American Express 2003 Annual Report Download - page 45

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Other Off-Balance Sheet Arrangements
At December 31, 2003, the Company had $156 billion of unused credit available to cardmembers, as part of established
lending product agreements. Total unused credit available to cardmembers does not represent potential future cash require-
ments as a significant portion of this unused credit will likely not be drawn. The Company’s charge card products have no
pre-set limit and, therefore, are not reflected herein. As discussed in the TRS Liquidity and Capital Resources section, the
Company also securitizes cardmember loans into special purposes entities that are off-balance sheet. The Company’s charge
card receivables securitizations remain on the Consolidated Balance Sheets.
Risk Management
The Company’s risk management objective is to monitor and control risk exposures to earn returns commensurate with the
appropriate level of risk assumed. Management establishes and oversees implementation of Board-approved policies cov-
ering the Company’s funding, investments and the use of derivative financial instruments. The Company’s Treasury depart-
ment, along with various asset and liability committees in its businesses, is responsible for managing financial market risk
exposures within the context of Board-approved policies. See Note 9 to the Consolidated Financial Statements for a dis-
cussion of the Company’s use of derivatives.
The Enterprisewide Risk Management Committee (ERMC) supplements the risk management capabilities resident within
the business segments by routinely reviewing key financial market, credit, operational and other risk concentrations across
the Company and recommending action where appropriate. The ERMC recommends risk limits, promotes an understand-
ing of risks across the Company and supports senior management in making risk-return decisions.
Hedging strategies for financial market risk exposures are established, maintained and monitored by the Company’s
Treasury department and are employed to manage interest rate, foreign currency and equity market exposures over a
multi-year time horizon. The extent of the Company’s unhedged exposures varies over time based on current foreign
exchange and interest rates, equity market levels, the macro-economic environment and the hedging impact on particular
business objectives.
The Company’s policies generally require that derivatives may be used only to meet business objectives and not be used for
speculative purposes. AEB has a small proprietary trading portfolio that includes derivatives and operates with continu-
ously monitored limits and tight controls.
Hedging counterparties at TRS and AEFA must be rated by a recognized rating agency in one of its three highest categories.
AEB provides derivative products to meet the needs of certain customers that are not rated or, as a consequence of the sov-
ereign debt rating of the country in which they operate, are not able to achieve one of the three highest rating categories.
Derivative credit and market exposures are aggregated to determine counterparty exposures. Netting agreements and, in
certain instances, collateral are utilized to mitigate these exposures. Documentation is subject to counsel review and
approval and is generally written on standard industry agreements.
(p.43_axp_ financial review)