Business Context and Reporting Period
Company: American Express Company
Filing Type: Form 8-K (Current Report)
Date of Report: June 1, 2009
Subject: Regulation FD Disclosure regarding the Supervisory Capital Assessment Program (SCAP) results and a subsequent public equity offering.
Key Financial Metrics and Capital Position
- SCAP Capital Ratios (Year-End 2008): Tier 1 risk-based capital ratio of 9.7% and Tier 1 common risk-based capital ratio of 9.7%.
- Pro Forma Capital: Reflecting the January 2009 issuance of $3.4 billion in Preferred Shares under the Troubled Asset Relief Program (TARP), the Tier 1 risk-based capital ratio would be 13%.
- Capital Buffer: The Tier 1 common risk-based capital level was approximately $6 billion above the minimum SCAP benchmark of 4%.
- Debt Issuance: On May 18, 2009, the Company closed the issuance of $3 billion in principal amount of five-year and ten-year senior notes.
- Equity Offering: On June 1, 2009, the Company launched a $500 million offering of common shares.
Material Changes and Regulatory Developments
The filing details the Company's response to the SCAP results announced on May 7, 2009. The assessment concluded that American Express did not need to augment its capital buffer under the hypothetical adverse economic scenario. Consequently, the Company requested permission from the Federal Reserve and the Treasury to repurchase the $3.4 billion of Preferred Shares and related warrants issued under the Capital Purchase Program (CPP).
To satisfy regulatory conditions for this repurchase, the Company was required to demonstrate financial strength by issuing senior unsecured debt (completed May 18, 2009) and raising at least $500 million in equity capital via a public offering (launched June 1, 2009).
Outlook, Management Commentary, and Risks
- Earnings Impact: Assuming the repurchase of Preferred Shares occurs in the second quarter of 2009, the Company estimates a one-time negative impact on diluted earnings per share of approximately $0.18 due to accelerated accretion of dividends. Thereafter, the repurchase is expected to be slightly accretive to diluted earnings per share.
- Regulatory Conditions: Repurchase approval is contingent upon maintaining a post-repayment capital base consistent with the SCAP buffer and successfully completing the equity offering.
- Risks: Forward-looking statements are subject to risks, including the ability to complete the common share offering and obtaining definitive approval from regulators to repurchase the Preferred Shares.
Investor Verification Checklist
- Confirm the final closing date and total proceeds of the $500 million common stock offering.
- Verify receipt of definitive approval from the Federal Reserve and Treasury to repurchase the Preferred Shares.
- Monitor the actual timing of the Preferred Share repurchase to assess the impact on Q2 2009 earnings per share.
- Review subsequent filings for confirmation that the post-repayment capital base remains consistent with SCAP requirements.