American Express 2007 Annual Report Download - page 45

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[ 43 ]
2007 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
ensure the availability of financing in unexpected periods of
stress and to manage interest rate exposures. In addition to the
funding plan described below, the Company has a contingent
funding strategy to allow for the continued funding of business
operations through difficult economic, financial market and
business conditions when access to regular funding sources
could become diminished or interrupted. In 2007 and 2006, the
Company had uninterrupted access to the money and capital
markets.
The Company’s proprietary card businesses are the
primary asset-generating businesses, with significant assets
in both domestic and international cardmember receivable
and lending activities. Accordingly, the Company’s most
significant borrowing and liquidity needs are associated with
its proprietary card businesses. The Company generally pays
merchants for card transactions prior to reimbursement by
cardmembers. The Company funds merchant payments during
the period cardmember loans and receivables are outstanding.
The Company also has additional borrowing needs associated
with general corporate purposes.
The following discussion includes information on both a
GAAP and managed basis. The managed basis presentation
includes debt issued in connection with the Company’s lending
securitization activities, which are off-balance sheet. For a
discussion of managed basis and management’s rationale for
such presentation, refer to the U.S. Card Services discussion
below.
FUNDING PROGRAMS
The Company’s funding activities and liquidity planning are
integrated into its asset-liability management activities.The
Company’s assets and growth have been financed principally
through the following sources:
Long-term sources:
•฀Senior unsecured debentures,
•฀Asset securitizations,
•฀Long-term committed bank borrowing facilities in selected
non-U.S. markets, and
Short-term sources:
•฀Commercial paper, and
•฀Bank notes, customers’ deposits, institutional certificates of
deposit, and Fed Funds.
The Company’s current funding strategy is to maintain short-
term debt outstanding to meet seasonal and other working capital
needs, as well as to replace maturing long-term debt and finance
business growth primarily through long-term unsecured debt and
asset securitization issuances. During 2008, the Company has
$11.8 billion of unsecured long-term debt and $4.7 billion of asset
securitizations that will mature. The Company has, to date and
over time, financed approximately one-third of its U.S. consumer
and small business lending receivables through asset securitizations
and a smaller proportion of its U.S. consumer, small business, and
corporate charge card receivables through asset securitizations.
The Company’s 2008 long-term issuance plan provides for the
refinancing of maturities and funding business growth through a
broad and globally diversified mix of maturities, markets, securities,
and currencies, including issuance from both lending and charge
receivables trusts. (Refer to the discussion above for a discussion of
how the credit market environment could affect the mix of debt
issuances.)
The Company’s short-term funding programs are used
primarily to meet working capital needs, such as managing
seasonal variations in receivables balances, and have not, on
average, grown in size with its business growth. The ultimate
amount and mix issued will depend on the Company’s needs
and market conditions.
General corporate purpose funding is primarily through the
Parent Company and American Express Travel Related Services
Company, Inc. (TRS). The Company funds its cardmember
receivables and loans primarily through five entities. American
Express Credit Corporation (Credco) finances the vast majority
of worldwide cardmember receivables, while American Express
Centurion Bank (Centurion Bank) and American Express
Bank, FSB (FSB) principally fund cardmember loans originated
from the Company’s U.S. lending activities. Two trusts are used
by the Company in connection with the securitization and sale
of U.S. receivables and loans generated in the ordinary course
of the Company’s proprietary card businesses.
The Asset/Liability Committees of Centurion Bank and
FSB provide management oversight with respect to formulating
and ratifying funding strategy and to ensure that all funding
policies and requirements of the two banks are met.
The Company’s debt offerings are placed either directly
to investors, as in the case of its commercial paper program
through Credco, or through securities brokers or underwriters.
In certain international markets, bank borrowings are used to
partially fund cardmember receivables and loans.
43