American Express 2004 Annual Report Download - page 24

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strengthening its balance sheet and lowering its risk profile by reducing high-yield
bond holdings in its owned investment portfolio
accelerating new product development in asset management, insurance, annuity,
brokerage and financial planning and advice services.
AEFA is an outstanding business with a 110-year history of success. Over the past two
decades it has made strong contributions to American Express. AEFA has made great
progress in recent years and, as I noted earlier, we believe the best way to build on that
momentum is for AEFA to operate independently, with its own common stock and investor
base.
AMERICAN EXPRESS BANK
American Express Bank provides banking and other financial services to high-net-worth
and affluent individuals outside the United States and to financial institutions worldwide.
AEB delivered strong growth in its core Private Banking and Financial Institutions Group
(FIG) businesses in 2004. However, net income was negatively affected by pre-tax charges
of $44 million for the restructuring of certain operations. For the year, AEB earned net
income of $96 million compared to $102 million a year ago.
The restructuring charges related primarily to the decision to sell domestic commercial
banking operations in Bangladesh, Pakistan and Egypt, where AEB has decided to focus
on serving as an international partner for local banks through its financial institutions busi-
ness. The charges also cover the sale of private banking client assets in Luxembourg.
Higher sales of investment products to private banking clients and institutions drove a 19
percent increase in AEB’s commissions and fees. This was partially offset by a 10 percent
decline in net interest income largely due to a decision to temporarily curtail lending in
Hong Kong because of economic conditions, as well as lower spread revenue due to the
impact of higher interest rates.
AEB continued to shift away from corporate lending as it focuses on private banking,
consumer financial services and financial institutions. Corporate loans now make up just
1 percent of AEB’s lending portfolio. Improved write-off rates in its consumer lending port-
folio enabled AEB to significantly reduce its provisions for losses during the year.
The Bank has made excellent progress in increasing its profitability in recent years. Return
on equity rose to 10.0 percent from just 4.0 percent four years ago.
AEB continued to significantly expand its array of investment products. The Bank launched
six new fund portfolios during the year, along with a fund of hedge funds and flexible term
loans.
In addition, AEB opened four new representative offices in Poland, Australia, Kazakhstan
and Atlanta to support the growth of its FIG business. The Private Bank opened a repre-
sentative office in Cebu, Philippines.
AXP
AR.04
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