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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
The securities with a fair value to amortized cost ratio of less than
100 percent consist primarily of state and municipal securities
and do not contain a concentration of any one security.
Unrealized losses may be caused by changes to market
interest rates, which include both benchmark interest rates
and credit spreads, and specific credit events associated with
individual issuers. Substantially all of the gross unrealized losses
on the securities are attributable to changes in market interest
rates. The Company has the ability and the intent to hold
these securities for a time sufficient to recover the unrealized
losses and expects that contractual principal and interest will be
received on these securities.
Supplemental information about other revenues which
includes gross realized gains and losses on sales of securities, as
well as other-than-temporary losses on investments classified
as Available-for-Sale, follows:
(Millions) 2007 2006 2005
Gains $ 16 $89(a) $15
Losses (38)(b) (1)(4)
Total $(22)$88 $11
(a) Includes $68 million of gains related to a rebalancing program in the fourth
quarter of 2006 to better align the maturity profile of the Travelers Cheque
and Gift Card investment portfolio with its business liquidity needs.
(b) Primarily due to the rebalancing of AEIDC portfolio resulting from the
announced sale of AEB to Standard Chartered.
Contractual maturities of investments classified as Available-
for-Sale, excluding Mortgage and other asset-backed securities
and Equity securities, follows:
(Millions) Cost
Estimated Fair
Value
Due in:
2008 $ 2,294 $ 2,299
2009–2012 4,184 4,262
2013–2017 358 365
2018 and beyond 6,214 6,165
Total $13,050 $13,091
The expected payments on mortgage and other asset-backed
securities may not coincide with their contractual maturities
because borrowers have the right to call or prepay certain
obligations. Accordingly, these securities, as well as equity
securities, are not included in the maturities distribution.
Under securities lending agreements, the Company lends
certain investment securities on an overnight basis to financial
institutions. These lending arrangements are collateralized
by an amount equal to at least 102 percent of the fair market
value of the investment securities lent. Collateral received by
the Company can be in the form of cash or marketable U.S.
Treasury or government agency securities. The Company may
only retain or sell these securities in the event of a borrower
default. The Company’s loaned investment securities are
classified as investments on the Consolidated Balance Sheet,
but are considered restricted and pledged assets. In accordance
with U.S. generally accepted accounting principles, the
marketable securities received as collateral are not recorded
in the Consolidated Balance Sheet, as the Company is not
permitted to sell or repledge these securities absent a borrower
default. Fees received from the securities lending transactions
are recorded as interest income-other. At December 31, 2007
and 2006, approximately $970 million and $716 million,
respectively, of investment securities were loaned under these
agreements.
TRADING INVESTMENTS
In 2007, the Company reclassified the AEIDC investment
portfolio of $3.5 billion from the Available-for-Sale category to
the Trading category resulting from the AEB sale agreement’s
impact on the holding period of these investments.
During 2007, the net unrealized holding loss of the Trading
securities amounted to approximately $9 million. In addition,
there were $15 million in net realized losses related to the sale of
approximately $775 million Trading securities in 2007. There
were no Trading investments in 2006 and 2005.
The following is a summary of investments classified as
Trading at December 31:
(Millions) 2007
Mortgage and other asset-backed securities $1,576
Corporate debt securities 982
Other 92
Total Trading, at estimated fair value $2,650
The following table summarizes the unrealized losses of temporary impairments by ratio of fair value to amortized cost as of
December 31, 2007:
(Millions) Less than 12 months 12 months or more Total
Ratio of Fair Value to
Amortized Cost
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
90%–100% $2,738 $(116) $346 $(16) $3,084 $(132)
Less than 90% 52 (6) 15 (3) 67 (9)
Total $2,790 $(122) $361 $(19) $3,151 $(141)
83