the customer loans and American Express will process the transactions. Also, American Express will dismiss Bank of America from its antitrust litigation against Visa, MasterCard, and a number of U.S. banks. Finally, both Bank of America and American Express also said an existing card-issuing partnership between MBNA and American Express will continue after the Bank of America-MBNA merger. The first card from the partnership, the no-annual-fee Bank of America Rewards American Express card, was released on June 30, 2006.
Since then, Citibank, GE Money, and USAA have also started issuing American Express cards. Citibank currently issues several American Express cards including an American Airlines AAdvantage co-branded card. In early 2006 Amex issued Dillard's American Express card in joint cooperation with GE Money, however, in Mar 2008 GE sold its card unit to Amex for $1.1B in cash only deal. Also, UBS launched its Resource Card program for US Wealth Management clients issuing Visa Signature credit cards and American Express charge cards linked to their customers accounts and employing a single rewards program for the two cards.
In 2005, American Express released the American Express Travelers Cheque Card, a stored-value card that serves the same purposes as a traveler's cheque, but can be used in stores like a credit card. The card has since been discontinued as of October 31, 2007, due to "changing market conditions". All cardholders were issued refund checks for the remaining balances.
On 30 September 2005, American Express spun off its American Express Financial Advisors unit as a publicly traded company, Ameriprise Financial, Inc.. Due to this, American Express revenues for 2005 was down around $5 billion, however, like-for-like they were up 10.5% in 2005. Also, on September 30, 2005, RSM McGladrey acquired American Express Tax & Business Services (TBS).
In 2008, effective November 15, American Express made a sudden decision to close all Business Line of Credit accounts. This decision was enacted less than a week after the Federal Reserve approved American Express's request to become a Commercial Bank, in order to be eligible to receive $3.5 billion in federal bailout money.
Credit Crisis
The credit crisis of 2007 and 2008 has strongly affected American Express' operations. Traditionally, banks lent their money on deposit to credit card holders for purchases. However, American Express (along with the largest credit card issuers such as Discover and Citigroup) may, according to some observers, not have enough funds on deposit with its bank subsidiaries to fund all of its outstanding cards. Instead, it has long relied on selling its credit card loans as bonds in what is known as the asset backed securities market. As 2007 and 2008 progressed, investors were scared away from buying mortgage bonds, then business loan bonds, and finally most forms of credit card bonds. To prevent a major collapse of multiple large credit card lenders, the US government enacted a special program where the Federal reserve would purchase various bonds, including credit card, SBA loan, and other bonds, to ensure that the flow of credit would continue for the US economy. The federal reserve also allowed the company to convert into a bank holding company to take advantage of additional programs, such as a program which allows the company to borrow funds by selling bonds guaranteed by the government. These moves have been seen as essential by some observers for American Express to survive. One important reason for this is that credit card bonds aren't usually like mortgage bonds insofar as mortgage bonds are often sold with little or no recourse to the seller. Credit card bonds, however, can force American Express to inject cash into the bonds if the earnings within the bonds fall to a certain point, as credit card bonds were traditionally designed not with the purpose of protecting the seller from risks of non payment on the credit cards but rather providing the seller with the ability to lend more of the borrowed money than what would normally be allowed with bank deposits.
American Express also suffered admittedly increasing defaults by clients that it had actually cultivated in recent years. Shortly thereafter, the company began broad-based and controversial efforts to eliminate any clients it deemed "low-quality", including offering some of them $300 USD to cancel their credit cards.
Advertising
In 1975, David Ogilvy of Ogilvy & Mather developed the highly successful "Don't Leave Home Without Them" ad campaign for American Express Traveler's Cheques, featuring Oscar-award-winning actor Karl Malden, who died earlier this month. Karl Malden served as the public face of American Express Travelers Cheques for 25 years. In the UK the spokesman was instead the television personality Alan Whicker.
After Karl Malden's departure and as the card was promoted over the traveller's cheques, American Express continued to use celebrities, such as Mel Blanc. A typical ad for the American Express Card began with a celebrity asking viewers: "Do you know me?" Although he/she gave hints to his/her identity, the star's name was never mentioned except as imprinted on an American Express Card; after which announcer Peter Thomas told viewers how to apply for it. Each ad concluded with the celebrity reminding viewers: "Don't Leave Home Without It." The "Don't Leave Home Without It" slogan was revived in 2005 for the prepaid American Express Travelers Cheque Card.
These slogans have been parodied numerous times. For example, in a campaign speech during the 1984 Election, President Ronald Reagan said "If the big spenders get their way, they'll charge everything to your taxpayer's express card, and believe me, they never leave home without it."
The Adventures of Seinfeld & SupermanAmerican Express continues to use celebrities in their ads. Some notable examples include a late 1990s ad campaign with comedian Jerry Seinfeld, including the two 2004 webisodes in a series entitled "The Adventures of Seinfeld and Superman." In late 2004, American Express launched the "My life. My card." brand campaign (also by Ogilvy & Mather) featuring famous American Express cardmembers talking about their life. The ads have featured actors Kate Winslet, Robert De Niro, Ken Watanabe and Tina Fey, Duke University basketball coach Mike Krzyzewski, fashion designer Collette Dinnigan, comedian and talk show hostess Ellen DeGeneres, golfer Tiger Woods, professional snowboarder Shaun White, tennis pros Venus Williams and Andy Roddick, Chelsea Football Club manager José Mourinho, and film directors Martin Scorsese, Wes Anderson, M. Night Shyamalan and most recently singer Beyonce Knowles. In 2007, a two-minute black-and-white ad entitled "Animals" starring Ellen DeGeneres won the Emmy Award for Outstanding Commercial.
Offices
In April 1986 American Express moved its headquarters to the 51-story Three World Financial Center in New York City. After the events of September 11, 2001, American Express had to leave its headquarters temporarily as it was located directly opposite to the World Trade Center and was damaged during the fall of the towers. The company began gradually moving back into its rehabilitated building in 2002.
The company also has major offices in Fort Lauderdale, FL; Salt Lake City, UT; Greensboro, NC and Phoenix, AZ. It has a technology center in Weston, FL. The main data center is located in Phoenix, with a secondary back-up facility in the Boston area.
Amex Canada Inc. is based just north of Toronto, in the Town of Markham.
American Express has an 8-story European Service Center, known as Amex House in Brighton, England. It is a large 1970s-built white tower block, surrounded by several other smaller offices around the city. Amex House deals with card servicing, sales, fraud and merchant servicing. The official Europe, Middle East, and Africa HQ is located in the Belgravia district of Westminster, in central London, at Belgrave House on Buckingham Palace Road, SW1; other UK offices are based in Sussex at Burgess Hill.
The Japan, Asia Pacific, and Australian Headquarters is co-located in Singapore, at 16 Collyer Quay, and in Sydney's King Street Wharf area, with the new state-of-the-art building receiving greenhouse status due to the environmentally friendly workspace that it provides.
The headquarters of the Latin America and Caribbean division is in Miami.
American Express also has a significant presence in India. Its two centres are located at Gurgaon, Haryana and one at Mathura Road, New Delhi. The Indian operations of American Express revolves around the back office customer services operations apart from the credit card business for the domestic Indian Economy.
Job satisfaction
For 2008, American Express was named the 62nd best company to work for in the United States by Fortune, ranking it number one for bank card companies. In October 2008, Amex Canada Inc. was named one of Greater Toronto's Top Employers by Mediacorp Canada Inc., which was announced by the Toronto Star newspaper.
Diversity
American Express was named one of the 100 Best Companies for Working Mothers living in the United States in 2006 and 2007 by U.S.-based Working Mothers magazine.
Management and corporate governance
Key executives include:
Kenneth Chenault: Chairman and Chief Executive Officer
Edward Gilligan: Group President - Global Corporate Services and International Payments
Peter Godfrey: Group President - Global Network Services
Alfred Kelly, Jr.: Group President - U.S. Consumer and Small Business Services
Ashwini Gupta: President - Risk, Information Management, Banking and Chief Risk Officer - American Express Company
Daniel T. Henry: Executive Vice President and Chief Financial Officer[18]
Jonathan Linen: Vice Chairman - American Express Company
L. Kevin Cox: Executive Vice President Human Resources and Quality
John D. Hayes: Executive Vice President Global Advertising & Brand Management, and Chief Marketing Officer
Louise Parent: Executive Vice President and General Counsel
Steve Squeri: Executive Vice President and Chief Information Officer
Thomas Schick: Executive Vice President Corporate Affairs and Communications
Current members of the board of directors of American Express are:
Daniel F. Akerson: Managing Director of The Carlyle Group
Charlene Barshefsky: Former United States Trade Representative
Ursula M. Burns: President of Xerox Corporation
Kenneth I. Chenault: Chairman and CEO of American Express Co.
Peter Chernin: President and COO, News Corporation
Vernon E. Jordan, Jr.: Senior Managing Director with Lazard Freres & Co. LLC
Jan Leschly: CEO of Care Capital LLC
Richard C. Levin: President, Yale University
Richard A. McGinn: Former CEO of Lucent Technologies, Partner, RRE Ventures
Edward D. Miller: Former President and CEO of AXA SA
Frank P. Popoff: Former Chairman Chemical Financial Corp.
Steven S. Reinemund: Former Chairman and CEO, PepsiCo Inc.
Robert D. Walter: Chairman and CEO, Cardinal Health
Ronald A. Williams: Chairman and CEO, Aetna Inc.
The following is excerpted and lightly edited from AXP's Form 10-K for the year ended 12/31/08 found at www.sec.gov as filed by AXP on 2/27/09
ITEM 1. BUSINESS
INTRODUCTION
Overview
American Express Company, together with its consolidated subsidiaries ("AXP," “American Express,” or the “Company,”), is a leading global payments and travel company. Their principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. AXP was founded in 1850 as a joint stock association and incorporated in 1965 as a New York corporation. On November 14, 2008, American Express Company and its principal operating subsidiary, American Express Travel Related Services Company, Inc. (“TRS”), each became 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”).
AXP's headquarters are located in New York, New York in lower Manhattan with offices in other locations in North America, as well as throughout the world.
AXP's reportable operating segments are comprised of two customer-focused groups—the Global Consumer Group and the Global Business-to-Business Group. U.S. Card Services and International Card Services are aligned within the Global Consumer Group and Global Commercial Services and Global Network & Merchant Services are aligned within the Global Business-to-Business Group.
Securities Exchange Act Reports and Additional Information
AXP maintains an Investor Relations Web site on the Internet at http://ir.americanexpress.com and make available free of charge, on or through this Web site, their 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, just click on the “SEC Filings” link under the caption “Financial Information/Filings” on AXP's Investor Relations homepage.
You can also access their Investor Relations Web site through AXP's main Web site at www.americanexpress.com by clicking on the “About American Express” link, which is located at the bottom of AXP's homepage.
2008 Highlights
Compared with 2007, AXP delivered:
• total revenues net of interest expense of $28.4 billion, up 3% from $27.6 billion;
• income from continuing operations of $2.9 billion, down 30% from $4.1 billion;
• net income of $2.7 billion, down 33% from $4.0 billion;
• diluted earnings per share based on income from continuing operations of $2.48, down 28% from $3.45;
• diluted earnings per share based on net income of $2.33, down 31% from $3.36; and
• return on average equity of 22.3%, compared with 37.3%.
During the latter half of 2008, concerns over the availability and cost of credit, a historic decline in real estate values in the United States, rising unemployment, and the collapse of major financial institutions contributed to a worsening global recession, increased volatility and reduced liquidity in the capital markets, and diminished expectations for the economy. AXP Company experienced slowing cardmember spending (including a year over year decline in spending in the fourth quarter of the year) and loan volumes and higher delinquencies as increasing stress in the worldwide financial markets eroded consumer and business confidence levels. Based on these trends, the Company expects consumer and business sentiment will likely deteriorate further and will translate into weaker economies around the globe and increased unemployment through 2009.
On November 14, 2008, American Express Company and TRS each became bank holding companies under the BHC Act subject to the supervision and examination by the Federal Reserve . Each of American Express Company and TRS also elected to be treated as financial holding companies under the BHC Act.
Qualifying as a bank holding company provides several advantages to AXP. The primary advantage is that AXP now has the same status and regulator as a majority of its peers. It also gives AXP additional flexibility during a time of significant uncertainty and rapid transformation in the financial services industry. In this respect, being regulated as a bank holding company has provided a greater degree of certainty that AXP will be eligible to participate in the various programs the federal government has introduced or may introduce to provide financial institutions with greater access to capital during the current credit market crisis. For example, pursuant to the United States Department of the Treasury’s (the “Treasury”) Capital Purchase Program (CPP) under the Emergency Economic Stabilization Act of 2008, AXP 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 AXP's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $1.66 2/3 per share, 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 of AXP's common shares at an initial per share exercise price of $20.95 per share.
As a result of our transition to a bank holding company, AXP is subject to regulation by the Federal Reserve, including, consolidated capital regulation at the holding company level, maintenance of certain capital and management standards in connection with their two U.S. depository institutions and restrictions on our non-banking activities under the Federal Reserve’s regulations.
The Company’s Global Consumer Group and Global Business-to-Business Group provide a variety of products and services worldwide.
The Global Consumer Group offers a range of products and services including:
• charge and credit card products for consumers and small businesses worldwide primarily through its U.S. bank subsidiaries and affiliates;
• consumer travel services; and
• stored value products such as Travelers Cheques and prepaid products.
The Global Business-to-Business Group provides, among other products and services:
• business travel, corporate cards and other expense management products and services;
• network services for the Company’s network partners; and
• merchant acquisition and merchant processing, point-of-sale, servicing and settlement and marketing products and services for merchants.
In certain countries AXP has granted licenses to partially-owned affiliates and unaffiliated entities to offer some of these products and services.
AXP's various products and services are sold globally to diverse customer groups, including consumers, small businesses, middle-market companies, large corporations, and banking and financial institutions. These products and services are sold through various channels including direct mail, the Internet, employee and independent third-party sales forces and direct response advertising.
AXP's general-purpose card network, card-issuing and merchant-acquiring and processing businesses are global in scope. AXP is 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”). AXP's Cards permit AXP cardmembers (“Cardmembers”) to charge purchases of goods and services in most countries around the world at the millions of merchants that accept Cards bearing the AXP logo. AXP added a net total of 6 million Cards in 2008, bringing total worldwide Cards-in-force to 92.4 million (including Cards issued by third parties). In 2008, AXP's worldwide billed business (spending on American Express® Cards, including Cards issued by third parties) was $683.3 billion.
AXP's 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 challenges of the current economic environment, AXP believes their “spend-centric” business model (which focuses on generating revenues primarily by driving spending on their Cards and secondarily by finance charges and fees) continues to give AXP significant competitive advantages, even when the overall spending level is down. Average spending on AXP Cards, which is substantially higher for AXP versus their competitors, represents greater value to merchants in the form of loyal customers and higher sales. This enables AXP to earn a premium discount rate and thereby invest in greater value-added services for merchants and Cardmembers. As a result of the higher revenues generated from higher spending, AXP says it has the flexibility to offer more attractive rewards, other incentives to Cardmembers and targeted marketing programs for merchants, which in turn creates an incentive for Cardmembers to spend more on their Cards. This business model, along with AXP's closed-loop network, in which AXP is both the Card issuer and, in most instances, the merchant acquirer, gives AXP, according to its 10-K, a competitive advantage that AXP seeks to leverage to provide more value to Cardmembers, merchants and Card-issuing partners.
The American Express Brand
AXP's brand and its attributes—trust, security, integrity, quality and customer service—are key assets of the Company. AXP continues to focus on their brand by educating employees about these attributes and by incorporating them into their programs, products and services. AXP's brand has consistently been rated one of the most valuable brands in the world in published studies, and AXP believes it provides AXP with a significant competitive advantage. AXP believes their brand and its attributes are critical to their success, and they invest heavily in managing, marketing and promoting it.
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 network licensing 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, servicing and settlement and marketing products and services.
Cards bearing the AXP logo are issued by its principal operating subsidiary, TRS, the Company’s U.S. bank subsidiaries, American Express Centurion Bank (“Centurion Bank”) and American Express Bank, FSB (“AEBFSB”), and also by third-party institutions. They are accepted at all merchant locations worldwide that accept American Express-branded Cards. In addition, depending on the product, Cards bearing the AXP logo are generally accepted at ATM locations worldwide that accept Cards. TRS and its subsidiaries issue the vast majority of Cards on AXP's network.
AXP's Global Network Services (“GNS”) business establishes and maintains relationships with issuers 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 AXP's strategy of broadening the Cardmember and merchant base for their network worldwide.
AXP's Global Merchant Services (“GMS”) business provides AXP with access to rich transaction data through their closed-loop network, which encompasses relationships with both the Cardmember and the merchant. This capability helps AXP acquire new merchants, deepen relationships with existing merchants, process transactions, and provide targeted marketing and other value-added services to merchants in their network.
A key asset of AXP's network is the American Express brand, which is one of the world’s most highly recognized and respected brands.
Global Network Services
AXP continues to pursue a strategy, through their GNS business, of inviting U.S. and foreign banks and other institutions to issue Cards on the American Express network. By leveraging their global infrastructure and the appeal of the American Express brand, AXP broadens their Cardmember and merchant base for their network worldwide. The GNS business has established more than 128 card-issuing and/or merchant-acquiring arrangements with banks and other institutions in 127 countries.
Historically, AXP has successfully implemented their GNS business strategy in a number of countries outside the United States. In contrast to the situation outside the United States, until 2004 no major U.S. banks had issued Cards in the United States on the American Express global network. This situation was the result of rules and policies of Visa Inc., Visa USA, and Visa International (collectively “Visa”) and MasterCard International, Inc. (“MasterCard”) in the United States at the time, which mandated expulsion of members that issued American Express-branded Cards. These rules were struck down in 2004 in a lawsuit brought by the U.S. Department of Justice. As a result of this decision, beginning in 2004, AXP has been able to extend their network to other card issuers in the United States, just as AXP has done internationally.
In 2008, GNS signed 13 new partners to issue Cards and/or acquire merchants on the American Express network. Additionally, GNS partners launched 130 new products during 2008, bringing the total number of American Express-branded GNS partner products to approximately 930.
GNS focuses on partnering with qualified third-party banks and other financial institutions that choose to issue Cards accepted on AXP's global network. Although AXP customizes its network arrangements to the particular country and each partner’s requirements, as well as to AXP's 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.
With approximately 930 different Card products launched on AXP's network so far by AXP partners, GNS is an increasingly important business that is strengthening AXP's brand visibility around the world, driving more transaction volume onto their merchant network and increasing the number of merchants accepting the American Express Card. GNS enables AXP to expand its network’s global presence without assuming additional Cardmember credit risk or having to invest a large number of resources, as AXP's 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 27%, and totaled almost 25 million Cards at the end of 2008. Outside the United States, 68% of new Cards issued in 2008 were Cards issued by one of AXP's GNS partners. Spending on these GNS Cards has grown at a compound annual rate of 27% since 1999. Year over year spending growth in 2008 was 27%, with total spending equal to $67 billion.
GNS Arrangements
Although the structures and details of each of the GNS arrangements vary, all of them generate revenues for AXP from the Card transaction volumes they drive on the American Express network. Gross revenues AXP receives per dollar spent on a Card issued by a GNS partner are lower than those from AXP's proprietary Card-issuing business. However, because the GNS partner is responsible for most of the operating costs and risk of its Card-issuing business, AXP's operating expenses and credit losses are lower than those in its 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 the GNS business can thus be significantly higher than that of their 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.
AXP's GNS arrangements fall into the following three main categories: Independent Operator Arrangements, Network Card License Arrangements and Joint Venture Arrangements.
Independent Operator Arrangements
The first type of GNS arrangement is known as an independent operator (“IO”) arrangement. As of the end of 2008, AXP had 64 of these arrangements around the world. AXP pursues these arrangements to expand the presence of the American Express network in markets in which AXP does not offer a proprietary local currency Card. The partner’s local presence and relationships helps AXP enhance the impact of its brand in the market, reach merchant coverage goals more quickly, and operate at economic and cost levels that would be difficult for it to achieve on their own. AXP licenses their IO bank partners to issue local currency Cards in their markets, 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. The 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, discount revenue and, in some partnerships, royalties on net spread revenue. The 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.
AXP bears the risk arising from the IO partner’s potential failure to meet its settlement obligations to AXP. AXP mitigates this risk by partnering with institutions believed to be financially sound. AXP requires IO partners to post a letter of credit, bank guarantee or other collateral to reduce this risk.
Examples of countries where AXP has entered into IO arrangements include Brazil, Russia, China, Ecuador, Greece, South Korea, Pakistan, Croatia, Peru, Portugal and Vietnam. Through AXP's IO partnerships, AXP believes it 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 2008, AXP had 60 of these arrangements in place worldwide. AXP pursues these arrangements to increase their brand presence and gain market share in markets in which AXP has a proprietary Card-issuing and/or merchant acquiring business and, in a few cases, those in which it has have IO partners. In an NCL arrangement, AXP grants 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. AXP operates the merchant network, route and process Card transactions from the merchant’s point-of-sale through submission to the issuer, and settle with issuers. The NCL is the type of arrangement AXP has implemented with banks in the United States.
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 AXP's provision of value-added services such as Cardmember insurance products and other Card features and benefits for the issuer’s 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. AXP bears the risk arising from the NCL partner’s potential failure to meet its settlement obligations to AXP.
Examples of NCL arrangements include relationships with Citibank (South Dakota), N.A. and 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 that has been utilized in Switzerland, Belgium and in other countries. In these markets, AXP joins with a third party to establish a separate business in which AXP has a significant ownership stake. The JV typically signs new merchants to the American Express network and issues local currency Cards that carry the AXP logo. In a JV arrangement, the JV assumes the Cardmember credit risk and bears the operating and marketing costs. Unlike the other two types of GNS arrangements, AXP shares management, risk, and profit and loss responsibility with their JV partners. Income is generated by discount revenues, card fees and net spread revenues. The economics of the JV are similar to those of their proprietary Card-issuing business and AXP receives a portion of the JV’s income depending on, among other things, the level of AXP's ownership interest. AXP subsidiary, AEOCC Management Company, Ltd., purchases card receivables from certain of the GNS JVs from time to time.
GNS Business Highlights
Outside the United States AXP signed a number of agreements in 2008 to enhance their presence in existing markets and further expanded their global presence into new markets.
Some of the highlights of AXP's GNS business outside the United States in 2008 include:
• Entry into a new card issuing partnership with Westpac New Zealand and launch of a new credit card that increases the points earning power of Westpac’s hotpoints rewards program;
•
Issuance of the first American Express® Gold Credit Card in Montenegro, launched with Crnogorska Komercijalna Banka, a member of the OTP Group;
•
Launch of the American Express Gold Card and the American Express Platinum Card® in Estonia with Swedbank (formerly Hansabank); and
• Announcement of a new partnership with the International Bank of Azerbaijan, the largest financial institution of Southern Caucasus, to launch American Express Cards in the Azerbaijani market.
GNS continues to expand its airline co-brand portfolio, launching 14 new airline co-brands in 2008 bringing the total to 37 airline co-brand products. Some of the key airline co-brand signings outside the United States in 2008 include:
• Issuance of the Iberia Sendo American Express Card in Spain with Iberia Cards;
• Launch in the United Kingdom, with MBNA Europe Bank Ltd, of three airline co-branded credit card programs with the MBNA brand: the Miles & More American Express Credit Card, the BMI American Express airline co-brand Card and the United Airlines Mileage Plus credit card; and
• Issuance of the first airline co-brand card on the American Express network in Japan with GE Money, the AAdvantage / GE Money American Express Card.
Some of the highlights of AXP's GNS business in the United States in 2008 include:
• Announcement with Fidelity Investments of the launch of the Fidelity Retirement Rewards American Express Card;
• Launch with GE Money and Universal Studios of the Universal American Express Card from GE Money; and
• Launch of two new airline co-brand cards with Bank of America, the Asiana American Express Card and the Virgin Atlantic American Express Card.
Global Merchant Services
AXP operates a GMS business, which includes signing merchants to accept Cards, accepting and processing Card transactions, and paying merchants that accept Cards for purchases made by Cardmembers with Cards (“Charges”). AXP also provides marketing services and programs to merchants, leveraging the capabilities provided by AXP's closed-loop structure, as well as point-of-sale products and servicing and settlement.
AXP's objectives are 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 general-purpose credit and charge cards as a means of payment. AXP adds new merchants to its 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., merchants desiring to accept the Card contacting AXP directly).
During 2008, AXP continued expanding its integrated American Express OnePointSM solution for small- and medium-sized merchants. Under this program, third-party service agents provide payment processing services to merchants on AXP's behalf for Card transactions, while AXP retains the acceptance contract with participating merchants, establish merchant pricing and receive the same transactional information AXP always has received. This program simplifies card processing for small- and medium-sized merchants by providing them with a single source for statements, settlement and customer service.
Since the early 1990s, AXP has significantly expanded the number of merchants that accept its Card products as well as the kinds of businesses that accept the Card. Over the last several years, AXP has focused thei efforts on increasing the use of our Cards for everyday spending. In 1990, 64% of its 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 2008, U.S. non-travel and entertainment billings represented over 70% of the U.S. billed business on American Express Cards. This shift resulted 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, and AXP's focus on expanding Card acceptance to meet Cardmembers’ needs.
During 2008, AXP continued their efforts to encourage consumers to use the Card for everyday spending and to increase the number and types of merchants in retail and everyday spending categories that accept the Card, such as quick-serve restaurants, mass transit, healthcare and recurring billing merchants. For example, during 2008, AXP announced Card acceptance agreements in the United States with:
• Fresh & Easy Neighborhood Market, a company of Tesco, to accept the Card at over 100 Fresh & Easy stores in California, Arizona and Nevada;
• Fry’s Electronics, Inc. to accept the Card at all 34 Fry’s stores in the United States and on its Web site; and
• Public mass-transit systems Southeastern Pennsylvania Transportation Authority (SEPTA) and Bay Area Rapid Transit (BART).
Outside the United States, AXP signed card acceptance agreements with:
• RBS Insurance Group of the United Kingdom, to accept the Card for certain lines of insurance;
• McDonald’s, to accept the Card at its 780 restaurants across Australia;
• Unicoop Firenze SC, to accept the Card at seven of its hypermarkets in Italy; and
• Christie’s, to accept the Card at its auctions in Hong Kong.
In addition, AXP continued their drive to bring Card acceptance to industries where cash or checks are the predominant form of payment. For example, AXP has made headway in promoting Card acceptance for Global Business-to-Business payments in industries such as pharmaceuticals, wholesale foods, biotechnology, construction, industrial supply and telecommunications. Acceptance agreements were signed in 2008 in the United States with wholesale home products and improvement companies such as Lansing Building Products, Dal-Tile Corp., Lux Home Inc., and Spring Air, and construction materials manufacturer, Acme Brick Company. Internationally, a Card acceptance agreement was reached with Ceva Logistics, a warehousing, transport and logistics company in Australia. As AXP penetrates these industries, there is the potential to increase our average Cardmember spending.
Globally, acceptance of general-purpose charge and credit cards continues to increase. As in prior years, during 2008, AXP continued to grow merchant acceptance of Cards around the world and to refine its approach to calculating merchant coverage in accordance with changes in the marketplace. Management of AXP estimates that, as of the end of 2008, thei merchant network in the United States accommodated more than 90% of the Cardmembers’ general-purpose charge and credit card spending, and the international merchant network as a whole accommodated approximately 80% of Cardmembers’ general-purpose charge and credit card spending. These percentages are based on comparing Cardmembers’ spending on AXP's network currently with AXP's estimate of what Cardmembers would spend on their network if all merchants that accept general-purpose credit and charge cards accepted American Express Cards.
AXP earns “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. The merchant discount is generally deducted from the amount of the payment that the “merchant acquirer” (in most cases, 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 AXP as discount revenue at the time the transaction is received by AXP from the merchant.
Where AXP acts 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 the GNS partners, AXP will make financial settlement to the merchant and receive the discount revenue. In AXP's role as the operator of the Card network, AXP 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 the network with Cards they issue, which is usually expressed as a percentage of the charged amount). The difference between the discount revenue (received by AXP in the form of the merchant discount) and the issuer rate received by the Card issuer generates a return to AXP. 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), AXP receives an individually negotiated issuer rate in the settlement with the merchant acquirer, which is recorded as discount revenue. By contrast with networks such as Visa and MasterCard, there is no collectively-set interchange rate on the American Express network.
The merchant discount rate AXP charges is principally determined by the value delivered to the merchant and generally represents a premium over other networks. AXP claims to deliver greater value to merchants through higher spending Cardmembers relative to users of cards issued on competing card networks, marketing expertise, and Cardmembers’ insistence on using their Cards when enrolled in rewards or other Card loyalty programs, including Cardmembers who are part of AXP's Corporate Card program.
The merchant discount rate varies, among other factors, with the industry in which the merchant does business, the merchant’s 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 AXP (local or global) and the Charge amount.
In 2008, as in prior years, AXP experienced some reduction in its global weighted average merchant discount rate, principally reflecting the net impact of selective repricing initiatives, changes in the mix of business, regional market pressures and volume-related pricing adjustments. AXP expects that the effect of these factors will likely continue to result in some erosion over time of the weighted average merchant discount rate, particularly outside the United States.
AXP encounters a relatively small number of merchants that accept AXP Cards, but tell their customers that they prefer to accept another type of payment and, consequently, suppress use of the Card. Subject to local legal requirements, AXP responds to this issue vigorously to protect the American Express brand.
In the case of My WishList, a popular seasonal limited e-tail Web site AXP developed in the United States, AXP provide Cardmembers with opportunities to buy a limited number of sought-after items, such as automobiles, electronics, jewelry, and attractive travel and lifestyle experiences, at a significant discount from their retail prices, in addition to access to numerous offers from top brands. Through American Express Selects, AXP makes available to Cardmembers high quality shopping, dining and travel values from merchants all over the world. American Express Selects is a global platform available to American Express Cardmembers and merchants that enables Cardmembers to enjoy special offers from merchants without compromising their privacy.
AXP offers 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 merchant’s cost of Card acceptance and enhance payment efficiency.
ExpressPay from American Express®, a contactless payment feature, is designed to be a fast, easy-to-use alternative for making everyday purchases at merchants where speed and convenience is important. ExpressPay is accepted at more than 30,000 locations in the United States, including top quick-service restaurant, movie theater, drug store and convenience store and major retail chains. ExpressPay, powered by radio-frequency technology, is currently embedded within several Card products. In 2008, AXP expanded the list of merchants where ExpressPay can be used to include Paradise Shops, Universal Orlando Resort and Hess. In early 2008, after a strategic review of the ExpressPay portfolio, AXP discontinued the ExpressPay key fob and focus resources on developing ExpressPay on its card portfolios and mobile phones. All ExpressPay key fobs were deactivated in 2008.
AXP continues to focus its efforts on the recurring billing industry through Automatic Bill Payment, a service that allows merchants to bill Cardmembers on a regular basis for recurring charges such as insurance premiums, newspaper subscriptions, health club memberships, commutation costs and cable television service. AXP has made modifications to its host authorization system to approve more transactions and reduce Cardmember inconvenience at the point-of-sale without a corresponding increase in fraud or credit losses.
Wherever AXP manages both the acquiring relationship with merchants and the Card-issuing side of the business, there is a “closed-loop,” which distinguishes AXP's network from the bankcard networks, in that AXP has access to information at both ends of the Card transaction. AXP maintains direct relationships with both the Cardmembers and the merchants, and AXP handles all key aspects of those relationships. This relationships allow AXP to analyze information on Cardmember spend. This enables AXP to provide targeted marketing for merchants and special offers to Cardmembers through a variety of channels.
As the merchant acquirer, AXP has 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, AXP offsets the amount due to the Cardmember against payments for the merchant’s current or future Charge submissions. AXP can realize losses when a merchant’s offsetting Charge submissions cease, such as when the merchant commences a bankruptcy proceeding or goes out of business. When appropriate, AXP will take action to reduce the net exposure to a given merchant by requiring a parent company guarantee or letter of credit, 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 AXP pays the merchant or implementing other appropriate risk management tools.
With the increase in electronic transmission of credit card transaction data over merchants’ point-of-sale systems, American Express and the other major 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. In 2006, in order to strengthen the security practices of merchants and payment processing firms and to secure payment account data in a globally consistent manner, AXP and Discover Financial Services, JCB, MasterCard Worldwide and Visa formed PCI Security Standards Council, LLC (“PCI SSC”), an independent standards-setting organization. PCI SSC’s 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, they have developed common standards that are more accessible and efficient for participants in the payment card industry. All AXP merchants and service providers that store, process and transmit payment card data are required to comply with the PCI Data Security Standard.
In some markets outside the United States, particularly in Asia, third-party processors and some bankcard acquirers have begun to offer merchants the capability of converting credit card transactions from the local currency to the currency of the cardholder’s residence (i.e., the cardholder’s billing currency) at the point-of-sale, and submitting the transaction in the cardholder’s 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 cardholder’s billing currency. This practice is not widespread, and it is uncertain to what extent consumers will prefer to have foreign currency transactions converted by merchants in this way. AXP's policy generally requires merchants to submit Charges and be paid in the currency of the country in which the transaction occurs, and AXP converts the transaction to the Cardmember’s billing currency.
GLOBAL NETWORK & MERCHANT SERVICES—Competition
AXP's global card network, including its Global Merchant Services and Global Network Services businesses, competes with other charge and credit card networks, including, among others, Visa, MasterCard, Diners Club (which was acquired by Discover Financial Services), Discover (primarily in the United States), and JCB Co., Ltd. (primarily in Asia). AXP is the third largest general-purpose charge and credit card network based on charge volume, behind Visa and MasterCard, which are larger than AXP is in most markets. In addition, apart from such network services, a range of companies globally, including merchant acquirers and processors, carry out some ativities similar to certain activities performed by AXP's GMS and GNS businesses. No single entity participates on a global basis in the full range of activities that are encompassed by AXP's 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 merchant acquirers of participating in the network;
• the success of marketing and promotional campaigns;
• reputation and brand recognition;
• innovation in systems, technology and product offerings;
• the quality of customer service;
• the security of Cardmember and merchant information;
• the impact of existing litigation, legislation and government regulation; and
• 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 (including using mobile telephone networks to carry out transactions), prepaid systems and systems linked to credit cards, and bank transfer models. In the United States, alternative payment vehicles continue to emerge that seek to redirect online customers to payment systems based on ACH (automated clearing house, i.e., inter-bank transfer), and existing debit networks are making efforts to develop online PIN functionality, which could potentially reduce the relative use of charge and credit cards online.
Some of AXP's competitors have attempted to replicate their closed-loop structure, such as Visa, with its Visa Incentive Network.
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 AXP's IO arrangements, to operate merchant-acquiring businesses. Accordingly, AXP's GNS partners have generally not had difficulty obtaining appropriate government authorization. As a network service provider to regulated U.S. banks, AXP's 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 and the Office of Thrift Supervision. As the operator of a general-purpose card network, AXP is 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”). As a result of American Express Company and TRS each becoming bank holding companies, their business is also subject to further regulation and regulatory oversight by the Federal Reserve.
In recent years, regulators in several countries outside the United States have focused on the fees involved in the operation of card networks, including the fees merchants are charged to accept cards. Regulators in the United Kingdom, Poland, Germany, Hungary, the European Union (EU), Australia, Mexico, and Venezuela, among others, have conducted investigations that are either ongoing 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 collectively-set 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 of the bankcard associations’ 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 certain countries where antitrust actions or regulations have led AXP's competitors to lower their fees, AXP has made adjustments to their pricing to merchants to reflect local competitive trends. For example, reductions in bankcard interchange mandated by the Reserve Bank of Australia reforms in 2003 have resulted in lower merchant discount rates for Visa and MasterCard acceptance. As a result of changes in the marketplace, AXP has reduced their own merchant discount rates in Australia.
U.S. CARD SERVICES
As a significant part of its proprietary Card-issuing business, AXP's 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. AXP's consumer travel business, which provides travel services to Cardmembers and other consumers, complements AXP's core Card business, as does AXP's Travelers Cheques and prepaid services business. The proprietary Card business offers a broad set of card products to attract AXP's target customer base. Core elements of AXP's strategy are:
• focusing on acquiring and retaining high-spending, creditworthy Cardmembers;
• designing Card products with features that appeal to specific customer segments; •
the use of strong incentives to drive spending on various Card products, including Membership Rewards® program and other rewards features;
• the use of loyalty programs such as Delta SkyMiles;
• the development and nurturing of wide-ranging relationships with co-brand and other partners;
• 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;
• a multi-card strategy (having multiple Card products in customers’ wallets); and
• providing exceptional customer service.
American Express ranked highest in customer satisfaction among credit card companies in a September 2008 study by J.D. Power and Associates, one of the world’s most respected consumer research firms. The study, which compared the 18 largest U.S. credit card issuers, looked at the key drivers of satisfaction: benefits and features, rewards, billing and payment processes, fees and rates, and problem resolution.
Consumer and Small Business Services
AXP offers individual consumer charge Cards such as the American Express Card, the American Express Gold Card, the Platinum Card®, and the ultra-premium Centurion® Card; revolving credit Cards such as Blue from American Express®, Blue Cash® Card from American Express and Blue Sky from American ExpressSM; 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
AXP's revolving credit Cards in the United States are issued by Centurion Bank, which markets primarily through direct mail and other remote marketing channels, and AEBFSB, which markets through in-person selling and third-party co-brand partners as well. Centurion Bank and AEBFSB also issue consumer charge cards and AEBFSB issues all OPEN® credit cards and charge cards. Both banks are wholly owned subsidiaries of TRS.
Centurion Bank is a Utah-chartered industrial bank regulated, supervised and regularly examined by the Utah Department of Financial Institutions and the FDIC. Centurion Bank is an FDIC-insured depository institution. AEBFSB is a federal savings bank regulated, supervised and regularly examined by the Office of Thrift Supervision (“OTS”), a bureau of the U.S. Department of the Treasury. AEBFSB 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. Centurion Bank is subject to the risk-based capital adequacy requirements promulgated by the FDIC. Under these regulations, a bank 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%. Based on Centurion Bank’s tier one risk-based capital, total risk-based capital and leverage ratios, Centurion Bank was considered to be well-capitalized at December 31, 2008.
AEBFSB is subject to the risk-based capital adequacy requirements promulgated by the OTS. Under these regulations, a federal savings bank 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 tier one core capital ratio of at least 5%. Based on AEBFSB’s tier one risk-based capital, total risk-based capital and tier one core capital ratios, AEBFSB was considered to be well-capitalized at December 31, 2008.
Charge Cards
AXP charge Cards, which carry no pre-set 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 Cardmember’s 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 who want to use a charge Card to facilitate larger payments.
The charge Cards also offer flexible payment features to Cardmembers. The Sign & Travel® program gives qualified U.S. Cardmembers the option of extended payments for airline, cruise and certain travel charges that are purchased with AXP charge Cards. The Extended Payment Option offers qualified U.S. Cardmembers the option of extending payment for certain charges on the charge Card in excess of a specified amount.
Revolving Credit Cards
AXP offers a variety of revolving credit Cards. These Cards have a range of different payment terms, grace periods and rate and fee structures. Lending products such as Blue from American Express, Blue Cash from American Express and Blue Sky from American Express, enable card members to put a larger proportion of spending on American Express and promote increased relevance for AXP's expanding merchant network.
Co-brand Cards
AXP issues 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 these 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. AXP makes payments to their 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. Payment terms vary by arrangement, but are monthly or quarterly. Generally, once AXP pays the co-brand partner, the partner is solely liable for providing rewards to the Cardmember under the co-brand partner’s own loyalty program. As the issuer of the co-brand card, AXP retains 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 partner’s loyalty program. In December 2008, AXP announced a multiyear extension of several key agreements with Delta Air Lines, including, among others, the Co-Brand Card Agreement, Membership Rewards Agreement and Card Service Agreement. The multiyear extension, which was signed following Delta Air Lines’ acquisition of Northwest Airlines, allows continued expansion of programs with American Express across the Co-brand credit card, Membership Rewards, merchant services and travel businesses.
During the year, AXP launched the Delta Reserve Credit Card, a super premium Delta co-brand product, for U.S. based consumers and small businesses. Delta Reserve offers Cardmembers the ability to earn Medallion Qualification Miles (“MQMs”) at a faster rate, share MQMs with friends or family, access the Crown Room Club, priority boarding and security lines, as well as concierge services and an annual Coach or First Class companion certificate.
Also in 2008, working with Delta, AXP launched Pay with Miles, available exclusively to American Express Gold, Platinum and Reserve Delta SkyMiles Credit Cardmembers. Pay with Miles allows Cardmembers to book flights on delta.com and use Miles to pay for all or part of a Delta ticket, with no blackout dates or inventory restrictions.
Co-brand Partnerships with Financial Services Institutions
AXP also issues 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 partner’s name on the Card.
Card Pricing and Account Management
Certain of AXP Cards, particularly charge Cards, charge an annual fee that varies based on the type of Card and the number of Cards for each account. AXP also offers many revolving credit Cards with no annual fee but on which AXP assesses finance charges for revolving balances.
Membership Rewards® Program
The Membership Rewards program from American Express has over 1,600 redemption partners worldwide, is offered in 98 markets around the world and is built around 48 programs, each tailored to local market needs. The program allows Cardmembers to earn one point for virtually every dollar charged on eligible, enrolled American Express Cards, and then redeem their 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 350 merchandise brands. Enrollees may also customize their own redemption experiences through the program’s Create Your Reward and Experiences options.
Membership Rewards program levels 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 levels based on the Credit or Charge Card they have in their wallet.
During the year AXP also expanded its list of redemption partners and announced a number of innovations to meet customer demand and expanded the 2008 Membership Rewards Program to include partners such as Brookstone, Coach, Legal Sea Foods, Old Navy, Mandarin Oriental Hotel Group, The Peninsula Hotels, Ruth’s Chris Steak House, west elm, and Jumeirah Hotels and Resorts. AXP launched new redemption options like the Express RewardsSM Gas Card, a prepaid card that can be used at any gas station that welcomes American Express.
Throughout the world, 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:
• the Membership Rewards® program
• Global Assist® Hotline
• Extended Warranty
• Car Rental Loss and Damage Insurance Plan
• Purchase Protection Plan
• Emergency Card Replacement
• Return Protection
• Manage Your Card Account Online
• Year-End Summary
• American Express Roadside Assistance Services
• American Express Bill Pay®
• Emergency Check Cashing Privileges
• Automatic Flight Insurance
• Premium Baggage Protection
• CreditSecure
• Account Protector
• Assured Reservations
• Online Fraud Protection Guarantee
• Credit Card Registry
• My Free Credit Score and Report
• Identity Theft Assistance
• Event Ticket Protection Plan
• Platinum Office Program
In addition to their U.S. Consumer Card business, through AEBFSB AXP is also a leading provider of financial services to small businesses (firms that generally have less than 100 employees and/or annual sales of $10 million or less), a key growth area in the United States. American Express OPEN® (“OPEN”) offers small business owners a wide range of tools, services and savings designed to meet their evolving needs, including:
• charge and credit cards;
• unique rewards on eligible spend and business relevant redemptions;
• 3% - 25% discounts at select suppliers of business services and products, including airline tickets, car rentals, hotel stays, package shipping, printing and photocopying services, event tickets, books, flowers, gifts and other business services;
•
resources to help grow and manage a business through the community-driven Web Site, OPEN Forum®;
• expense management reporting;
• enhanced online account management capabilities;
• retail and travel protections such as baggage insurance; and
• travel services.
All American Express OPEN Cardmembers are automatically enrolled in OPEN Savings®, which is a program that offers savings for all OPEN customers on travel and other major business expenses simply by using their American Express Business Card at participating companies. These savings may be combined with any existing discounts or offers.
Card-Issuing Business—Competition
AXP's proprietary Card business encounters substantial and intense competition in the United States and internationally. As a card issuer, AXP competes 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. 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, and competition among all issuers remains intense.
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 volume of transactions made with debit cards in the United States has continued to increase significantly and has grown more rapidly than credit and charge card transactions. Debit cards are marketed as replacements for cash and checks, and transactions made with debit cards are typically for small dollar amounts. The ability to substitute debit cards for credit and charge cards is limited because there is no credit extended 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. AXP does not currently issue point-of-sale debit cards for use on the American Express network.
The principal competitive factors that affect the card-issuing business include:
• features and the quality of the services, including rewards programs, provided to Cardmembers;
• the number, spending characteristics and credit performance of Cardmembers;
• the quantity and quality of the establishments that accept Cards;
• the cost of Cards to Cardmembers;
• pricing, payment and other Card account terms and conditions;
• the number and quality of other charge and credit cards available to Cardmembers;
• the nature and quality of expense management data capture and reporting capability;
• the success of targeted marketing and promotional campaigns;
• reputation and brand recognition;
• the ability of issuers to manage credit and interest rate risk throughout the economic cycle;
• the ability of issuers to implement operational and cost efficiencies; and
• the quality of customer service.
Financing Activities
American Express Credit Corporation, a wholly owned subsidiary of TRS, along with its subsidiaries (“Credco”), purchases 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 traditionally financed the purchase of receivables principally through the issuance of commercial paper and the sale of medium- and long-term notes. Similarly, Centurion Bank and AEBFSB have financed their revolving credit receivables and consumer and small business charge card receivables, in part, through the sale of short- and medium-term notes and certificates of deposit in the United States. TRS, Centurion Bank and AEBFSB also typically have funded receivables through asset securitization programs. The cost of funding Cardmember receivables and loans is a major expense of Card operations.
The Company meets its funding needs through a variety of sources, including debt instruments such as commercial paper, senior unsecured debentures and asset securitizations, long-term committed bank borrowing facilities in certain non-U.S. markets, and deposits placed with the Company’s U.S. banks by individuals and institutions.
The fragility of the credit markets and the current economic environment have impacted financial services companies through market volatility, loss of confidence and rating agency actions. Since September 2008, the market for the Company’s unsecured term debt and asset securitizations, like that for virtually all financial institutions, has been effectively frozen, except in connection with the Company’s participation in certain programs sponsored by the federal government and certain of its departments and agencies. Therefore, the Company’s ability to obtain financing in the debt capital markets for unsecured term debt and asset securitizations is dependent on a renewal of investor demand.
A series of government programs launched or announced by the U.S. and other governments during the fourth quarter of 2008 provided some stability to the capital markets and reduced dislocations in benchmark indices such as LIBOR. The Company has participated in certain of these programs, including the Commercial Paper Funding Facility (“CPFF”) and the Temporary Liquidity Guarantee Program (“TLGP”).
In late 2008, AXP also moved to increase its flexibility in funding U.S. consumer and small business charge cards by amending agreements between Credco and Centurion Bank and AEBFSB to allow it to shift from time to time the funding of those receivables from Credco to Centurion Bank and AEBFSB.
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 marketplace through its Platinum Travel Services and Centurion Travel Services, which provide programs such as the International Airline Program, which offers special discount fares on certain international first and business class tickets, and the Fine Hotels & Resorts program, a luxury hotel program offering room upgrades and value-added amenities. Other premium programs developed by Consumer Travel for Centurion Card and Platinum Card members include Centurion Cruise Privileges®, Centurion Destinations® and Platinum Destinations® Vacations, the Private Jets Program, Private Villas and Yachts. Consumer Travel also provides Membership Rewards programs designed for specific Cardmember segments such as Gold Card Destinations.
In addition, the Consumer Travel business operates a wholesale travel business in the United States through AXP's Travel Impressions subsidiary. (A wholesaler purchases inventory, such as hotel rooms, from suppliers and then resells the services to the customer at retail prices that the wholesaler determines.) AXP's wholesale travel business packages American Express Vacations and distributes travel packages through other retail travel agents and private label brands for third parties in the United States.
AXP's 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 through the “Local Color” portion of the Web site. 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.
INTERNATIONAL CARD SERVICES
AXP issues charge and credit Cards in numerous countries around the globe. AXP's geographic scope is widespread.
The Company continued to bolster its international proprietary Card business through the launch of numerous new or enhanced Card products during 2008. These are Cards that they issue, either on its own or, as as co-brands with partnering institutions. This past year, among other new proprietary products, AXP announced or launched Cards with David Jones (Department Stores) in Australia, Cathay Pacific in Hong Kong and Taiwan, and Centurion Charge Cards in Argentina and Canada.
As in the United States, rewards programs are a strong driver of Cardmember spending in the international consumer business. AXP has more than 1,500 redemption partners across its international business, with an average of 95 partners in each country; less than 25% of these partners are in the travel industry. Cardmembers can redeem their points with more than 50 airlines and over 200 hotels.
Membership Travel Services International provides premium travel and concierge services to our Platinum and Centurion Customers, through 25 exclusively dedicated call centers in 25 countries. Additionally, Membership Travel Services operates 19 proprietary Travel Service Offices in Mexico, Italy and Argentina to provide all Cardmembers with travel and general card service assistance.
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 AXP's geographic scope is widespread, AXP generally does not have significant share in the markets in which they operate outside the United States.
GLOBAL COMMERCIAL SERVICES
Global Commercial Card (“GCC”) offers a range of expense management solutions to companies worldwide through AXP's Corporate Card program, Corporate Purchasing Solutions, and electronic payment services such as Buyer Initiated Payment.
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 AXP Corporate Card Program, companies can manage their travel, entertainment and purchasing expenses and improve negotiating leverage with suppliers, among other benefits.
American Express operates one of the world’s largest travel networks, which caters to both consumer and corporate customers’ travel needs with $25.4 billion of travel spend globally in 2008 (through proprietary operations and consolidated joint ventures).
Organic growth of the business along with acquisition and partnership strategies with local market companies remain key components of Business Travel’s global growth strategy.
American Express Publishing
Through American Express Publishing, AXP publishes luxury lifestyle magazines such as Travel+Leisure®, Travel+Leisure Golf, Food & Wine® and Departures®; 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, financial and time management books; branded membership services; a growing roster of international magazine editions; as well as directly sold and licensed products. American Express Publishing also has a custom publishing group and is expanding its service-driven Web sites such as: travelandleisure.com, foodandwine.com, departures.com, tlgolf.com, tlfamily.com and eskyguide.com. AXP has have an agreement with Time Inc. under which it manages our publishing business, and we share profits relating to this business.
Global Prepaid (formerly known as Global Travelers Cheques and Prepaid Services)
AXP has been in the business of issuing and selling travelers checks 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. AXP also issues and sells other forms of paper travelers checks, including American Express® Gift Cheques, which are available in U.S. and Canadian dollars. Sales of Travelers Cheques continued to decline in 2008.
During 2008, AXP solidified its position as the largest gift card issuer in the United States by signing distribution deals with two of the largest mall operators, including The Macerich Partnership, and are continuing to expand the supermarkets and everyday spend retailers that sell our gift card products.
American Express Banking Corp.
American Express Banking Corp. (“AEBC”) is a New York investment company organized under Article XII of the New York State Banking Law and is a wholly owned direct subsidiary of American Express. Immediately prior to the sale of American Express Bank Ltd. (“AEBL”) to Standard Chartered, AEBL transferred to AEBC its banking business in Greece and Card and related businesses in India. Following the sale, AEBC directly owns and operates these businesses. AEBC now has branch offices in Greece and India and is subject to continuous supervision and examination by the New York State Banking Department (“NYSBD”) pursuant to the New York State Banking Law. AEBC’s branches are licensed and regulated in the jurisdictions in which they do business and are subject to the same local requirements as other competitors that , respectively, for mark-to-market adjustments and sales associated with the AEIDC investment portfolio.
EXECUTIVE OFFICERS OF AXP
Set forth below in alphabetical order is a list of all AXP executive officers as of February 27, 2009. Each executive officer has been elected to serve until the next annual election of officers or until his or her successor is elected and qualified. Each officer’s age is indicated by the number in parentheses next to his or her name.
KENNETH I. CHENAULT - Chairman and Chief Executive Officer
Mr. Chenault (57) has been Chairman since April 2001 and Chief Executive Officer since January 2001.
L. KEVIN COX - Executive Vice President, Human Resources
Mr. Cox (45) 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. Prior thereto, he had been Senior Vice President, Human Resources of such company since March 1999.
EDWARD P. GILLIGAN - Vice Chairman
Mr. Gilligan (49) has been Vice Chairman of the Company and head of the Company’s 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 - Executive Vice President, Global Merchant Services
Mr. Glenn (51) has been Executive Vice President since September 2008 and 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 - President of Risk, Information Management and Banking Group and Chief Risk Officer
Mr. Gupta (55) 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, Global Advertising and Brand Management and Chief Marketing Officer
Mr. Hayes (54) has been Executive Vice President, Global Advertising and Brand Management 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 (59) 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.
ALFRED F. KELLY, JR. - President
Mr. Kelly (50) has been President of the Company and head of the Company’s Global Consumer Group since July 2007. Prior thereto, he was Group President, Consumer, Small Business and Merchant Services since October 2005. Prior thereto, he had been President, U.S. Consumer and Small Business Services since June 2000.
JUDSON C. LINVILLE - President and Chief Executive Officer, Consumer Services.
Mr. Linville (51) has been President and Chief Executive Officer of Consumer Services, since July 2007. Prior thereto, he had been President, U.S. Consumer Card Services Group from 2005 through 2007. Prior thereto, he was Executive Vice President, Service Delivery Network from 2001 through 2005.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (58) has been Executive Vice President and General Counsel since May 1993.
THOMAS SCHICK - Executive Vice President, Corporate Affairs and Communications
Mr. Schick (62) has been Executive Vice President, Corporate Affairs and Communications since March 1993.
STEPHEN SQUERI - Executive Vice President, Corporate Development and Chief Information Officer
Mr. Squeri (49) has been Executive Vice President, Chief Information Officer since May 2005. In July 2008, he took on the additional responsibilities as head of Corporate Development. Prior thereto, he had been President, Global Commercial Card – Global Corporate Services since January 2002.
EMPLOYEES
AXP had approximately 66,000 employees on December 31, 2008.
The following about Kenneth Chenault the CEO of AXP is from Wikipedia, the free encyclopedia:
Kenneth Chenault
Born Kenneth Irvine Chenault.
June 2, 1951 (1951-06-02) (age 58)
Long Island, New York, USA
Nationality American
Alma mater Bowdoin College
Harvard Law School
Occupation Businessman
Chairman & CEO of
American Express (2000-)
Predecessor Harvey Golub
Kenneth Irvine Chenault (born Long Island, June 2, 1951;[1] French pronunciation: [ʃeno]) has been the CEO and Chairman of American Express since 2001.He is the third African-American CEO of a Fortune 500 company.
Early Life and Career
Chenault grew up on Long Island as the son of a dentist and dental hygienist. He attended the alternative Waldorf School of Garden City, where he served as senior class president. He then received a B.A. in History from Bowdoin College in 1973, and a Juris Doctor from Harvard Law School in 1976. After Harvard he worked as an associate with the law firm Rogers & Wells in New York City, and as a consultant for Bain & Company.
He joined American Express in 1981, working in strategic planning. He became President and Chief Operating Officer in 1997. When he became CEO of American Express in 2001, he was just the third black CEO of a Fortune 500 company in history.
While CEO of American Express in 2007, Kenneth I. Chenault earned a total compensation of $50,126,585, which included a base salary of $1,238,461, a cash bonus of $6,500,000, stocks granted of $8,069,198, and options granted of $33,244,013. In 2008, he earned a total compensation of $42,752,461, which included a base salary of $1,250,000, a cash bonus of $6,112,500, stocks granted of $9,524,931, and options granted of $24,656,788.
He is currently co-chair of the Business Roundtable, a director at IBM, and a member at the Council of Foreign Relations. In 1995, Ebony listed him as one of 50 "living pioneers" in the African-American community. Mr. Chenault was inducted into the Junior Achievement U.S. Business Hall of Fame in 2002. In 2008, he gave the commencement address at Howard University.
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