Business Context and Reporting Period
Company: American Express Company
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1999
Headquarters: New York, New York
American Express is primarily engaged in providing travel-related services, financial advisory services, and international banking services globally. In 1999, the Company focused heavily on an enterprise-wide Internet strategy to become a leading online payment provider and improve economic performance. The Company operates through three primary segments: Travel Related Services (TRS), American Express Financial Advisors (AEFC), and American Express Bank/Travelers Cheque (AEB).
Key Financial Metrics
Note: Consolidated revenue, profit, and cash flow figures for the entire Company are incorporated by reference from the 1999 Annual Report to Shareholders and are not explicitly detailed in the provided text. The following data is available for the Parent Company and the American Express Bank (AEB) subsidiary.
Parent Company (Condensed Financial Information)
| Item (in millions) | 1999 | 1998 |
|---|---|---|
| Revenues | $235 | $260 |
| Net Income | $2,475 | $2,141 |
| Net Cash Provided by Operating Activities | $1,818 | $1,660 |
| Total Assets | $12,659 | $12,054 |
| Shareholders' Equity | $10,095 | $9,698 |
American Express Bank Ltd. (AEB) Subsidiary
| Item (in millions) | 1999 | 1998 |
|---|---|---|
| Net Financial Revenues | $621 | $620 |
| Net Income | $22 | $(84) |
| Total Assets | $11,390 | $11,576 |
| Loans, Net | $4,928 | $5,404 |
| Customers' Deposits | $8,343 | $8,288 |
| Return on Average Assets | 0.19% | (0.70)% |
| Reserve for Loan Losses / Total Loans | 3.30% | 3.83% |
Material Changes vs. Prior Period
- Parent Company Profitability: Net income increased to $2,475 million in 1999 from $2,141 million in 1998, driven largely by equity in net income of subsidiaries ($2,612 million vs. $2,147 million).
- AEB Turnaround: American Express Bank Ltd. returned to profitability with $22 million in net income in 1999, compared to a loss of $84 million in 1998. This improvement followed a strategic shift from corporate lending to private banking and personal financial services.
- Loan Portfolio Reduction: AEB reduced its commercial loan portfolio and geographic concentration of credit risk. Total loans outstanding decreased to $5.1 billion in 1999 from $5.6 billion in 1998.
- TRS Growth: Travel Related Services (TRS) reported double-digit growth in billed business in the United States. New card acquisitions more than doubled, and the number of consumer Charge Cards in the U.S. increased for the first time in nearly a decade.
- Capital Structure: The Parent Company repurchased $1,120 million of common shares in 1999, compared to $1,890 million in 1998.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Strategy
Management emphasized a continued focus on the American Express brand attributes (trust, security, integrity) and an aggressive strategy to patent technologies. The Company is shifting its business model in travel services away from reliance on supplier commissions toward fee-based client relationships. AEB is expected to continue focusing on private banking and personal financial services as long-term growth drivers.
Key Risks and Contingencies
- Legal Proceedings: In January 2000, the Company reached an agreement in principle to settle three class-action lawsuits regarding insurance and annuity market conduct. The settlement is expected to provide $215 million in benefits to over two million participants, subject to court approval.
- Antitrust Litigation: The U.S. Department of Justice filed a lawsuit against VISA and MasterCard alleging antitrust violations regarding rules that prevent banks from issuing American Express cards. Trial is scheduled for June 5, 2000.
- Credit Risk: AEB maintains significant exposure in the Asia/Pacific region ($1.7 billion in loans). While the Company reduced wholesale credit exposure in 1999, it continues to monitor economic conditions in emerging markets.
- Regulatory Environment: The Gramm-Leach-Bliley Act of 1999 impacts privacy policies and allows for broader consolidation in the financial services industry, potentially increasing competition.
- Forward-Looking Statements: The Company cautions that actual results may differ due to risks including the inability to extend the brand value to new financial products, technology obsolescence, and global economic instability.
Investor Verification Checklist
- Settlement Impact: Verify the final court approval and specific financial impact of the $215 million insurance/annuity class-action settlement.
- Antitrust Outcome: Monitor the June 2000 trial regarding VISA/MasterCard antitrust rules, as a favorable outcome could significantly expand American Express's U.S. card issuance capabilities.
- Consolidated Financials: Review the full 1999 Annual Report to Shareholders (incorporated by reference) for consolidated revenue, total expenses, and cash flow figures, as the 10-K text provided only Parent Company and AEB subsidiary data.
- Credit Quality: Assess the adequacy of the reserve for credit losses (3.30% of loans for AEB) given the Company's exposure to emerging markets and the potential for economic downturns.
- Share Repurchases: Confirm the Company's future capital allocation strategy regarding share buybacks versus investment in Internet and technology infrastructure.