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are combined into one overall cash flow for purposes of
determining the carrying value of the retained interests
and related impact on results of operations.
The 2003 adoption of FIN 46 required the consolidation
of a CDO which contains debt issued to investors that
is non-recourse to the Company and solely supported
by a portfolio of high-yield bonds and loans. AEFA man-
ages the portfolio of high-yield bonds and loans for the
benefit of CDO debt held by investors and retains an
interest in the residual and rated debt tranches of the
CDO structure. This CDO included below investment
grade corporate debt securities with a fair value of $249
million and $244 million at December 31, 2004 and 2003,
respectively, which are included in corporate debt secu-
rities within the Available-for-Sale category discussed
above. However, these assets are not available for the
general use of the Company as they are for the benefit
of CDO debt holders. Further discussion of this CDO is
provided in Note 5.
Investment Loans
Investment loans are primarily comprised of commer-
cial and mortgage loans and are classified within Invest-
ments as they support contractholder obligations within
AEFA similar to the Available-for-Sale portfolio at AEFA.
Trading
Trading investments are primarily comprised of seed
money investments in mutual funds and hedge funds
managed at AEFA, as well as other hedge funds man-
aged by third parties. There were $62 million, $80 mil-
lion and $12 million of net gains for 2004, 2003 and
2002, respectively, related to trading securities held at
each balance sheet date.
Note 3 LOANS
Loans at December 31 consisted of:
(Millions) 2004 2003
Cardmember lending $ 26,905 $ 25,834
International banking:
Consumer and private banking 4,825 4,448
Banks and other institutions 1,984 1,863
Corporate:
Commercial and industrial 57 108
Mortgage and real estate 19 65
Total international banking 6,885 6,484
Other 2,152 1,103
Total loans – gross 35,942 33,421
Less: Loan loss reserves 1,084 1,121
Total $ 34,858 $ 32,300
Note: AEFA’s investment loans of $3.5 billion and $3.8 billion at December 31,
2004 and 2003, respectively, are included in Investments and are presented in
Note 2.
The following table presents changes in loan loss
reserves:
(Millions) 2004 2003
Balance, January 1 $ 1,121 $ 1,226
Provision
(a)
1,188 1,336
Write-offs
(b)
(1,319) (1,502)
Recoveries and other
(c)
94 61
Balance, December 31 $ 1,084 $ 1,121
(a) Provision for the years ended December 31, 2004 and 2003 includes
$1,130 million and $1,218 million, respectively, related to cardmember
lending and $58 million and $118 million, respectively, related to inter-
national banking and other.
(b) Write-offs for the years ended December 31, 2004 and 2003 include $1,205
million and $1,323 million, respectively, related to cardmember lending
and $114 million and $179 million, respectively, related to international
banking and other.
(c) Recoveries and other for the years ended December 31, 2004 and 2003
include $49 million and $73 million, respectively, related to cardmember
lending and $45 million and ($12 million), respectively, related to inter-
national banking and other.
AXP
AR.04
96
Notes to Consolidated Financial Statements