American Express 2002 Annual Report Download - page 17

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We also made progress in improving the overall quality
of our investment portfolio at AEFA. We reduced the
percentage of high-yield holdings from approximately
12 percent to 6 percent as a result of our ongoing
portfolio rebalancing. Continued declines in interest
rates have increased the value of many of our bond
holdings, to the point where we had approximately
$1 billion of unrealized net gains across our investment
portfolio at the end of 2002.
Meanwhile, we continued to improve our risk profile
at American Express Bank by lowering corporate
lending balances while building a more diversified
consumer and private banking portfolio. Corporate
and other loans represented only 9 percent of AEB’s
portfolio at the end of the year, which is about half the
proportion they were at the end of 2001.
Because of the issues that we faced in 2001 with write-
downs in our investment portfolio at AEFA, we took
additional steps to make sure that the risks we take are
appropriate not only for individual businesses but
for the company as a whole. Toward that end, we
established a Corporate Risk Management Committee
charged with monitoring overall risk levels across the
company and recommending improvements to our
practices and policies. The Committee includes repre-
sentatives from each of our business units, along with
Corporate Treasury, Compliance and Internal Audit.
While we made good progress in lowering our overall
risk profile, we did have several disappointments. In
Hong Kong, a sharp rise in personal bankruptcies
caused us to substantially increase write-offs in our
card business and our personal lending portfolio.
INVESTING IN BUSINESS-BUILDING ACTIVITIES
Despite the difficult economic and market conditions,
we were able to invest heavily in the areas of our core
businesses that can provide growth for the company
over the short, moderate and long term. Here is a look
at some of our progress in key areas of our business.
Growing Our Global Payments Businesses
American Express is a world leader in providing charge
and credit cards to consumers, small businesses and
corporations. During 2002, we moved aggressively to
expand our portfolio of proprietary, co-branded and
affinity cards in the United States and internationally,
as well as to grow our Global Network Services business
in our international markets.
New and Enhanced Rewards Products in the U.S.
In the U.S. consumer market, we focused on offering
customers more compelling products and value
propositions. In particular, we expanded our industry-
leading rewards-based products and programs, and
added new partnerships to benefit cardmembers.
We know that rewards are an important driver of
cardmember spending, loyalty and profitability.
In one major move, we enhanced our classic charge card
line-up by introducing the American Express Rewards
Green and Rewards Gold cards for U.S. consumers.
These cards offer automatic enrollment in Membership
Rewards and double points for everyday purchases
at supermarkets, gas stations, drugstores, home
improvement stores and other locations. In addition to
revitalizing our U.S. consumer charge card offerings,
these new cards provide cardmembers with enhanced
opportunities to earn rewards and support our efforts
to drive spending at everyday locations.
I15 AXPI