American Express Company — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual filing, not a standalone fourth-quarter report; quarterly financial detail is not clearly provided in the supplied text. American Express is a global payments and financial-services company operating across U.S. Card Services, International Card Services, Global Commercial Services, and Global Network & Merchant Services. Financial statements and detailed MD&A are incorporated by reference from the 2009 Annual Report to Shareholders.
Financial performance and condition
| Metric | 2009 | Prior period / change |
|---|---|---|
| Revenue, net of interest expense | $24.5 billion | Down 14% from $28.4 billion in 2008 |
| Income from continuing operations | $2.1 billion | Down 26% from $2.9 billion |
| Net income | $2.13 billion | Down 21% from $2.70 billion |
| Diluted EPS, continuing operations | $1.54 | Down 38% from $2.47 |
| Diluted EPS, net income | $1.54 | Down 34% from $2.32 |
| Return on average equity | 14.6% | 22.3% in 2008 |
| Net interest income / net yield on interest-earning assets | $3.124 billion / 4.4% | $3.646 billion / 5.0% in 2008 |
| Average total assets | $121.3 billion | $132.8 billion in 2008 |
| Shareholders’ equity | $14.57 billion average | $12.08 billion average in 2008 |
| Net cardmember-loan write-off rate | 8.5% | 5.5% in 2008 |
| Net cardmember-receivable write-off rate | 3.6% | 4.1% in 2008 |
- Cardmember loan-loss provisions were $4.27 billion, versus $4.23 billion in 2008; net loan write-offs were $3.40 billion, versus $3.22 billion.
- At year-end, loans totaled $33.31 billion and cardmember receivables totaled $33.74 billion. The loan-loss allowance was $3.27 billion; the receivables-loss allowance was $546 million.
- Average total interest-bearing liabilities were $79.21 billion, including average long-term debt of $55.50 billion. The supplied text does not give a clear total year-end debt figure.
- Consumer deposits were approximately $26.3 billion at year-end. Commercial paper outstanding was $975 million at year-end, down from $7.27 billion in 2008. The filing describes funding sources including deposits, debt, securitizations, and committed bank facilities.
- Cash flow totals and operating cash flow are not clearly provided in the supplied text.
- Worldwide billed business was $620 billion and Cards-in-force were 87.9 million. Fourth-quarter year-over-year spending growth turned positive for the first time since Q3 2008.
Material changes versus 2008
- Revenue, continuing-operations income, net income, EPS, and return on equity all declined amid recession-driven weakness in consumer and business spending and elevated credit losses.
- Cardmember loan balances contracted: year-end loans declined to $33.3 billion from $43.3 billion, while cardmember receivables increased to $33.7 billion from $33.0 billion.
- Net interest income fell $522 million, while lower funding costs partly offset reduced interest income. Average funding cost declined to 2.8% from 4.2%.
- Credit trends were especially mixed: loan write-offs rose, but receivables write-offs eased from 4.1% to 3.6%. Management said credit metrics peaked earlier in the year and improved in the second half.
- Average available-for-sale securities increased to $24.3 billion at year-end from $12.5 billion, including $3.6 billion of retained subordinated securities from the card-loan securitization program.
- The company became a bank holding company in November 2008 and was subject to Federal Reserve consolidated supervision. It received $3.39 billion from Treasury under the Capital Purchase Program in January 2009, then repurchased the preferred shares in June and the warrant in July 2009.
- American Express Bank Ltd. and American Express International Deposit Company were reported as discontinued operations; the latter sale closed in September 2009.
Outlook, management commentary, risks, and unusual items
- Management characterized 2009 as challenging, citing weak economic conditions, frozen credit markets in the first half, and historically high credit losses. Spending and loan balances fell by double digits in the first two quarters; trends improved in the third and fourth quarters.
- Management expected a gradual global recovery and more modest billings growth than before the recession, as consumers and businesses remained cautious. No specific earnings or revenue guidance is stated in the supplied text.
- Organizational changes announced in October 2009 created a Global Services Group, with a target of approximately $500 million in annualized gross expense savings by 2012; some savings may be reinvested in growth initiatives.
- The company acquired Revolution Money in January 2010 for approximately $300 million, after year-end, to expand into emerging payments.
- Key risks include persistent economic weakness, further credit deterioration, capital-market and funding constraints, rating downgrades, regulatory changes including the CARD Act and possible interchange regulation, litigation, data-security breaches, foreign-exchange movements, and intense competition.
- The filing describes pending merchant antitrust and anti-steering litigation, class actions involving card terms and practices, and ongoing Department of Justice and Ohio Attorney General inquiries into merchant surcharging and anti-steering policies. Management stated it did not believe pending proceedings would materially affect consolidated financial condition or liquidity, while acknowledging possible material effects on results in a particular period.
- FDIC deposit-insurance actions included a 2009 special assessment and prepaid assessments for 2010–2012. Of approximately $95.2 million prepaid by bank subsidiaries, $6.7 million was expensed in 2009 and $88.5 million recorded as a prepaid expense.
- The filing states disclosure controls were effective at year-end and reports no material fourth-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Review the incorporated Annual Report’s consolidated cash-flow statement, balance sheet, funding maturities, liquidity sources, and regulatory capital ratios; these details are not fully reproduced in the supplied text.
- Assess whether the improvement in fourth-quarter billed business and credit trends continued, and how loan-loss provisions and write-offs evolved after year-end.
- Verify the assumptions and realization of the $500 million expense-savings target, including costs of restructuring and planned reinvestment.
- Track the effect of the CARD Act, potential interchange and other financial-regulatory reforms, and the outcome of merchant antitrust matters and government inquiries.
- Review securitization capacity and the treatment of securitized assets under new accounting standards, as well as the effect of debt-rating changes on funding access and cost.