American Express 2001 Annual Report Download - page 9

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ness models and reduce expense levels to lessen our dependence on strong
market conditions. In 2001, we accelerated these efforts to build even more
flexibility into our business.
As a result of these actions, we are now less dependent on revenue growth
to deliver our targeted earnings. This is critical, given that we face a tougher
environment in the near term, and our businesses are not immune or counter-
cyclical to weaker economic conditions.
That said, with the measures we have taken, we are well positioned to take full
advantage of an upturn in the economy when it does occur. In short, we are
confident that American Express is positioned to grow, even in a more uncer-
tain economic environment. Therefore, we believe our long-term financial
targets remain appropriate.
In addition to reengineering our business and reducing expenses, we took
two additional steps during 2001 to position American Express for success in
the future:
❚We substantially lowered the company’s overall risk profile. We did this by
rebalancing and decreasing the exposure in AEFA’s high-yield investment
portfolio, ensuring strong reserve ratios for our card businesses, adding to the
reserves related to credit exposures for merchants in the travel industry, and
significantly shifting American Express Bank’s (AEB) loan exposure away
from corporate lending to consumer activities; and
❚We targeted resources on growth opportunities in the global payments and
retail financial services markets and made a series of strategic investments to
take advantage of these opportunities.
I’ll describe these actions in greater detail later, but first let’s review our
business unit results for the year.
Business Unit Results
TRAVEL RELATED SERVICES
Travel Related Services (TRS) – which includes our card, travel, merchant and
network businesses, as well as our Travelers Cheque Group – reported net
income for 2001 of $1.46 billion, down 24 percent from $1.93 billion in the prior
year. Excluding TRS’ portion of the restructuring charges and September 11-
axp_7
REBALANCING RISK
4%
12%
In light of deteriorating market
conditions, American Express
substantially lowered its risk
profile by rebalancing the invest-
ment portfolio at American
Express Financial Advisors —
reducing the percentage of high-
yield securities to approximately
4 percent, from 12 percent. Going
forward, the company plans to
work toward a level that is more
in line with the industry average
of approximately 7 percent.