American Express 2005 Annual Report Download - page 14

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The new American Express is the world’s largest charge and credit card issuer by purchase volume, a network
that processes transactions for nearly 100 financial institutions around the world, the premier global travel
management company, and a respected international bank. We have leadership positions in the consumer,
small business, middle market and large corporate card sectors, offering a diverse range of charge, lending,
co-brand and prepaid products.
Beyond the size and breadth of our businesses, the new American Express has a unique set of competitive and
financial characteristics, including:
■ A business model that focuses on driving cardmember spending, unlike most of our competitors, whose
models are primarily based on lending. This is an important distinction because our model generally
produces higher returns and is less capital-intensive. As a result, we generate strong cash flow that can be
reinvested into business-building activities when market conditions make it advantageous to do so, as well
as high payout ratios to shareholders through share repurchases and dividends.
■ A unique closed-loop network and marketing capabilities that directly link cardmembers with merchants
through targeted offers and incentives. As traditional marketing and advertising channels become more
fragmented, our ability to match high-spending cardmembers with merchants who want to reach motivated
customers becomes increasingly valuable. In essence, we think of American Express as a highly attractive
and efficient consumer marketplace that delivers value to cardmembers and drives business to our mer-
chant partners.
■ A focus on reengineering that has produced annual savings of over $1 billion in each of the past five years.
Having a disciplined approach to enhancing quality, costs and revenues through reengineering and Six
Sigma process improvements frees up funds to invest in growth and gives us additional flexibility to navigate
through different market conditions.
■ A wide range of organic growth opportunities and highly effective capital allocation processes that enable
us to maximize returns, stability and flexibility.
■ World-class capabilities in risk management, information management and customer segmentation that
help facilitate our growth.
■ A brand recognized around the world for exceptional service and customer care.
AXP / AR.2005
[12 ]
RETURN ON EQUITY
We continued to exceed our long-term targets for return on equity (ROE). At year end,
pro forma ROE (which is based on continuing operations) was 31 percent. Reported ROE
(which includes results from Ameriprise) was 25 percent. Please see page 26 for more
information about the calculation of these results. In 2005, we raised our long-term ROE
target to 28-to-30 percent from 18-to-20 percent, to reflect the company's higher return
potential following the spin-off of Ameriprise.
11%
20% 21% 22% 25%
31%
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