American Express 2004 Annual Report Download - page 31

acquisition of Threadneedle, increases in human
resources expenses and costs related to mutual fund
industry regulatory and legal matters.
American Express Bank
AEB offers financial products and services to retail cus-
tomers, wealthy individuals and financial institutions
outside the United States that generate interest income,
commissions and fees, foreign exchange income and
other revenue. In addition to various operating costs,
AEB recognizes provisions for credit losses, mainly on
its outstanding loans.
AEB reported net income of $96 million for 2004,a6per-
cent decline from a year ago. Results for 2004 included
$44 million of restructuring charges incurred in connec-
tion with the sale of certain foreign operations.
AEB’s revenues totaled $825 million in 2004, an
increase of 3 percent from 2003, primarily due to higher
commissions and fees as well as higher foreign
exchange income and other revenues, partially offset
by a decline in net interest income. Total expenses at
AEB for 2004 rose 4 percent to $679 million, primarily
due to the restructuring charges discussed previously.
For a discussion of the Company’s consolidated and
segment results, see the respective Results of Opera-
tions sections of this Annual Report.
Liquidity and Capital Resources
The Company generates sufficient equity capital
through net income to fund its business needs and
future growth as well as maintain high and stable debt
ratings. During 2004, the Company returned 87 percent
of capital generated to shareholders through a cash
dividend of $0.44 per share of common stock and the
repurchase of 69 million shares of common stock. Man-
agement has developed a contingent funding strategy
to help ensure continued funding of the Company’s
business operations during difficult economic, finan-
cial market and business conditions if in an extreme
situation access to its regular funding sources were
diminished or interrupted. See the Consolidated
Liquidity and Capital Resources section of this Annual
Report for further discussion.
Significant Events in 2004
In October 2004, the U.S. Supreme Court declined to
hear an appeal of lower court rulings that Visa and Mas-
tercard association bylaws and rules that prevented
banks from issuing cards on rival networks were illegal
and must be abolished. As a result, in November 2004,
MBNA became the first U.S. bank to issue credit cards
accepted on the American Express network. The Com-
pany also signed an agreement with Citibank in
December 2004 to issue American Express branded
cards in the U.S. by late 2005.
Management believes that building a U.S. network
business that will operate in addition to the Company’s
very strong proprietary card business will provide sub-
stantial new opportunities for growth. The incremental
earnings produced will enable the Company to
increase investments in key businesses. The returns
that the Company will earn by leveraging the existing
network infrastructure for network partner activity
should benefit the Company’s future return on equity.
Outlook
In 2004, the Company’s record results exceeded all
long-term financial targets, reflecting the strong com-
petitive position and business momentum that has
been driven by higher levels of business-building
investments over the past few years. Looking forward,
the proposed spin-off of AEFA will enable the Com-
pany to focus on its card payments and network pro-
cessing businesses and concentrate its investment
resources in these high-growth, high-return areas.
These businesses have high asset turnover, relatively
low capital requirements, substantial return on
invested capital and superior cash flow that enables the
Company to grow its business while maintaining a high
payback of capital to shareholders. Management
believes the Company is well-positioned to sustain
growth through its uniquely diversified business lines.
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