American Express Credit 10-Q 2008 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____

Commission File No. 1-6908

AMERICAN EXPRESS CREDIT CORPORATION
(Exact name of registrant as specified in its charter)

Delaware	11-1988350
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
One Christina Centre, 301 North Walnut Street
Suite 1002, Wilmington, Delaware	19801-2919
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number including area code:(302) 594-3350

None

(Former name, former address and former fiscal year, if changed since last report.)

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND HAS THEREFORE OMITTED CERTAIN ITEMS FROM THIS REPORT IN ACCORDANCE WITH THE REDUCED DISCLOSURE FORMAT PERMITTED UNDER GENERAL INSTRUCTIONS H(2).

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  X  Yes   ___ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	Accelerated filer
Non-accelerated filer    X	Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
___ Yes      X  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 5, 2008
Common Stock (par value $.10 per share)	1,504,938 Shares

AMERICAN EXPRESS CREDIT CORPORATION

FORM 10-Q

INDEX

			Page No.
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Statements of Income and Retained
		Earnings – Three and six months ended June 30, 2008
		and 2007	3
		Consolidated Balance Sheets –
		June 30, 2008 and December 31, 2007	4
		Consolidated Statements of Cash Flows –
		Six months ended June 30, 2008 and 2007	5
		Notes to Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis
		of Financial Condition and Results
		of Operations	12
	Item 4.	Controls and Procedures	20
PART II.	OTHER INFORMATION
	Item 6.	Exhibits	21
		Signatures	22
		Exhibit Index	E-1

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AMERICAN EXPRESS CREDIT CORPORATION

PART I. FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(Millions)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Revenues
Discount revenue earned from purchased
cardmember receivables and loans	$	595		$	691		$	1,249		$	1,353
Interest income from affiliates		194			155			382			303
Interest income from investments		71			63			143			130
Finance revenue		2			13			17			25
Other		3			1			4			5
Total revenues		865			923			1,795			1,816
Expenses
Provision for losses, net of recoveries:
2008, $39; 2007, $43 for the three months ended;
2008, $81; 2007, $89 for the six months ended		108			154			356			314
Interest expense		339			392			716			771
Interest expense to affiliates		72			102			155			215
Service fees to affiliates		51			47			102			92
Other		1			1			2			2
Total expenses		571			696			1,331			1,394
Pretax income		294			227			464			422
Income tax provision		41			26			57			49
Net income		253			201			407			373
Retained earnings at beginning of period		3,186			3,209			3,157			3,202
Dividends		(85	)		(150	)		(210	)		(300	)
Adoption of FIN 48		-			-			-			(15	)
Retained earnings at end of period	$	3,354		$	3,260		$	3,354		$	3,260

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS CREDIT CORPORATION

CONSOLIDATED BALANCE SHEETS
(Millions, except share data)
(Unaudited)

	June 30,			December 31,
	2008			2007
Assets
Cash and cash equivalents	$	5,049		$	2,925
Investment securities		2,574			2,074
Investment securities restricted		467			970
Cardmember receivables, less reserves: 2008, $771; 2007, $831		24,525			25,504
Cardmember loans, less reserves: 2008, $11; 2007, $10		377			393
Loans to affiliates		11,640			11,201
Deferred charges and other assets		441			409
Due from affiliates		1,927			2,367
Total assets	$	47,000		$	45,843
Liabilities and Shareholder’s Equity
Short-term debt	$	12,768		$	11,093
Short-term debt to affiliates		8,139			8,682
Current portion of long-term debt		5,539			7,411
Long-term debt		16,323			14,872
Total debt		42,769			42,058
Accrued interest and other liabilities		539			339
Total liabilities		43,308			42,397
Shareholder’s Equity
Common stock, $.10 par value, authorized 3 million shares;
issued and outstanding 1.5 million shares		1			1
Capital surplus		161			161
Retained earnings		3,354			3,157
Accumulated other comprehensive income (loss), net of tax:
Net unrealized securities gains		30			28
Net unrealized derivatives losses		(37	)		(30	)
Foreign currency translation adjustments		183			129
Total accumulated other comprehensive income		176			127
Total shareholder’s equity		3,692			3,446
Total liabilities and shareholder’s equity	$	47,000		$	45,843

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS CREDIT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions)
(Unaudited)

	Six Months Ended
	June 30,
	2008			2007
Cash Flows from Operating Activities
Net income	$	407		$	373
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses		437			403
Amortization and other		6			5
Deferred taxes		(23	)		-
Changes in operating assets and liabilities:
Due from affiliates		135			(14	)
Other operating assets and liabilities		317			88
Net cash provided by operating activities		1,279			855
Cash Flows from Investing Activities
Net decrease (increase) in cardmember receivables and loans		511			(395	)
Purchase of investments		(598	)		-
Maturities of investments		600			-
Net (increase) decrease in loans to affiliates		(109	)		24
Net decrease (increase) in due from affiliates		305			(82	)
Net cash provided by (used in) investing activities		709			(453	)
Cash Flows from Financing Activities
Net decrease in short-term debt to affiliates with maturities of
ninety days or less		(543	)		(1,645	)
Net (decrease) increase in short-term debt with maturities of
ninety days or less		(535	)		2,203
Issuance of debt		8,914			3,559
Redemption of debt		(7,490	)		(3,031	)
Dividends paid		(210	)		(300	)
Net cash provided by financing activities		136			786
Effect of exchange rate changes on cash and cash equivalents		-			(3	)
Net increase in cash and cash equivalents		2,124			1,185
Cash and cash equivalents at beginning of period		2,925			737
Cash and cash equivalents at end of period	$	5,049		$	1,922

See Notes to Consolidated Financial Statements.

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AMERICAN EXPRESS CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.

Basis of Presentation

American Express Credit Corporation, together with its subsidiaries (Credco), is a wholly-owned subsidiary of American Express Travel Related Services Company, Inc. (TRS), which is a wholly-owned subsidiary of American Express Company (American Express). The accompanying Consolidated Financial Statements should be read in conjunction with the financial statements in the Annual Report on Form 10-K of Credco for the year ended December 31, 2007. Significant accounting policies disclosed therein have not changed. Certain prior year amounts have been reclassified to conform to the current year presentation of the Consolidated Statements of Cash Flows related to deferred taxes. The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair statement of the consolidated financial position and the consolidated results of operations for the interim periods have been made. All adjustments made were of a normal, recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. Accounting estimates are an integral part of the Consolidated Financial Statements. These estimates are based, in part, on management’s assumptions concerning future events. Among the more significant assumptions are those that relate to reserves for cardmember losses relating to cardmember receivables and loans and income taxes. These accounting estimates reflect the best judgment of management, but actual results could differ. Recently Issued Accounting Standards Effective January 1, 2008, Credco partially adopted the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 applies broadly to financial and non-financial assets and liabilities reported or disclosed at fair value under existing authoritative accounting pronouncements. FASB Staff Position (FSP) FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP FAS 157-2), delays the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in Credco’s financial statements on a recurring basis (at least annually), until its fiscal year beginning after November 15, 2008, including interim periods within that fiscal year (January 1, 2009 for Credco). In accordance with FSP FAS 157-2, Credco has partially adopted SFAS No. 157 and has not applied the provisions of SFAS No. 157 to its equipment balances. Credco does not have any goodwill, intangible assets, land, or buildings that require the application of FAS 157. Credco’s partial adoption of SFAS No. 157 did not result in significant changes to the valuation techniques it had previously used to measure the fair value of its financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date, and is based on the company’s principal or most advantageous market for the specific asset or liability. The primary impact to Credco upon its partial adoption of SFAS No. 157 is the expanded disclosure requirements. There were no impacts to the Consolidated Financial Statements. Refer to Note 4, which provides further details on Credco’s partial adoption of SFAS No. 157. Effective January 1, 2008, Credco adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159 allows companies the option to irrevocably elect, on a contract by contract basis, fair value as the initial and subsequent measurement for certain financial assets and financial liabilities. Credco has not elected the option for fair value measurement under SFAS No. 159 for any additional financial assets or financial liabilities that were not previously recognized at fair market value.

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AMERICAN EXPRESS CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

	As disclosed in Credco’s Form 10-K for the year ended December 31, 2007, SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” which is effective for Credco beginning January 1, 2009, is currently being evaluated for possible impact to Credco upon adoption. During 2008, the FASB has issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133” (SFAS No. 161), amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), requiring enhanced disclosures about Credco’s derivative and hedging activities. Under SFAS No. 161, Credco is required to provide disclosures about (a) how and why it uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect Credco’s financial position, results of operations, and cash flows. SFAS No. 161 is effective prospectively beginning January 1, 2009, and applies to derivative instruments existing at the reporting date, with comparative disclosures of earlier periods encouraged upon initial adoption. Credco is currently evaluating the impact of this accounting standard.
2.	Investment Securities
	The following is a summary of investment securities at June 30, 2008 and December 31, 2007:
		Available-for-Sale		2008								2007
						Gross		Gross		Estimated				Gross		Gross		Estimated
						Unrealized		Unrealized		Fair				Unrealized		Unrealized		Fair
		(Millions)		Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
		U.S. Treasury and government
		agency securities	$		2,536	$	41	$	(3)	$	2,574	$	2,048	$	26	$	-	$	2,074
		U.S. Treasury and government
		agency securities – restricted(a)			458		9		-		467		953		17		-		970
		Total(b)	$		2,994	$	50	$	(3)	$	3,041	$	3,001	$	43	$	-	$	3,044

(a)	U.S. Treasury and government agency securities - restricted represented securities loaned out on an overnight basis to financial institutions under the securities lending program.
(b)	Total investment securities include $2.6 billion of senior debentures issued by Government Sponsored Entities (Fannie Mae and Freddie Mac) at both June 30, 2008 and December 31, 2007.
All of Credco’s investment securities are classified as Available-for-Sale. There were no realized gains or losses on U.S. Treasury and government agency securities for the six months ended June 30, 2008. Under securities lending agreements, Credco lends certain investment securities on an overnight basis to financial institutions. These lending arrangements are collateralized by an amount equal to at least 102 percent of the fair market value of the investment securities lent. Collateral received by Credco can be in the form of cash or marketable U.S. Treasury or government agency securities. Credco may only retain or sell these securities in the event of a borrower default. Credco’s loaned investment securities are considered restricted and pledged assets and, therefore, have been reclassified as investment securities restricted on the Consolidated Balance Sheet. The marketable securities received as collateral are not recorded in its Consolidated Balance Sheet, as Credco is not permitted to sell or repledge these securities absent a borrower default. Fees received from the securities lending transactions are recorded as interest income from investments.

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AMERICAN EXPRESS CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3.	Comprehensive Income
	The components of comprehensive income, net of related tax, were as follows:

	Three Months Ended						Six Months Ended
(Millions)	June 30,						June 30,
	2008			2007			2008			2007
Net income	$	253		$	201		$	407		$	373
Other comprehensive income (loss):
Net unrealized securities (losses) gains		(24	)		(9	)		2			(8	)
Net unrealized derivatives gains (losses)		39			16			(7	)		12
Foreign currency translation adjustments		21			47			54			59
Total	$	289		$	255		$	456		$	436

4.

Fair Value Measurements

Effective January 1, 2008, Credco partially adopted SFAS No. 157 for its financial assets and liabilities that are accounted for at fair value. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Credco’s partial adoption of SFAS No. 157 did not result in significant changes to the valuation techniques it had previously used to measure the fair value of its financial assets and liabilities. Therefore, the primary impact to Credco upon its partial adoption of SFAS No. 157 was to expand its fair value measurement disclosures. SFAS No. 157 established a three-level hierarchy of valuation techniques used to measure fair value, defined as follows:

• Unadjusted Quoted Prices – The fair value of an asset or liability is based on unadjusted quoted prices, in active markets for identical assets or liabilities. An example would be a marketable equity security that is actively traded on the New York Stock Exchange. (Level 1)

• Pricing Models with Significant Observable Inputs – The fair value of an asset or liability is based on information derived from either an active market quoted price, which may require further adjustment based on the attributes of the financial asset or liability being measured, or an inactive market transaction. Examples of such instruments would include (i) a quoted price for an actively traded equity investment that is adjusted for a contractual trading restriction, or (ii) the fair value derived from a trade of an identical or similar security in an inactive market. (Level 2)

• Pricing Models with Significant Unobservable Inputs – The fair value of an asset or liability is primarily based on internally derived assumptions surrounding the timing and amount of expected cash flows for the financial instrument. Therefore, these assumptions are unobservable in either an active or inactive market. An example would be the retained subordinated interest in a securitization trust. (Level 3)

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AMERICAN EXPRESS CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents Credco’s financial instruments carried at fair value as of June 30, 2008, by caption on the Consolidated Balance Sheet and by SFAS No. 157 fair value hierarchy level (as described previously).
		Total Carrying Value in the
		Consolidated Balance Sheet			Fair Value
(Millions)		at June 30, 2008			Hierarchy Level (a)
Assets
Investment securities (b)			$	3,041	2
Deferred charges and other assets -
Derivatives, net (c)				75	2
Total assets at fair value			$	3,116
Liabilities
Accrued interest and other liabilities –
Derivatives, net (c)			$	102	2
Total liabilities at fair value			$	102
	(a) The level in the fair value hierarchy to which an asset or liability is classified is based upon the lowest level of input that is significant to the fair value measurement. Credco does not have any financial assets or liabilities categorized within Level 1 or Level 3 of the fair value hierarchy.
	(b) See Note 2 of Credco’s Consolidated Financial Statements for details of investment securities.
	(c) Financial Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts” (FIN 39), permits the netting of derivative receivables and derivative payables when a legally enforceable master netting agreement exists between Credco and its derivative counterparty. At June 30, 2008, the amount of offset against the derivative assets and liabilities representing the impact of legally enforceable master netting agreements that provide for the net settlement of all contracts in accordance with FIN 39 was insignificant.
Description of Financial Assets and Liabilities Fair Value Methodologies The following is a description of the valuation techniques used for the respective financial instruments when measured at fair value, including the general classification of such items pursuant to the fair value hierarchy. These techniques may produce fair values that may not be indicative of a future sale, or reflective of future fair values. The use of different techniques to determine the fair value of these types of financial instruments could result in different estimates of fair value at the reporting date. Investment Securities The fair market values for Credco’s investments are obtained primarily from third-party pricing vendors engaged by Credco. When available, quoted market prices are used to determine fair value. When quoted prices are available in an active market, investments are classified within Level 1 of the fair value hierarchy. Currently, Credco does not have any Level 1 investment securities. When quoted prices in an active market are not available, fair values are estimated by using pricing models, where the inputs to those models are based on observable market inputs. The inputs to the valuation techniques vary depending on the type of security being priced but are typically benchmark yields, reported trades, broker-dealer quotes, and benchmarking of like securities. The pricing models used generally do not entail substantial subjectivity because the methodologies employed use inputs observed from active markets or recent trades of similar securities in inactive markets. All of Credco’s investment securities are classified as Level 2 of the fair value hierarchy.

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AMERICAN EXPRESS CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

	Credco has a thorough and documented understanding of the valuation techniques used by its pricing vendors. In addition, Credco corroborates the prices provided by its pricing vendors to test their reasonableness by comparing their prices to valuations from different pricing sources. Deferred Charges and Other Assets and Accrued Interest and Other Liabilities – Derivatives, net The fair values of derivatives are estimated by using pricing models, where the inputs to those models are based on readily observable market parameters. The valuation models used by Credco are consistently applied and reflect the contractual terms of the derivatives, including the period to maturity, and market-based parameters such as interest rates, foreign exchange rates, and volatility. These models do not contain a high level of subjectivity as the valuation techniques used do not require significant judgment, and inputs to the models are readily observable from actively quoted markets. Market practice in pricing derivatives initially assumes all counterparties have the same credit quality. Credit valuation adjustments are necessary when the market parameter (for example, a benchmark curve) used to value derivatives is not indicative of the credit quality of Credco or its counterparties. Credco manages derivative counterparty credit risk by considering the current exposure, which is the replacement cost of contracts on the measurement date, as well as estimating the maximum potential value of the contracts over their remaining lives, considering such factors as maturity date and the volatility of the underlying or reference index. Credco mitigates derivative credit risk by transacting with highly rated counterparties, and where possible entering into legally enforceable master netting agreements which reduce credit risk by permitting the netting of transactions with the same counterparty upon occurrence of certain events. Management has evaluated the credit and nonperformance risks associated with its derivative counterparties and believes them to be insignificant and not warranting a credit adjustment. Credco’s derivatives primarily include interest rate swaps, foreign currency forwards, foreign currency options, and cross currency swaps. Such instruments are classified within Level 2 of the fair value hierarchy.
5.	Income Taxes
	The results of operations of Credco are included in the consolidated U.S. federal income tax return of American Express. Under an agreement with TRS, provision for income taxes is recognized on a separate company basis. If benefits for net operating losses, future tax deductions and foreign tax credits cannot be recognized on a separate company basis, such benefits are then recognized based upon a share, derived by formula, of those deductions and credits that are recognizable on a TRS consolidated reporting basis. American Express is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which American Express has significant business operations. The tax years under examination and open for examination vary by jurisdiction. In June 2008, the IRS completed its field examination of American Express’ federal tax returns for the years 1997 through 2002. However, for federal income tax purposes, these years continue to remain open as a consequence of certain issues under appeal. American Express is currently under examination by the IRS for the years 2003 and 2004. Credco had approximately $68 million and $55 million of unrecognized tax benefits at June 30, 2008 and December 31, 2007, respectively. The change is primarily due to an increase in unrecognized tax benefits relating to the attribution of pretax income to a particular jurisdiction or jurisdictions. Credco routinely assesses the likelihood of additional assessments in each taxing jurisdiction and has established a liability for unrecognized tax benefits that Credco’s management believes to be adequate. Once established, unrecognized tax benefits are adjusted if more accurate information is available, or a change in

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AMERICAN EXPRESS CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

circumstance, or an event occurs necessitating a change to the liability. It is reasonably possible that the unrecognized tax benefits may significantly increase or decrease within the next twelve months. Due to the inherent complexities and the number of tax years currently under examination, it is not possible to quantify the impact such changes may have on the effective tax rate.

Credco’s effective tax rate was 14 percent and 12 percent for the three and six months ended June 30, 2008, respectively, compared with 7 percent for the full year 2007. The effective tax rate was higher in 2008 as compared to 2007 primarily due to the attribution and change in the geographic mix of pretax income among various jurisdictions.

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AMERICAN EXPRESS CREDIT CORPORATION

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

American Express Credit Corporation, together with its subsidiaries (Credco), is a wholly-owned subsidiary of American Express Travel Related Services Company, Inc. (TRS), a wholly-owned subsidiary of American Express Company (American Express). Credco is primarily engaged in the business of financing non-interest-bearing cardmember receivables arising from the use of the American Express^® card, the American Express^® Gold card, Platinum card^®, Corporate card and other American Express cards issued in the United States, and in designated currencies outside the United States. Credco also purchases certain interest-bearing and discounted revolving loans comprised of American Express credit cards and Sign & Travel^®, although interest-bearing and revolving loans are primarily funded by subsidiaries of TRS other than Credco. American Express cards and American Express credit cards are collectively referred to herein as the Card.

In 2007, Credco made changes to certain international funding strategies which have generally resulted in the transfer of receivables with recourse to Credco from certain TRS subsidiaries. Prior to these funding strategy changes, Credco purchased the cardmember receivables without recourse and recorded the receivables as cardmember receivables. These funding strategy changes resulted in Credco recording additional loans to affiliates and a reduction in cardmember receivables.

Results of Operations for the Six Months Ended June 30, 2008 and 2007

Pretax income depends primarily on the volume of cardmember receivables and loans purchased, the discount factor used to determine purchase price, the relationship of the total discount to Credco’s interest expense and the collectibility of cardmember receivables and loans purchased.

Credco’s consolidated net income increased 9 percent to $407 million for the six months ended June 30, 2008, as compared to the six months ended June 30, 2007. The year-over-year increase was primarily due to an increase in interest income earned on loans to affiliates and investments and a decrease in interest expense, partially offset by a decrease in discount revenue and an increase in provision for losses, net of recoveries.

The following table summarizes the changes attributable to the increase (decrease) in key revenue and expense accounts for the six month period ended June 30, 2008, compared with the six month period ended June 30, 2007 (millions):

Discount revenue earned on purchased cardmember receivables and loans:
Volume of receivables purchased	$	(34	)
Discount rates		(70	)
Total	$	(104	)
Interest income from affiliates:
Average loans to affiliates	$	65
Interest rates		14
Total	$	79
Interest income from investments:
Average investments outstanding	$	100
Interest rates		(87	)
Total	$	13
Provision for losses, net of recoveries:
Volume of receivables and loans purchased	$	(9	)
Provision rates and volume of recoveries		51
Total	$	42

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AMERICAN EXPRESS CREDIT CORPORATION

Interest expense:
Average debt outstanding	$	120
Interest rates		(175	)
Total	$	(55	)
Interest expense to affiliates:
Average debt outstanding	$	51
Interest rates		(111	)
Total	$	(60	)

Discount Revenue Earned on Purchased Cardmember Receivables and Loans

Discount revenue decreased 8 percent or $104 million to $1.2 billion for the six months ended June 30, 2008, as compared to the six months ended June 30, 2007, primarily due to a decrease in both the volume of receivables purchased and discount rates. Volume of receivables and loans purchased for the six months ended June 30, 2008, was 2 percent lower than the same period a year ago; purchased volume does not include those cardmember receivables transferred with recourse to Credco and cardmember receivables and loans funded by loans to affiliates. Discount rates, which vary over time due to changes in market interest rates or changes in the collectibility of cardmember receivables, decreased an average of approximately 5 basis points compared to the six months ended June 30, 2007.

Interest Income from Affiliates

Interest income from affiliates increased 26 percent or $79 million to $382 million for the six months ended June 30, 2008, as compared to the six months ended June 30, 2007. The year-over-year increase is due to an increase in both the volume of loans to affiliates, and to a lesser extent the interest rates charged to affiliates. The average volume of loans to affiliates increased due to a change in international funding strategy as further discussed above. The average interest rate charged to affiliates during the six months ended June 30, 2008, was 11 basis points higher than the average interest rate charged to affiliates in the same six month period a year ago.

Interest Income from Investments

Interest income from investments increased 10 percent or $13 million to $143 million for the six months ended June 30, 2008, as compared to the six months ended June 30, 2007. The year-over-year increase is due to an increase in the average outstanding amount of cash and cash equivalents offset by the decrease of the average interest rate on the total investment portfolio of approximately 95 basis points for the six months ended June 30, 2008, as compared to the same six month period a year ago. The increase in cash and cash equivalents reflects the issuance of short-term and long-term debt that was in excess of Credco’s business operating needs, and investment of the excess proceeds in cash equivalents.

Provision for Losses, Net of Recoveries

The provision for losses, net of recoveries increased 13 percent or $42 million to $356 million for the six months ended June 30, 2008, as compared to the six months ended June 30, 2007. The year-over-year increase primarily reflects higher write-off and delinquency rates compared to the same period a year ago, reflecting a more difficult U.S. credit environment.

Interest Expense and Interest Expense to Affiliates

Interest expense and interest expense to affiliates decreased 7 percent and 28 percent, respectively, for the six months ended June 30, 2008, as compared to the same period a year ago, due to lower interest rates. The average interest rate on debt outstanding during the six months ended June 30, 2008, was 52 basis points lower than the

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AMERICAN EXPRESS CREDIT CORPORATION

same period a year ago. The average rate due to affiliates during the six months ended June 30, 2008, was 111 basis points lower than the same period a year ago.

Service Fees to Affiliates

Credco pays fees to affiliates for the related servicing of the receivables purchased. Service fees to affiliates increased 11 percent or $10 million to $102 million for the six months ended June 30, 2008, as compared to the six months ended June 30, 2007, due to an increase in servicing provided by service level agreements with affiliates.

Income Taxes

Credco’s effective tax rate for both the six months ended June 30, 2008 and 2007 was 12 percent.

Cardmember Receivables

At June 30, 2008 and December 31, 2007, Credco owned $25.3 billion and $26.3 billion of cardmember receivables, respectively. Cardmember receivables represent amounts due from charge card customers and are recorded at the time they are purchased from the seller. Included in cardmember receivables are Credco Receivables Corporation (CRC)’s purchases of the participation interests from American Express Receivables Financing Corporation V LLC (RFC V) in conjunction with TRS’ securitization program. At June 30, 2008 and December 31, 2007, CRC owned approximately $3.4 billion and $5.7 billion, respectively, of participation interests purchased from RFC V.

The following table summarizes selected information related to the cardmember receivables portfolio:

	June 30,			December 31,			June 30,
As of and for six months ended (Millions, except percentages)	2008			2007			2007
Total cardmember receivables	$	25,296		$	26,335		$	27,579
90 days past due as a % of total		3.9	%		4.0	%		3.3	%
Loss reserves	$	771		$	831		$	752
as a % of receivables		3.0	%		3.2	%		2.7	%
as a % of 90 days past due		77	%		77	%		82	%
Write-offs, net of recoveries	$	364		$	359		$	299
Net write-off rate (1)		0.26	%		0.24	%		0.21	%
Average life of cardmember receivables (in days) (2)		33			33			34

(1)	Credco’s write-offs, net of recoveries, expressed as a percentage of the volume of cardmember receivables purchased by Credco in each of the periods indicated.
(2)	Represents the average life of cardmember receivables owned by Credco, based upon the ratio of the average amount of both billed and unbilled receivables owned by Credco at the end of each month, during the periods indicated, to the volume of cardmember receivables purchased by Credco.
Cardmember receivables owned at June 30, 2008, decreased approximately $1.0 billion from December 31, 2007, as a result of lower consumer, small business and corporate cardmember receivables purchased during the six months ended June 30, 2008. The cardmember receivables purchased for the six months ended June 30, 2008, decreased approximately 2 percent from the cardmember receivables purchased during the six months ended June 30, 2007.

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AMERICAN EXPRESS CREDIT CORPORATION

Reserves for Cardmember Receivables and Cardmember Loans

The following is an analysis of the reserves for cardmember receivables and cardmember loans:

	June 30,			June 30,
Six months ended (Millions)	2008			2007
Balance, beginning of period	$	841		$	749
Provision for losses (1)		356			314
Accounts written-off (1)		(370	)		(305	)
Other		(45	)		3
Balance, end of period	$	782		$	761

(1)   Includes recoveries on accounts previously written-off of $81 million and $89 million during the six months ended June 30, 2008 and 2007, respectively.

Loans to Affiliates

Components of loans to affiliates were as follows:

	June 30,		December 31,			June 30,
(Millions)	2008		2007			2007
TRS Subsidiaries:
American Express Australia Limited	$	4,184		$	3,897	$	3,898
American Express Services Europe Limited		3,108			3,659		3,518
Amex Bank of Canada		2,649			2,664		2,393
American Express International, Inc.		860			535		3
American Express Co. (Mexico) S.A. De C.V.		489			446		366
American Express Bank (Mexico) S.A.		350			-		-
Total	$	11,640		$	11,201	$	10,178

Loans to affiliates increased from 2007 as a result of funding strategy changes as previously discussed, as well as overall business growth. Of the $11.6 billion outstanding of loans to affiliates, approximately $7.8 billion are collateralized by the underlying cardmember receivables transferred with recourse. Additionally, as part of this funding strategy, Credco loaned $350 million to American Express Bank (Mexico) S.A. during the second quarter of 2008. Additionally, beginning prospectively on September 30, 2007, certain cardmember receivables were reclassified to loans to affiliates.

Impact of Capital Markets Environment

Investment Portfolio

Credco’s investment portfolio primarily supports its contingent liquidity strategy. As a result, Credco generally holds investments to maturity. However, management may sell securities prior to maturity due to changes in Credco’s business goals, liquidity needs, and the market environment. At June 30, 2008, Credco owned approximately $3.0 billion of U.S. Treasury and government agency securities, all of which are part of the contingent liquidity portfolio and are considered Available-for-Sale securities. At both June 30, 2008 and December 31, 2007, Credco owned, as part of the $3.0 billion total, approximately $2.6 billion of senior unsecured debentures issued by Government Sponsored Entities: Fannie Mae and Freddie Mac. Of the $47 million of net unrealized gains in the investment portfolio at June 30, 2008, approximately $38 million relate to these Government Sponsored Entities. There has been no material adverse change in the market value of these securities to date in July 2008.

Credco did not experience any defaults or events of default, or determine it would not receive timely contractual payments of interest and repayment of principal, on any of its holdings in its investment portfolio in the second quarter of 2008.

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Valuations of securities held within Credco’s investment portfolio will continue to be subject to changes in external market factors including default rates, rating agency actions, and the prices at which observable market transactions occur. Credco’s future results may be impacted by the valuation adjustments applied to these holdings.

Funding

Credco is committed to maintaining cost-effective, well-diversified funding programs to support current and future asset growth in its global businesses. Credco’s funding plan is structured to meet expected and changing business needs to fund asset balances efficiently and cost-effectively. Credco relies on diverse sources of funding, with wide ranges of maturities, and its contingent liquidity strategy allows for the continued funding of business operations through difficult economic, financial market and business conditions when access to regular funding sources could become diminished or interrupted. Credco’s funding plans are subject to various risks and uncertainties, such as future business growth, market capacity and demand for securities offered by Credco and regulatory changes. Many of these risks and uncertainties are beyond Credco’s control.

Despite the turmoil in the fixed-income capital markets that emerged in the second half of 2007 and continues today, Credco continues to have access to financing through its existing funding sources in excess of needs to satisfy maturing obligations and to fund its business growth.

Credco will continue to evaluate its alternative sources of funding and seek the mix that achieves cost-efficiency consistent with its funding and liquidity strategies. Further disruptions and continued turmoil in the financial markets could result in changes in the amount and mix of financing it obtains in the future from its existing funding sources. Specifically, a potential lack of investor demand in certain sectors of the debt capital market, such as for 1-to-5 year unsecured floating rate debt or commercial paper, could alter Credco’s funding mix. In such cases, Credco may increase its issuance of longer-term debt.

Credit ratings have a significant impact on the borrowing costs of Credco. There were no changes in Credco’s credit ratings during the second quarter of 2008; however, in July 2008, one of the four credit rating agencies that cover Credco revised its outlook on Credco from stable to negative. This negative outlook assesses the potential direction of a rating over the intermediate term, reflects changes in the economy and business conditions, and while indicating a rating may be lowered, is not necessarily a precursor of a rating change. Credit ratings are subject to change or withdrawal at any time.

Fair Value Measurements

Effective January 1, 2008, Credco partially adopted Statement of Financial Accounting Standards (SFAS) No. 157 for its financial assets and liabilities that are accounted for at fair value. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Credco’s partial adoption of SFAS No. 157 did not result in significant changes to the valuation techniques it had previously used to measure the fair value of its financial assets and liabilities. Therefore, the primary impact to Credco upon its partial adoption of SFAS No. 157 was expanding its fair value measurement disclosures.

SFAS No. 157 established a three-level hierarchy of valuation techniques used to measure fair value, defined as follows:

• Unadjusted Quoted Prices – The fair value of an asset or liability is based on unadjusted quoted prices, in active markets for identical assets or liabilities. An example would be a marketable equity security that is actively traded on the New York Stock Exchange. (Level 1)

• Pricing Models with Significant Observable Inputs – The fair value of an asset or liability is based on information derived from either an active market quoted price, which may require further adjustment based on the attributes of the financial asset or liability being measured, or an inactive market transaction. Examples of such instruments would include (i) a quoted price for an actively traded equity investment that is adjusted for a

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AMERICAN EXPRESS CREDIT CORPORATION

contractual trading restriction, or (ii) the fair value derived from a trade of an identical or similar security in an inactive market. (Level 2)

• Pricing Models with Significant Unobservable Inputs – The fair value of an asset or liability is primarily based on internally derived assumptions surrounding the timing and amount of expected cash flows for the financial instrument. Therefore, these assumptions are unobservable in either an active or inactive market. An example would be the retained interest in a securitization trust. (Level 3)

Credco does not have any financial assets or liabilities categorized within Level 1 or Level 3 of the fair value hierarchy. See Note 4 of Credco’s Consolidated Financial Statements for further details regarding its fair value measurements.

Consolidated Liquidity and Capital Resources

Credco had cash and cash equivalents of approximately $5.0 billion and $2.9 billion at June 30, 2008 and December 31, 2007, respectively.

Credco’s funding requirements are met primarily by the sale of commercial paper, the issuance of long-term notes, borrowings under long-term bank credit facilities in certain international markets and equity capital. Credco has readily sold the volume of debt necessary to meet its funding needs.

The commercial paper market represents the primary source of short-term funding for Credco. Credco’s commercial paper is a widely recognized name among short-term investors. The table below illustrates Credco’s commercial paper outstanding and back-up liquidity coverage:

	June 30,			December 31,
(Billions, except percentages)	2008			2007
Commercial paper outstanding	$	12.5			$	10.5
Average commercial paper outstanding	$	12.4			$	7.8
Net short-term debt outstanding(1)	$	7.7			$	7.9
Total back-up liquidity coverage of net short-term debt(2)		143	%			140	%

(1)	Credco currently manages the level of short-term debt outstanding such that its total back-up liquidity, including maximum available bank credit facilities and term liquidity portfolio investment securities, is not less than 100 percent of net short-term debt. Net short-term debt consists of commercial paper and certain other short-term borrowings less cash and cash equivalents.
(2)	Based on the maximum available borrowings under bank credit facilities and term liquidity portfolio investment securities.
Long-term debt is raised through the offering of debt securities in the United States and in certain international capital markets. Long-term debt is generally defined as any debt with an original maturity greater than 12 months. Credco continues to issue debt with a range of maturities to diversify the refinancing requirements in future periods. Credco had the following long-term debt outstanding:

	June 30,		December 31,
(Billions)	2008		2007
Long-term debt outstanding	$	21.9		$	22.3
Average long-term debt	$	21.4		$	22.7

Credco also has the ability to issue debt securities under shelf registrations filed with the Securities and Exchange Commission (SEC). The shelf registration statement filed with the SEC is for an unspecified amount of debt securities to be issued from time to time. During the six months ended June 30, 2008, Credco issued $3.3 billion of

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AMERICAN EXPRESS CREDIT CORPORATION

debt securities from its U.S. shelf registration. At June 30, 2008, Credco had $12.5 billion of debt securities outstanding, issued under the SEC registration statements.

Credco, in conjunction with certain subsidiaries of American Express, has established a program for the issuance, outside the United States, of debt instruments to be listed on the Luxembourg Stock Exchange. On July 18, 2008, this program was renewed and the maximum aggregate principal amount of debt instruments outstanding at any one time under the program was increased to $50.0 billion. The proceeds of these issuances are used for financing operations, including the purchase of receivables and the repayment of previously issued debt. At June 30, 2008, $4.1 billion was outstanding under this program, of which $2.8 billion was issued by Credco.

Credco established a program in Australia for the issuance of debt securities from time to time of up to approximately $5.7 billion. During the six months ended June 30, 2008, no notes were issued under this program. At June 30, 2008, approximately $4.9 billion was available for issuance under this program.

During the fourth quarter of 2007, the shelf prospectus previously filed by American Express Canada Credit Corporation (Cancredco), an indirect wholly-owned subsidiary of Credco, in Canada expired for the Canadian medium-term note program. Also during that quarter, Cancredco borrowed approximately $295 million from the Bank of Montreal under a credit agreement guaranteed by Credco. The proceeds were used to pay the long-term notes under this program that had matured. During the second quarter of 2008, Cancredco repaid this loan.

During the first quarter of 2008, a new shelf prospectus was filed and became effective in Canada for a medium-term note program providing for the issuance from time to time, in Canada, of up to approximately $3.5 billion of notes by Cancredco. All notes issued under this shelf registration will be guaranteed by Credco. During the second quarter of 2008, Cancredco issued approximately $494 million of medium-term notes. The financial results of Cancredco are included in the consolidated financial results of Credco.

Credco paid cash dividends of $210 million to TRS during the six months ended June 30, 2008.

The most restrictive limitation on dividends imposed by the debt instruments issued by Credco is the requirement that Credco maintain a minimum consolidated net worth of $50 million. There are no significant restrictions on the ability of Credco to obtain funds from its subsidiaries by dividend or loan. Additionally, there are no limitations on the amount of debt that can be issued by Credco.

Committed Bank Credit Facilities

Credco maintained committed bank credit facilities at June 30, 2008 as follows:

			American
(Billions)	Total		Express		Credco
Committed(a)	$	11.7	$	1.2	$	10.5	(b)
Outstanding	$	3.5	$	-	$	3.5

(a)	Included is $3.5 billion outstanding related to the Australian credit facility.
(b)	Credco has the right to borrow a maximum amount of $11.7 billion with a commensurate maximum $1.2 billion reduction in the amount available to American Express.
Credco’s committed bank credit facilities expire as follows:

(Billions)
2010	$	1.9
2011		2.8
2012		7.0
Total	$	11.7

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AMERICAN EXPRESS CREDIT CORPORATION

The availability of the credit lines is subject to Credco’s compliance with certain financial covenants that require maintenance of a 1.25 ratio of combined earnings and fixed charges to fixed charges. The ratio of earnings to fixed charges for Credco was 1.53 for the six months ended June 30, 2008. The ratio of earnings to fixed charges for American Express for the six months ended June 30, 2008 was 2.13.

Committed bank credit facilities do not contain material adverse change clauses, which may preclude borrowing under the credit facilities. Additionally, the facilities may not be terminated should there be a change in Credco’s credit rating.

Forward-Looking Statements

Various statements have been made in this Quarterly Report on Form 10-Q that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be made in Credco’s other reports filed with or furnished to the SEC and in other documents. In addition, from time to time, Credco through its management may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties, including those identified below, which could cause actual results to differ materially from such statements. The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are intended to identify forward-looking statements. Credco cautions you that the risk factors described below are not exclusive. There may also be other risks that Credco is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Credco undertakes no obligation to update or revise any forward-looking statements.

Factors that could cause actual results to differ materially from Credco’s forward-looking statements include, but are not limited to:

• credit trends, which will depend in part on the economic environment, including among things, the housing market and the rates of bankruptcies, which can affect spending on card products and debt payments by individual and corporate customers;

• Credco’s ability to accurately estimate the provision for losses in Credco’s outstanding portfolio of cardmember receivables and loans;

• fluctuations in foreign currency exchange rates;

• negative changes in Credco’s credit ratings, which could result in decreased liquidity and higher borrowing costs;

• the potential failure of the U.S. Congress to extend the active financing exception to Subpart F of the Internal Revenue Code, which is scheduled to expire at the end of 2008 and could increase Credco’s effective tax rate;

• changes in laws or government regulations affecting American Express Company’s business, including the potential impact of regulations proposed by federal bank regulators relating to certain credit and charge card practices;

• the effect of fluctuating interest rates, which could affect Credco’s borrowing costs; and

• the impact on American Express Company’s business resulting from continuing geopolitical uncertainty.

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	OTHER REPORTING MATTERS Accounting Developments See “Recently Issued Accounting Standards” section of Note 1 to the Consolidated Financial Statements.
Item 4. CONTROLS AND PROCEDURES
	Credco’s management, with the participation of Credco’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Credco’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, Credco’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, Credco’s disclosure controls and procedures are effective. There have not been any changes in Credco’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during Credco’s fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, Credco’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 6. EXHIBITS

The list of exhibits required to be filed as exhibits to this report are listed on page E-1 hereof, under “Exhibit Index,” which is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN EXPRESS CREDIT CORPORATION
(Registrant)

DATE:   August 5, 2008	By	/s/ Christopher S. Forno
		Christopher S. Forno
		President and Chief Executive Officer
DATE:   August 5, 2008	By	/s/ Lawrence A. Belmonte
		Lawrence A. Belmonte
		Vice President and Chief Accounting Officer

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EXHIBIT INDEX

Pursuant to Item 601 of Regulation S-K

	Description	How Filed
Exhibit 12.1	Computation in Support of Ratio of	Electronically filed herewith.
	Earnings to Fixed Charges of American
	Express Credit Corporation.
Exhibit 12.2	Computation in Support of Ratio of	Electronically filed herewith.
	Earnings to Fixed Charges of American Express
	Company.
Exhibit 31.1	Certification of Christopher S. Forno, Chief	Electronically filed herewith.
	Executive Officer, pursuant to Rule 13a-14(a)
	promulgated under the Securities Exchange Act
	of 1934, as amended.
Exhibit 31.2	Certification of David L. Yowan, Chief	Electronically filed herewith.
	Financial Officer, pursuant to Rule 13a-14(a)
	promulgated under the Securities Exchange Act
	of 1934, as amended.
Exhibit 32.1	Certification of Christopher S. Forno, Chief	Electronically filed herewith.
	Executive Officer, pursuant to 18 U.S.C.
	Section 1350, as adopted pursuant to Section
	906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2	Certification of David L. Yowan, Chief	Electronically filed herewith.
	Financial Officer, pursuant to 18 U.S.C. Section
	1350, as adopted pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002.

E-1