10-KPeriod: FY2008

AMERICAN EXPRESS CO Annual Report, Year Ended Dec 31, 2008

Filed February 27, 2009For Securities:AXP

Summary

American Express Company (AXP) reported a significant decline in income from continuing operations and net income for the year ended December 31, 2008, down 30% and 33% respectively, compared to 2007. This downturn was attributed to worsening global economic conditions, including a recession, increased unemployment, and reduced consumer and business confidence, which led to slowing cardmember spending, increased delinquencies, and higher credit losses. Despite these challenges, total revenues increased by 3%. A major strategic development during the year was American Express Company and its principal operating subsidiary becoming bank holding companies regulated by the Federal Reserve, a move intended to provide greater financial flexibility and certainty during a period of industry transformation. In response to the credit market crisis, American Express secured $3.39 billion in proceeds from the U.S. Treasury through the Capital Purchase Program. The company's core "spend-centric" business model, which focuses on driving spending on its cards, is highlighted as a competitive advantage, enabling premium discount rates and investment in value-added services. The Global Network & Merchant Services (GNMS) segment continued to expand through partnerships, while the U.S. Card Services segment faced intense competition. The company also reported a significant increase in provisions for cardmember loan losses and a shift in write-off methodology.

Financial Highlights

41 data points
Beta

Revenue

$28.36B

Net Income

$2.70B

9.5% Net Margin

EPS (Diluted)

$2.32

Total Assets

$126.07B

Cash & Equivalents

$21.65B

Free Cash Flow

$6.80B

Financial Statements
Beta
Revenue$28.36B
Operating Income$3.58B
Interest Expense$3.56B
Net Income$2.70B
EPS (Basic)$2.33
EPS (Diluted)$2.32
Shares Outstanding (Basic)1.15B
Shares Outstanding (Diluted)1.16B

Key Highlights

  • 1Income from continuing operations decreased by 30% to $2.9 billion, and net income fell by 33% to $2.7 billion in 2008 compared to 2007, reflecting the impact of the worsening global economic environment.
  • 2Total revenues increased by 3% to $28.4 billion, demonstrating resilience despite economic headwinds.
  • 3American Express Company and its principal operating subsidiary became bank holding companies, subject to Federal Reserve supervision, aiming for increased financial flexibility.
  • 4The company received $3.39 billion from the U.S. Treasury's Capital Purchase Program to bolster capital during the financial crisis.
  • 5Provisions for cardmember loan losses increased significantly, with a substantial impact on profitability.
  • 6The company experienced slowing cardmember spending and higher delinquencies, particularly in the latter half of 2008, due to diminished consumer and business confidence.
  • 7The "spend-centric" business model, emphasizing spending over finance charges, is identified as a continued competitive advantage.

Frequently Asked Questions

The primary reason for the significant drop in net income was the worsening global economic conditions, including a recession, rising unemployment, and diminished consumer and business confidence. These factors led to slower cardmember spending, increased loan delinquencies, and higher provisions for credit losses.

American Express Company and its principal operating subsidiary, American Express Travel Related Services Company, Inc., became bank holding companies under the Bank Holding Company Act. They also elected to be treated as financial holding companies, bringing them under the supervision of the Federal Reserve and providing greater financial flexibility in a turbulent economic environment.

American Express participated in the U.S. Department of the Treasury's Capital Purchase Program (CPP), receiving $3.39 billion in exchange for preferred stock and a warrant to purchase common shares. This infusion of capital aimed to strengthen its financial position during the credit market crisis.

American Express's core business model is "spend-centric," meaning it primarily generates revenue by driving spending on its cards, with finance charges and fees being secondary sources. This model is considered a competitive advantage because higher spending by its cardmembers generates greater value for merchants, allowing American Express to earn premium discount rates and invest in enhanced services for both cardmembers and merchants, fostering loyalty and further spending.