EXHIBIT 99.1
INFORMATION RELATING TO FORWARD LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS
This release includes forward-looking statements, which are subject to risks and
uncertainties. 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.
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. The Company
undertakes no obligation to update or revise any forward-looking statements.
Factors that could cause actual results to differ materially from these
forward-looking statements include, but are not limited to, the following: the
ultimate amount of cardmember loans and receivables that are written-off and the
ultimate amount of provision for credit losses that the Company recognizes in
the fourth quarter of 2005, in each case as a result of the higher-than-expected
levels of bankruptcy petitions filed prior to the mid-October 2005 effective
date of the new federal bankruptcy legislation, which will depend in part on the
credit performance for the remainder of the fourth quarter, and more generally,
the Company's ability to manage credit risk related to consumer debt, business
loans, merchant bankruptcies and other credit trends and the rate of
bankruptcies, which can affect spending on card products, debt payments by
individual and corporate customers and businesses that accept the Company's card
products and returns on the Company's investment portfolios; a potential
continuation into 2006 of the delay in processing bankruptcy petitions filed
prior to the mid-October 2005 effective date of the new federal bankruptcy
legislation and the consequent delay in notifying the Company of such filings
made by cardmembers, thereby extending the potential impact of such filings into
2006 on write-offs, provisions for credit losses and cardmember delinquencies;
the Company's ability to generate sufficient net income to achieve a return on
equity on a GAAP basis of 28% to 30%; the actual amount spent by the Company in
the fourth quarter of 2005 on marketing, promotion, rewards and cardmember
services based on management's assessment of competitive opportunities and other
factors affecting its judgment and more generally, the Company's ability to
generate sufficient revenues for expanded investment spending over the medium-
to long-term, and the ability to capitalize on such investments to improve
business metrics; the Company's ability to grow its business and meet or exceed
its return on shareholders' equity target by reinvesting approximately 35% of
annually-generated capital, and returning approximately 65% of such capital to
shareholders, over time, which will depend on the Company's ability to manage
its capital needs and the effect of business mix, acquisitions and rating agency
requirements; consumer and business spending on the Company's credit and charge
card products and Travelers Cheques and other prepaid products and growth in
card lending balances, which depend in part on the ability to issue new and
enhanced card and prepaid products, services and rewards programs, and increase
revenues from such products, attract new cardmembers, reduce cardmember
attrition, capture a greater share of existing cardmembers' spending, sustain
premium discount rates on its card products in light of regulatory and market
pressures, increase merchant coverage, retain cardmembers after low introductory
lending rates have expired, and expand the Global Network & Merchant Services
business; the Company's ability to introduce new products, reward program
enhancements and service enhancements on a timely basis during the last quarter
of 2005 and the first half of 2006; the success of the Global Network & Merchant
Services business in partnering with banks in the United States, which will
depend in part on the extent to which such business further enhances the
Company's brand, allows the Company to leverage its significant processing
scale, expands merchant coverage of the network, provides Global Network &
Merchant Services' bank partners in the United States the benefits of greater
cardmember loyalty and higher spend per customer, and merchant benefits such as
greater transaction volume and additional higher spending customers; the timing
and success of the Company's partnership with Citibank pursuant to which it will
issue credit cards in the United States that will be accepted on the American
Express network; the continuation of favorable trends, including increased
travel and entertainment spending, and the overall level of consumer confidence;
successfully cross-selling financial, travel, card and other products and
services to the Company's customer base, both in the United States and abroad;
the costs and integration of acquisitions; the success, timeliness and financial
impact (including costs, cost savings and other benefits including increased
revenues), and beneficial effect on the Company's operating expense to revenue
ratio, both in the short-term and over time, of reengineering initiatives being
implemented or considered by the Company, including cost management, structural
and strategic measures such as vendor, process, facilities and operations
consolidation, outsourcing (including, among others, technologies operations),
relocating certain functions to lower-cost overseas locations, moving internal
and external functions to the Internet to save costs, and planned staff
reductions relating to certain of such reengineering actions; the ability to
control and manage operating, infrastructure, advertising and promotion expenses
as business expands or changes, including the ability to accurately estimate the
provision for the cost of the Membership Rewards program; bankruptcies,
restructurings or similar events affecting the airline or any other industry
representing a significant portion of the Company's billed business, including
any potential negative effect on particular card products and services and
billed business generally that could result from the actual or perceived
weakness of key business partners in such industries; the triggering of
obligations to make payments to certain co-brand partners, merchants, vendors
and customers under contractual arrangements with such parties under certain
circumstances; a downturn in the Company's businesses and/or negative changes in
the Company's and its subsidiaries' credit ratings, which could result in
contingent payments under contracts, decreased liquidity and higher borrowing
costs; risks associated with the Company's agreements with Delta Air Lines to
prepay $350 million for the future purchases of Delta SkyMiles rewards points;
fluctuations in foreign currency exchange rates; fluctuations in interest rates,
which impact the Company's borrowing costs and return on lending products;
accuracy of estimates for the fair value of the assets in the Company's
investment portfolio and, in particular, those investments that are not readily
marketable, including the valuation of the interest-only strip relating to the
Company's lending securitizations; the potential negative effect on the
Company's businesses and infrastructure, including information technology, of
terrorist attacks, disasters or other catastrophic events in the future;
political or economic instability in certain regions or countries, which could
affect lending and other commercial activities, among other businesses, or
restrictions on convertibility of certain currencies; changes in laws or
government regulations, including changes in tax laws or regulations that could
result in the elimination of certain tax benefits; outcomes and costs associated
with litigation and compliance and regulatory matters; deficiencies and
inadequacies in the Company's internal control over financial reporting, which
could result in inaccurate or incomplete financial reporting; and competitive
pressures in all of the Company's major businesses. A further description of
these and other risks and uncertainties can be found in the Company's Annual
Report on Form 10-K for the year ended December 31, 2004, and its other reports
filed with the SEC.
MERRILL LYNCH BANKING AND FINANCIAL SERVICES INVESTOR CONFERENCE
NOVEMBER 16, 2005
Talking points prepared for presentation to the Merrill Lynch Banking and
Financial Services Investor Conference by American Express Chairman and Chief
Executive Officer Kenneth I. Chenault on November 16, 2005.
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[FOR SLIDES ACCOMPANYING THIS PRESENTATION, PLEASE REFER TO THE AMERICAN
EXPRESS COMPANY INVESTOR RELATIONS WEB SITE AT http://ir.americanexpress.com.]
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MERRILL LYNCH INVESTOR
CONFERENCE
NOVEMBER 16, 2005
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TITLE SLIDE
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Thank you, Ken. It's a pleasure for me to join you today.
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AGENDA
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Given the mix of attendees here today, there is probably a wide range of
knowledge about our company among the group.
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So what I thought I'd do today is cover three topics - first, some of our
financial basics, second, a more in-depth discussion of our growth potential
and finally the flexibility of our business model, with a focus on both our
short-term and long-term strategies.
So, let me start with our financial performance.
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YTD FINANCIAL RESULTS
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Hopefully all of you have seen or heard about our results, which have been
very strong over the last few years, and which have accelerated through
September.
As you can see here, our year to date results from continuing operations have
exceeded all of our "on average and over time" financial objectives.
Our overall growth in earnings from continuing operations has largely been
driven by the strength of our core metrics.
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METRIC TRENDS - CARDS IN FORCE
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Cards in force were up 9% at the end of the third quarter, an acceleration of
the trend we've seen over the last two years.
This growth came from several sources - the launch of new proprietary
products, such as Jet Blue and Blue Sky, the implementation of a number of
bank partners within Global Network Services, and the continued growth of our
organic card base.
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METRIC TRENDS - AVERAGE SPENDING
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Even as our card base grows, our average spend per card continues to grow even
faster, up 12% through September.
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AVERAGE SPEND PER CARD
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In looking at our competitive position at the end of 2004, our average spend
per card was almost $11,000 - more than 5 times higher than MasterCard, and
almost 4 times higher than Visa.
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In addition, as you can see here, even with good growth in our denominator -
our card base -- over the past 6 years, we've seen consistent gains in our
spend per card, while the average spend of the associations has only inched
up.
Average spend is an essential element of our spend-centric model and is a key
driver of earnings.
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We've been able to increase this metric over the past few years by increasing
our share of wallet among existing cardmembers, focusing on rewards and
premium products, and expanding our merchant base into everyday spend
categories.
This last driver, our merchant expansion, has reduced our proportion of T&E
spend, contributing to a lower average discount rate over this timeframe.
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However, our resulting increases in average spend, along with the quality
lending balances generated by this spend, have more than made up for our
somewhat lower discount rate.
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METRIC TRENDS -- BILLINGS
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This growth in both our cards in force and average spend has generated very
strong billings growth over the last few years, on both an absolute and
relative basis.
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On a year to date basis, billings are up 17%, an exceptional growth rate,
particularly considering the growover from a strong 2004, when billings grew
by 18%.
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RELATIVE BILLINGS GROWTH
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Against major competitors who report billings, we continue to outperform our
peer group and the industry at large.
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On a year to date basis we have a positive gap of 7 percentage points over our
nearest competitor, a separation that I haven't seen in my 20+ years in the
industry.
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SHARE - CREDIT AND CHARGE
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This relative performance has led to overall gains in share, both in the U.S.
as you can see here, and in several international regions as well.
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Looking at just the credit and charge card market over this time period, you
can see that we had the highest share gains of any network.
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SHARE - INCLUDING DEBIT
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Also important was the fact that those share gains held up even when adding
the impact of debit, a separate market, which has been growing at a greater
pace.
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METRICS - CARDMEMBER LOANS
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Another outcome of our success in growing cards and billings has been our
growth in managed cardmember loans.
At the end of the third quarter loan balances were up 15%, excluding the
impact of our 2004 sale of our equipment leasing portfolio.*
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LOANS - RELATIVE PERFORMANCE
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Against the card businesses of other issuers our growth rate again outpaced
our peers and the industry overall.
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*On a GAAP basis, loan balance growth was 30% as of 9/30/05.
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Within the U.S., the industry overall was estimated to be at about 3%.
An important point of context here is to remember that our core business model
is a SPEND-BASED model, rather than being LEND-BASED like most of the
companies here.
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Loans are not our primary business driver; rather they're an outcome of our
spend-centric focus.
We're not on the treadmill of having to continually increase balances to
generate earnings.
Instead we can put more focus on targeting the spend of high quality prospects
and current cardmembers, a proportion of which will then flow through to our
lending balances.
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For example, one initiative we've used with good success is
the targeted increase of line sizes for creditworthy customers, an approach
that serves to increase both a cardmember's spending and their lending.
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METRICS - CREDIT
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Credit continued to be a key positive driver for us in the third quarter.
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METRICS - CREDIT - W/OFF RATES
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Our third quarter writeoff rates and 30 day past due rates continue to be well
below industry levels.
This performance has been helped by improvements in our modeling and
information capabilities, the quality of our customer base and our risk
management expertise.
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AGENDA
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As I assess our year to date financial performance, I am quite pleased with
our results.
To me, our business performance has been indicative of the success of our
focused strategy, the success of our spend-centric model, and the investments
we've made over the last several years.
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BLUE BOX
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With the recently completed spin-off of Ameriprise, American Express now
becomes what I refer to as a "FOCUSED COMPETITOR".
As I view it, a focused competitor leverages a set of core competencies within
an industry - in our case payments and processing - by providing a diverse
array of products and services to multiple customer segments, in multiple
geographies.
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Over the past few years we've divested a number of businesses, including
Financial Advisors, Educational Lending, Tax and Business Services and our
small business leading portfolio.
But even though we've divested, I don't believe we've in any way narrowed our
growth opportunities.
In fact, the opposite is true.
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We've actually had MORE growth opportunities come forward from the
organization now that we have a greater focus on our core businesses.
I believe our core competencies, which include marketing, credit underwriting,
and transaction processing to name just a few, are broad, deep and
leverageable.
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By focusing on these competencies, and on investments within our higher return
core businesses, I believe we'll end up improving both our long term growth
potential and our financial performance.
This approach differs from most competitors in our field but, within a growing
industry such as payments, I believe this is the best position to be in.
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Now, you may say, Ken, this all sounds good on paper, but do you have a
sustainable model?
Can the momentum you've generated continue over the short to moderate term?
I believe the answer to these questions is a resounding "yes", and there are a
number of reasons why.
* * * * * * * * *
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GROWTH POTENTIAL
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The first reason for my confidence is the potential that exists within our
core card businesses.
Some people, I know, view card payments as being "mature".
You may say that most creditworthy people already have a number of cards - how
much more potential can there be?
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To me, just looking at the number of cards is looking at the industry too
narrowly.
Significant potential does exist in adding cards and average spend, but there
are also large opportunities in expanding the use of plastic to new payment
streams.
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PLASTIC PENETRATION
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This slide gives you a sense of our estimate of spending on plastic across a
number of key segments.
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Of the trillions of dollars, euros and yen spent annually by consumers and
businesses around the world, we estimate that plastic still captures a
relatively small percentage of total spending.
In places such as China and India, countries with huge spending streams,
plastic penetration is only in the low single digits.
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But even in more developed countries such as the U.S., the U.K. and Australia,
there are still large untapped categories of spend.
Our merchant acquisition team has already taken the lead in expanding plastic
acceptance into segments such as rent, fast food restaurants and
business-to-business spend.
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Add on the potential of gaining spend in areas such as healthcare and telecom
and you can see that the upside here is huge.
Many CEOs I know are struggling within industries that have limited growth
potential.
As a result their actions are primarily focused on taking share away from
competitors, on trying to get a larger piece of the pie.
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We also compete aggressively against our competitors, but within payments the
pie itself is growing.
And I believe plastic has the potential to make substantial penetration gains
for many years to come.
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GROWTH POTENTIAL
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In addition to overall industry growth, another reason for my confidence in
our moderate to long-term potential is the specific advantages we have in the
marketplace.
As I said earlier, our business model is unique among major card issuers.
Our focus is on gaining and growing the business of high spending cardmembers.
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SPEND CENTRIC MODEL
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Our spend-centric model has any number of levers we can use to capture the
growth potential in the marketplace.
And over the past several years we've increased our investment spending to
capitalize on both the breadth and depth of these levers.
For example, we continue to launch NEW, INNOVATIVE PROPRIETARY PRODUCTS such
as American Express One.
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We've signed NEW NETWORK PARTNERS such as UBS and USAA, and will have several
new products in the marketplace over the upcoming months.
First out of the chute will be our network product with Citi, which we expect
to launch towards the end of year.
While we'll see no impact on our business results from this partnership this
year, we do expect to see a positive impact on our results in future periods.
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Another lever within our spend centric model is our CLOSED LOOP NETWORK, which
allows us to use information and analysis to improve our value propositions to
both cardmembers and merchants.
Our closed loop is a true differentiating factor for us, and no other network
can do what we can in terms of analyzing merchant spend and targeting large
scale offers to customers.
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It's one of the reasons we can maintain premium pricing to merchants as
compared to the associations.
A key factor in this advantage is our merchant sales and relationship team, an
organization that just doesn't exist at either Visa or Mastercard.
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Our merchant organization has personal accountability for signing new
merchants, but very importantly they're also responsible for helping ALL
merchants realize the economic value from our ongoing relationship.
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By using the data from our closed loop we've been able to develop programs to
increase our share of wallet among targeted customer segments, at the same
time lifting spend at specific merchants - a win win proposition for our
customers and our service establishments.
Bill Glenn, our head of Establishment Services for North America, did a great
job at discussing the closed loop at our Financial Community presentation back
in August.
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For those of you who were not able to attend, I think you'd find
the presentation, which is available on our website, to be a very thorough
discussion of our capabilities and our potential in this area.
These are just some examples of investments we've made over the last 3 years,
and there are more such opportunities available to us in our pipeline.
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We have a number of these initiatives currently queued up and you'll see
several announcements from us over the next few months.
Unlike a number of our competitors, we've driven our business growth
organically.
Even with the investments we've already made over the last 3 years, our
pipeline still has more business building initiatives than we can currently
fund.
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This is a great position to be in, particularly as the returns for many
of our pipeline opportunities, such as network services and the corporate
middle market, are better than the already strong returns in our current base,
which means we're not trading down into poorer quality initiatives to generate
our growth.
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BUSINESS MODEL
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Another important element of our performance and our potential is the
flexible, adaptable business model we've built over the last 4 years.
Our goal is to have a business model that can adapt to changing economic
conditions, allowing us to better manage our businesses during times of both
slower and stronger economic growth.
The efficiency of our economic model has been driven by a number of
initiatives.
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For example, our ongoing reengineering activities have contributed over $4
billion of benefits from 2001 to 2004, and we remain on track to achieve our
current year target of another $1 billion.
We've made great strides at optimizing our on-line and off-line capabilities,
both for customer service as well as for product distribution.
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We've repeatedly found that in many cases we're able to drive down costs while
improving customer satisfaction.
And finally, improvements we've made in our capital management process put us
in a position to generate overall higher returns.
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By divesting businesses such as small business leasing, Tax and Business
Services and our recent spin-off of Ameriprise, we've freed up capital that
can now be redeployed into our higher return payments businesses or returned
to shareholders.
At the same time we've focused on improving our returns, we've also made sure
that our capital strategy is fully aligned with our business strategy.
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For example, since one element of our spend-centric model is that our spending
generally increases at a greater rate of growth than our lending balances,
we've been able to generate consistent increases in our ROE.
The flexibility we've built into our model gives us better control in managing
the company during periods of economic change.
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In slower years we have the flexibility to scale back on discretionary
activities for a period of time, without substantial impact to our long-term
potential.
And, just as importantly, in times of stronger economic growth we can
accelerate our investments as appropriate to take advantage of market
conditions.
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By focusing and strengthening our business model as we have over the last
several years, I believe we're in a better position to capitalize on the
opportunities that exist in the payments market, while still generating strong
shareholder value.
* * * * * * * *
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BLUE BOX
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Obviously, as I think you can tell, I'm pleased with our current performance.
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Through September, we've been able to generate results that have been at or
above the high end of our "on average and over time" financial targets.
As you know, it is not my practice to provide any earnings guidance beyond our
financial targets.
We manage our company for the moderate to long-term.
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As a result, we don't usually make public comments on short-term consensus
estimates.
That said, I do, however, notice when those estimates diverge significantly
from our long-term targets, a situation that currently exists for the fourth
quarter.
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n looking at the various estimates in the market there are a number of
analysts projecting fourth quarter EPS growth from continuing operations of
over 25%, well above our long-term target of 12% to 15%.
Now, I do appreciate the optimism that's out there, but I can tell you that
this number is far too aggressive.
We have had a terrific year, as I said.
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In each of the last 3 quarters we've generated strong earnings, even as we've
continued to invest for the moderate to long-term.
We have a strong model and good momentum.
But I have two points to make here.
The first has to do with our spin-off of Ameriprise.
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If you review the recent filings we made on our pro forma adjustments and our
restated historical financials, you'll note that our income from discontinued
operations is NOT equivalent to the historically reported results of the
Financial Advisors segment.
This difference is mostly due to the reporting rules related to corporate
expense allocations.
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In looking at some of the 2005 fourth quarter EPS estimates out there, it
appears that not everyone is using the appropriate base for the fourth quarter
of 2004.
This situation directly impacts a number of EPS growth rate projections and
should be re-evaluated.
Another driver of the high estimates appears to be the assumption that we'll
be substantially moderating our investment spending in marketing and
promotion.
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As we reported in our 10-Q, based on our assessment of competitive
opportunities and the success of recent marketing initiatives, we expect our
fourth quarter growth in marketing, promotion, rewards and cardmember services
to be generally consistent with the 16% growth we reported in the third
quarter.
As I mentioned to you earlier, our organic growth opportunities continue to be
robust.
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Our pipeline of investments is full and contains a good mix of shorter
payback, higher return initiatives, as well as longer-term R&D type
investments, all of which combine to generate good overall returns.
As a result of our prior investments in marketing, rewards, reengineering and
technology we've been able to gain share and boost our ROE.
We've also been able to generate excellent bottom-line results.
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Given this set of facts and given our track record of success I don't intend
to walk away from our current investment opportunities.
As we've done all year, in the fourth quarter I intend to continue to invest
over the short to moderate term, so that we're in a better position to sustain
our growth over the moderate to long-term.
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Our investment spending will continue in the quarter even though we do face
some larger than expected bankruptcy losses.
As effectively as we might plan, we will always have to deal with
environmental events and situations outside of our control, and the current
spike in bankruptcy levels is one such event.
As you all know, new U.S. legislation related to bankruptcies became effective
on October 17th.
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Since this new legislation made it more difficult for people to completely
discharge their debt through bankruptcy, many people rushed to file under the
more lenient guidelines of the old law.
This led to a large run-up of bankruptcies, particularly in the days just
prior to the 17th.
In fact, it's now almost a month later, and the courts are still working to
clear the backlog of "old law" filings.
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This issue is clearly one that impacts the entire industry.
A number of our peers have stated that they'll have large bankruptcy writeoffs
this quarter, and we're clearly no different.
We, too, expect to see an increase in writeoffs due to the new legislation.
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Based on our current best estimate, we expect our total managed writeoffs in
our U.S. consumer and small business portfolios to be $175 to $250 million
higher than the third quarter.
This would then translate into higher total managed writeoffs of $200 to $275
million when compared against the fourth quarter of last year.
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Now, unlike a number of our peers, part of this variance is strictly due to
positive volume increases - in our case, our 15% growth in balances through
September.
The remainder, however, is clearly driven by the new legislation.
Given the magnitude and nature of this bankruptcy event, we are monitoring the
situation closely and are still assessing its potential P&L impact in the
quarter.
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One important point to note is that our policy of accounting for bankruptcies
is among the most conservative of industry practices.
We fully writeoff our account balances upon notification of a valid bankruptcy
filing, while the policies of other major players allow them to writeoff their
balances over time, in periods ranging from a maximum of 10 to 75 days after
notification.
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Our more conservative approach means that we have no discretion in writing off
our balances.
They must be booked upon notification, so we don't have any carryover period
to deal with.
Because of this we expect to have the impact of this specific event
substantially behind us in the current quarter.
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We don't believe there is a chance of a material bankruptcy "tail" following
us into January, something that might be an issue for a number of major
players come next year.
We believe bankruptcy trends will return to more historical levels once the
pipeline is cleared, and we've already seen that "new law" filings are down
substantially.
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In addition, in the coming months we would expect to see some improvement in
our delinquency rates, which would naturally result from this high level of
writeoffs.
* * * * * * * *
Before I take your questions, let me just make a few other points.
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I recognize that the spinoff of Ameriprise puts us into something of a
transition period over the next 5 quarters or so, as those of you who follow
us become more comfortable with the performance and expectations for the new
company.
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While our company has pared down and become more focused, our overall
objective remains unchanged -- to generate strong value for our shareholders
and to manage our business for the moderate to long-term based on our stated
financial targets.
We'll continue to capitalize on our strengths:
o We'll continue to reengineer;
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o We'll continue to appropriately manage our credit;
o We'll continue to innovate;
o And we'll continue to use the flexibility within our business model to make
opportunistic investments.
In fact, you saw us capitalize on a number of such opportunities this year.
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As we've done in the past, as one time benefits arose during the year, either
from favorable tax benefits or the sale of a business, we acted to accelerate
various reengineering and business building initiatives that we had queued up.
These one time benefits in 2005, to the extent that they did flow through to
our bottom line, will clearly impact our quarterly growth rates in 2006.
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As we've currently laid it out, we expect the growth in reported income in
2006 to show wide fluctuations on a quarterly basis.
Because of this, as we plan our investment activities for 2006, we'll be
focused on our full year growth rates, and not on our more volatile quarterly
growth rates.
* * * * * * * * *
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TITLE SLIDE
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In closing let me just say the following.
The spin-off of Ameriprise begins a new chapter in our company's 155 year
history.
Reinvention has always been a part of our company's legacy and we now get to
prove ourselves one more time.
As I said earlier, now that we're a focused competitor within payments and
processing, I don't believe our growth opportunities have narrowed.
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In fact, I believe more opportunities will now be within our reach.
The industry growth potential, as I mentioned, is huge.
Trillions of dollars of spend now on cash and checks is yet to be tapped for
plastic.
And emerging markets such as China, India and Russia are just beginning their
evolution to cards.
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In terms of our organic growth potential, we have substantial skills, a unique
and diverse spend-based model, and strong momentum.
Between new proprietary products, new network partners, new merchant
categories, and further penetration of our existing customer base through our
closed loop network, I believe our growth potential is both real and
achievable.
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I'm confident that our strategy, in combination with our assets and our
focused execution, will lead to sustained growth and that we'll achieve strong
shareholder value over the moderate to long-term.
I wouldn't trade my position for any competitor out there.
Thank you.
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