American Express 2005 Annual Report Download - page 31

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Asset securitizations
Critical Accounting Policies Assumptions/Approach Used Effect if Actual Results Differ
from Assumptions
Certain estimates and assumptions
are required to determine the
fair value of the Company’s
subordinated retained interests,
including an interest-only strip,
and gains or losses recorded at the
time of sale when the Company
securitizes cardmember loans.
Estimates and assumptions are
generally based on projections
of finance charges and fees paid
related to the securitized assets,
net credit losses, average loan life,
the contractual fee to service the
securitized assets and a discount
rate commensurate with the risk
inherent in the subordinated
retained interests.
Changes in the estimates and
assumptions used may have
an impact on the Company’s
gain or loss calculation and
the valuation of its subordinated
retained interests.
As of December 31, 2005, the total
fair value of all subordinated
retained interests was $279 million.
A 10 percent adverse change in the
key estimates and assumptions
referred to in the previous column,
would result in a decrease in the
total fair value of approximately
$30 million.
Financial Review
AXP / AR.2005
[29 ]