American Express Reports Strong Cardmember Volumes and Revenues for Fourth Quarter; Will Recognize Charges for Restructuring, Membership Rewards and Cardmember Reimbursements

Thu Jan 10, 2013 4:04pm EST

* Reuters is not responsible for the content in this press release.

NEW YORK--(Business Wire)--
American Express Company (NYSE: AXP) said today that cardmember spending,
revenue growth and credit quality remained strong during the fourth quarter
despite an uneven economy. 

Net income for the quarter, however, reflects costs associated with three

* A $400 million restructuring charge ($287 million after-tax) designed to
contain future operating expenses, adapt parts of the business as more customers
transact online or through mobile channels, and provide the resources for
additional growth initiatives in the U.S. and internationally. 
* A $342 million expense ($212 million after-tax) reflecting enhancements to the
process that estimates future redemptions of Membership Rewards points by U.S.
* Approximately $153 million ($95 million after-tax) of cardmember
reimbursements for various types of transactions dating back several years. This
amount deals with fees, interest and bonus rewards as well as an incremental
expense related to the consent orders entered into with regulators last

Fourth Quarter Results

After reflecting the impact of these items, net income for the quarter was $637
million, or $0.56 per share. 

Excluding these items, fourth quarter adjusted net income was $1.2 billion, or
$1.09 per share.1 For the year ago period, net income was $1.2 billion, or $1.01
per share. 

Fourth quarter consolidated total revenues net of interest expense were $8.1
billion, up 5 percent from $7.7 billion a year ago. 

Cardmember spending was 8 percent higher than a year ago, despite a brief dip in
late October/early November reflecting the impact of Hurricane Sandy on
consumers and businesses in the northeastern United States. 

Credit indicators remained at historically low levels. The write-off rate for
the U.S. lending portfolio (principal only) was 2.0 percent for the quarter. 

Fourth quarter and full year 2012 results will be released as scheduled on
January 17, 2013. 

"We`ve delivered strong results since coming out of the recession and have been
consistently gaining share in a very competitive U.S. industry," said Kenneth I.
Chenault, chairman and chief executive officer. "In addition to strengthening
our ties to merchants and cardmembers, we have launched products for new
customer segments, expanded into new geographies internationally, and extended
our presence well beyond the traditional American Express footprint. 

"All of this has been taking place at a time when technology is transforming the
world of commerce, regulatory changes are reshaping the financial industry, and
customer loyalty has become more important than ever. 

"Maintaining our momentum in this environment will require us to evolve our
business, embrace new technologies, become more efficient and generate resources
to invest in the many growth opportunities we`ve identified. 

"Regardless of the environment, success is also going to be defined by doing
what`s right for our customers. We never want to make mistakes, but we are fully
committed to correcting them and providing compensation when appropriate. At a
time when public confidence in financial institutions is at a low point, we want
to make sure that we live up to the reputation we`ve earned over many years for
delivering superior value and service to our customers. The material costs for
reimbursement that we are able to identify have been recognized, but we are
going to continue to work closely with regulators and strengthen our controls as
part of our personal commitment to protecting the integrity of the American
Express brand." 


The restructuring charge mentioned above will consist largely of severance
payments related to the elimination of an estimated 5,400 jobs. Those reductions
will be partly offset by jobs the company expects to add during the year.
Overall staffing levels by year end 2013 are expected to be 4 to 6 percent less
than the current total of 63,500. 

Elements of the restructuring program include:

* Reengineering the business model in Global Business Travel to reduce its cost
structure and invest in capabilities that better align it with the shift of
customer volumes to online channels and automated servicing tools; 
* Continuing the reconfiguration of cardmember servicing and collections as we
drive efficiency through our global scale and as more customers use online and
mobile channels instead of paper and telephone; 
* Reducing the size of our staff groups while continuing to maintain the right
focus and resources on risk and control activities; 
* Ensuring that we have the right organizational structure across our client
management and sales functions to best serve our customers; and 
* Consolidating similar functions and eliminating duplicate efforts wherever
possible in order to drive efficiency.

The job reductions will take place across seniority levels, businesses and staff
groups. The largest reductions will come in the travel businesses, which operate
in an industry that is being fundamentally reinvented as a result of the digital
revolution. Overall, reductions will be spread proportionally between the U.S.
and international markets and will primarily involve positions that do not
directly generate revenue. 

Changes within the customer service organization are designed to help us
continue to deliver award-winning service and operate at maximum efficiency as
more customers and merchants do business with us through online and mobile

"Against the backdrop of an uneven economic recovery, these restructuring
initiatives are designed to make American Express more nimble, more efficient
and more effective in using our resources to drive growth," said Mr. Chenault.
"For the next two years, our aim is to hold annual operating expense increases
to less than 3 percent.2 The overall restructuring program will put us in a
better position as we seek to deliver strong results for shareholders and to
maintain marketing and promotion investments at about 9 percent of revenues." 

Membership Rewards Estimates

Membership Rewards, the industry`s largest and most successful customer loyalty
program, allows cardmembers to accumulate points each month and redeem them at a
future date by choosing offers from hundreds of our merchant partners. 

Determining the costs for this program is a multi-step process that uses
predictive models to estimate the amount of earned points that will ultimately
be redeemed by cardmembers, and then applies an estimated average cost per point
that the company will incur for those redemptions. 

Following a previously announced review, the company enhanced the ultimate
redemption rate (URR) estimation process, refining the predictive model it uses
for the U.S. program. These changes increased the global URR assumption to 94
percent from 93 percent and translated to an additional $342 million in the
balance sheet reserve for Membership Rewards and a corresponding charge in the
fourth quarter. 

"Loyalty and reward programs are one of our major competitive advantages," said
Mr. Chenault. "They have been a centerpiece of our marketing efforts and based
on their success we have expanded them during the last few years to offer
broader opportunities for cardmembers to earn and redeem points. The
enhancements we`ve made to our models predict even greater usage of the program
in the future and that has traditionally meant closer, more meaningful
relationships with our cardmembers." 

Cardmember Reimbursements

As previously reported the company has been cooperating with ongoing regulatory
reviews and continues to enhance its compliance controls. 

The company`s analyses of cardmember inquiries, complaints and account records
from the last several years have identified instances where:

* Late fees of approximately $28 million were collected from some cardmembers
who did not receive statements for the billing period prior to the write-off of
their accounts. 
* Interest of approximately $24 million was charged to some cardmembers who had
disputed balances on their accounts. 
* Certain bonus rewards for industry specific spending with an aggregate value
of $68 million should have been credited to cardmembers.

Separately, the company identified additional cardmembers during the quarter who
will receive restitution as part of the consent orders we entered into with
various U.S. banking regulators in October. That restitution, which amounts to
an incremental $33 million, relates to previously disclosed issues with debt
collection settlement letters. 

Impacted cardmembers will be notified directly in the coming months. 

American Express will hold a conference call for investors to discuss this
announcement at 5:00 p.m. (ET) today. A live audio webcast of the investor
conference call will be available to the general public on the American Express
Investor Relations web site at A replay of the
investor conference call will be available after the call at the same web site

These results represent preliminary estimates for the three months ended
December 31, 2012. 

About American Express

American Express is a global services company, providing customers with access
to products, insights and experiences that enrich lives and build business
success. Learn more at and connect with us on,,,, and 

Key links to products and services: charge and credit cards, business credit
cards, travel services, gift cards, prepaid cards, merchant services, business
travel, and corporate card

Cautionary Note Regarding Forward−Looking Statements 

This press release includes forward-looking statements, which are subject to
risks and uncertainties. Forward-looking statements contain words such as
"believe," "expect," "estimate," "anticipate," "optimistic," "intend," "plan,"
"aim," "will," "may," "should," "could," "would," "likely" and similar
expressions. 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:

* adjustments arising in the normal course of completing the company`s fourth
quarter and year-end financial closing process; 
* the possibility of not achieving the expected timing and financial impact of
the company`s restructuring plan and higher than expected employee levels, which
could be caused by factors such as the company`s ability to mitigate the
operational and other risks posed by planned staff reductions, the company`s
ability to develop and implement technology resources to realize cost savings,
underestimating hiring needs related to some of the job positions being
eliminated and other employee needs currently not anticipated, lower than
expected attrition rates and higher than expected redeployment rates; 
* the company`s ability to grow and deliver strong results on average and over
time, which will depend on, among other things, the level of consumer and
business spending; increasing revenues from the company's credit and charge
card, prepaid and other products; identifying and exploiting new opportunities;
sustaining pricing in light of regulatory and market pressures; increasing
merchant coverage and expanding the Global Network Services business; credit
trends; expense management; currency and interest rate fluctuations; and general
economic conditions, such as consumer confidence, unemployment, the housing
market, the health of state economies and GDP growth; 
* the ability of the company to maintain and expand its presence in the digital
payments space, including online and mobile channels, which will depend on the
company`s success in evolving its business models and processes for the digital
environment, building partnerships and executing programs with companies, and
utilizing digital capabilities that can be leveraged for future growth; 
* uncertainty relating to the actual growth of operating expenses in 2013 and
subsequent years and the ability to hold annual operating expense growth to less
than 3 percent for the next two years, which will depend in part on the
company`s ability to achieve the expected benefits of the company`s
restructuring plan, which will be impacted by, among other things, the factors
identified above, the company`s ability to balance the control and management of
expenses and the maintenance of competitive service levels for its customers,
unanticipated increases in significant categories of operating expenses, such as
consulting or professional fees, compliance or regulatory-related costs and
technology costs, the payment of monetary damages and penalties, disgorgement
and restitution, the company`s decision to increase or decrease discretionary
operating expenses depending on overall business performance, the impact of
changes in foreign currency exchange rates on costs and results, and the level
of acquisition activity and related expenses; 
* uncertainty in the amount of marketing and promotion expenses relative to the
revenues in 2013 and subsequent years, which will depend on (i) factors
affecting revenue, such as among other things, the growth of consumer and
business spending on American Express cards, higher travel commissions and fees,
the growth of and/or higher yields on the loan portfolio and the development of
new revenue opportunities and (ii) the company`s ability to control and manage
marketing and promotion expenses as described below, the availability of
opportunities to invest at a higher level due to favorable business results and
changes in macroeconomic conditions; and 
* the actual amount to be spent by the company on investments in the business,
including on marketing, promotion, rewards and cardmember services and certain
operating expenses, as well as the actual amount of resources arising from the
restructuring plan the company decides to invest in growth initiatives, which
will be based in part on management`s assessment of competitive opportunities
and the company`s performance and the ability to control and manage operating,
infrastructure, advertising, promotion and rewards expenses as business expands
or changes, including the changing behavior of cardmembers; and 
* the actual amount that the higher URR assumption derived in the fourth quarter
will increase cardmember rewards expenses annually in 2013 and subsequent years,
which will depend on the terms of the Membership Rewards program, redemption
patterns, costs per point redeemed and the level of cardmember spend; and 
* uncertainty relating to the timing and magnitude of a possible charge
resulting from the current review of the URR estimation process for the
company`s international Membership Rewards programs, which will depend in part
on the demographics and assumptions about the behavior of cardmembers enrolled
in the international Membership Rewards programs as compared to the U.S. program
and the potential growth of the international Membership Rewards programs.

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, 2011,
its Quarterly Reports on Form 10-Q for the three months ended March 31, June 30
and September 30, 2012, and the company`s other reports filed with the SEC. 

1 Management believes adjusted net income, and adjusted earnings per share,
which are non-GAAP measures, provide useful metrics to evaluate the ongoing
operating performance of the company. 

2 Operating expenses represent salaries and employee benefits, professional
services, occupancy and equipment, communications and other expenses.

Media Contacts:
Marina H. Norville, +1-212-640-2832
Mike O`Neill, +1-212-640-5951
Investors/Analysts Contacts:
Ken Paukowits, +1-212-640-6348
Rick Petrino, +1-212-640-5574

Copyright Business Wire 2013
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