American Express 2004 Annual Report Download - page 108

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The above table reflects only those TRS guarantees that
are within the scope of FIN 45. Expenses relating to
actual claims under these guarantees for 2004 and 2003
were approximately $20 million and $30 million,
respectively. It is not an exhaustive list of all cardmem-
ber guarantee programs, many of which are outside the
scope of FIN 45 as they primarily represent insurance
products issued by Amex Assurance, a wholly-owned
subsidiary of AEFC, and as such are accounted for
under SFAS No. 60, “Accounting and Reporting by
Insurance Enterprises.”
The Company generally has no collateral or other
recourse provisions related to these guarantees. With
respect to merchant protection, the Company’s loss
exposure is mitigated by the Company’s ability to offset
amounts reimbursed to its cardholders against other
amounts due to the Company’s merchants. The
Company may also hold cash back from a merchant.
During the third quarter of 2004, the Company reduced
its merchant-related reserves by approximately
$60 million reflecting changes made to mitigate loss
exposure and ongoing favorable credit experience
with merchants.
The Company, through its AEB operating segment,
provides various guarantees to its customers in the
ordinary course of business that are also within the
scope of FIN 45, including financial letters of credit,
performance guarantees and financial guarantees.
Generally, guarantees range in term from three months
to one year. AEB receives a fee related to these guar-
antees, many of which help to facilitate customer cross-
border transactions. At December 31, 2004, AEB held
$788 million of collateral supporting these guarantees.
The following table provides information related to
such guarantees as of December 31:
(Millions) 2004 2003
Type of Guarantee
Maximum
amount of
undiscounted
future payments
Amount of
related liability at
December 31, 2004
Maximum
amount of
undiscounted
future payments
Amount of
related liability at
December 31, 2003
Financial letters of credit $ 295 $ 0.4 $ 207 $ 1.1
Performance guarantees 92 1.1 119 0.4
Financial guarantees 554 2.0 629 0.5
Total $ 941 $ 3.5 $ 955 $ 2.0
In addition, the Company had the following other
commitments as of December 31:
(Millions) 2004 2003
Loan commitments and
other lines of credit $662 $770
Bank letters of credit and
other bank guarantees
out of scope of FIN 45 $646 $544
The Company issues commercial and other letters of
credit to facilitate the short-term trade-related needs of
its banking clients, which typically mature within six
months. At December 31, 2004 and 2003, the Company
held $147 million and $114 million, respectively,
of collateral supporting commercial and other letters
of credit.
The Company also has commitments aggregating $176
billion and $156 billion related to its card business in
2004 and 2003, respectively, primarily related to
commitments to extend credit to certain cardmembers
as part of established lending product agreements.
Many of these are not expected to be drawn; therefore,
total unused credit available to cardmembers does not
represent future cash requirements. The Company’s
charge card products have no preset spending limit
and are not reflected in unused credit available
to cardmembers.
During the fourth quarter of 2004, the Company
announced that it signed agreements with Delta Air
Lines to extend its co-brand, Membership Rewards and
merchant partnerships. The agreements will extend
these partnerships into the next decade. As part of the
agreements, the Company committed to prepay $500
million for the future purchase of Delta SkyMiles
rewards points. The prepayment has a three-year term,
is fully collateralized by a pool of assets and is subject
to certain conditions. As of December 31, 2004, the
Company prepaid $250 million of Delta SkyMiles
rewards points, which is reported in other loans on the
Company’s Consolidated Balance Sheet. Under the
terms of the agreements, the Company will prepay the
remaining $250 million of Delta SkyMiles rewards
points in the first quarter of 2005.
In addition, the Company has certain contingent obli-
gations for worldwide business arrangements that
relate to contractual agreements with partners entered
into as part of the ongoing operation of the TRS
AXP
AR.04
106
Notes to Consolidated Financial Statements