American Express 2008 Annual Report Download - page 16

2008 financial review
american express company
The Company expects to be substantially completed with the
elimination of approximately 7,000 positions or approximately
10 percent of its total worldwide workforce in the first quarter
of 2009. Actions taken under the reengineering plan are
anticipated to generate benefits, from previously anticipated
spending levels in 2009, of $700 million from staffing and
compensation decisions, $125 million from lower operating
costs, and $1.0 billion in reduced investment spending, for a
total of approximately $1.8 billion.
Although these reductions in spending are significant, the
reengineering initiatives are designed not to sacrifice customer
service or core capabilities.
acquisitions and divestitures
Corporate Payment Services
On March 28, 2008, the Company purchased Corporate
Payment Services (CPS), General Electric Company’s (GE)
commercial card and corporate purchasing business unit. The
total cash consideration of $2.3 billion paid by the Company
consisted of the contractual purchase price of approximately
$1.1 billion plus the repayment of CPS’ $1.2 billion in
outstanding debt as of the acquisition date. The component
businesses of CPS are reported within Global Corporate
Services (GCS) and the U.S. Card Services (USCS) reportable
operating segments. Refer to Note 2 to the Consolidated
Financial Statements for further details.
The Company is in the process of signing CPS customer
agreements and migrating CPS’ customers to its network;
this migration is expected to be substantially completed by
March 31, 2009. As a result, the Company’s 2008 financial
metrics (e.g., billed business and cards-in-force) do not reflect
CPS’ card performance.
American Express Bank Ltd.
On September 18, 2007, the Company entered into an
agreement to sell its international banking subsidiary, American
Express Bank Ltd. (AEB) to Standard Chartered PLC
(Standard Chartered). On February 29, 2008, the purchase
was completed. In the second quarter of 2008, the Company
and Standard Chartered agreed on the final purchase price of
$796 million. For 2008 through the date of disposition and
all prior periods presented, the operating results, assets and
liabilities, and cash flows of AEB (except for certain components
of the AEB businesses that were not sold) have been removed
from the Corporate & Other segment and reported separately
within the discontinued operations captions on the Company’s
Consolidated Financial Statements and notes related thereto.
American Express International Deposit Company
On September 18, 2007, the Company also entered into an
agreement with Standard Chartered to sell American Express
International Deposit Company (AEIDC) 18 months after
the close of the AEB sale through a put/call agreement. A
subsequent payment from or to Standard Chartered will be
made based on the net (deficit) asset value of AEIDC on the
date the business is transferred to Standard Chartered. The
net (deficit) asset value of AEIDC at December 31, 2008 and
2007, was $(44) million and $232 million, respectively. During
the third quarter of 2008, which is within one year of transfer
to Standard Chartered, AEIDC was reported as a discontinued
operation. Accordingly, for all the periods presented, AEIDC’s
operating results, assets and liabilities, and cash flows have been
removed from the Company’s Corporate & Other segment and
reported separately within the discontinued operations captions
on the Company’s Consolidated Financial Statements and
notes related thereto.
The Company recognized $275 million ($179 million after-
tax) and $105 million ($69 million after-tax) of losses for mark-
to-market adjustments and sales associated with the AEIDC
investment portfolio during 2008 and 2007, respectively.
Refer to Note 2 to the Consolidated Financial Statements for
further discussion of the Company’s acquisitions and dispositions.
financial summary
A summary of the Company’s recent financial performance
follows:
Years Ended December 31,
(Millions, except per share
amounts and ratio data) 2008 2007
Percent
Increase
(Decrease)
Total revenues net of interest
expense $28,365 $27,559 3%
Provisions for losses $ 5,798 $ 4,103 41
Expenses $18,986 $17,762 7
Income from continuing operations $ 2,871 $ 4,126 (30)
Net income $ 2,699 $ 4,012 (33)
Earnings per common share from
continuing operations — diluted $ 2.48 $ 3.45 (28)
Earnings per common share —
diluted $ 2.33 $ 3.36 (31)
Return on average equity(a) 22.3% 37.3%
Return on average tangible equity(b) 28.1% 44.0%
(a) Return on average equity is calculated by dividing (i) net income
($2.7 billion and $4.0 billion for 2008 and 2007, respectively), by (ii) average
total shareholders’ equity ($12.1 billion and $10.8 billion for 2008 and
2007, respectively).
(b) Return on average tangible equity is computed in the same manner as return
on average equity except the computation of average tangible shareholders’
equity excludes average goodwill and other intangibles of $2.5 billion and
$1.6 billion at December 31, 2008 and 2007, respectively. The Company
believes the return on average tangible equity is a useful measure of
profitability of its business.
14