American Express 2003 Annual Report Download - page 44

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In addition, the Company has certain contingent obligations for worldwide business arrangements. These payments relate
to contractual agreements with partners entered into as part of the ongoing operation of the TRS business. The contingent
obligations under such arrangements were $2.5 billion as of December 31, 2003.
In addition to the off-balance sheet contractual obligations noted above, the Company has off-balance sheet arrangements
that include guarantees, retained interests in structured investments, unconsolidated variable interest entities and other off-
balance sheet arrangements as more fully described below.
Guarantees
The Company’s principal guarantees are associated with cardmember services provided to enhance the value of owning an
American Express card. At December 31, 2003, the Company had guarantees totaling $82 billion related to TRS cardmem-
ber protection plans, as well as other guarantees in the ordinary course of business that are within the scope of FASB Inter-
pretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others” (FIN 45). Expenses relating to claims under these guarantees were approximately $30 million
in 2003.
The Company had $955 million of bank standby letters of credit and bank guarantees and other letters of credit within the
scope of FIN 45. At December 31, 2003, the Company held $761 million of collateral supporting standby letters of credit
and guarantees. Additionally, at December 31, 2003 the Company had $770 million of loan commitments and other lines
of credit as well as $544 million of bank standby letters of credit, bank guarantees and bank commercial and other bank
letters of credit that were outside the scope of FIN 45.
See Note 10 to the Consolidated Financial Statements for further discussion regarding the Company’s guarantees.
Retained interests in assets transferred to unconsolidated entities
The Company held, as an investment, $1.8 billion of retained subordinated security interests and $225 million of interest-
only strips in a U.S. cardmember loan securitization trust at December 31, 2003. See the TRS Liquidity and Capital Resources
section and Note 4 to the Consolidated Financial Statements for details regarding TRS’ securitization trusts.
Additionally, the Company held, as an investment, $694 million of retained interests in a CDO-related securitization trust at
December 31, 2003. Of that total, approximately $512 million is considered investment grade. The securitization was the result
of the Company placing a majority of its rated CDO securities into a trust in 2001. The rated CDO securities were held as part
of the Company’s investment strategy in order to pay a competitive rate to contractholders within the AEFA operating segment.
Unconsolidated variable interest entities
At December 31, 2003, the Company had interests in unconsolidated variable interest entities including $422 million of
investments in affordable housing partnerships, $28 million of rated CDO tranches, $27 million of a minority-owned struc-
tured loan trust (SLT) managed by third parties, and CDO residual tranches with a carrying value of $16 million managed
by the Company. These interests were obtained as part of the consolidated tax strategy in the case of affordable housing
partnerships or as part of the overall investment strategies as it relates to the other entities. Additionally, investments in the
CDO residual tranches are a condition to manage certain CDOs that generate management fee income for the Company.
The Company has no material future obligations associated with these entities beyond the carrying values. These structures
were not impacted by the consolidation provisions of FIN 46 as the Company is not the primary beneficiary. See the AEFA
Liquidity and Capital Resources section for further information.
(p.42_axp_ financial review)