American Express 2008 Annual Report Download - page 4

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american express company
2
steps to prepare the company to take advantage
of substantial growth opportunities when the
economy rebounds. American Express has one
of the world’s most valuable brand names, a
reputation for service excellence, and products
recognized for the rewards and benefits they
bring our customers. These attributes are espe-
cially important in highly uncertain times and
should continue to serve us well when condi-
tions eventually improve.
In this letter, I will describe for you the
challenges we faced this year, the actions we have
taken to deal with them and our views about the
road ahead.
2008 results: a closer look
We earn the majority of our revenue from trans-
action fees when American Express cards are used
to make purchases, so cardmember spending is
an important barometer of our business. In 2008,
worldwide spending on American Express cards
rose to $683 billion, or 6 percent above last year.
Although we outperformed the other major card
issuers, this result was well below the growth
rates we have enjoyed in recent years when the
economy was robust. For example, from 2002 to
2007, our annual growth in cardmember spending
averaged more than 15 percent.
Moreover, cardmember spending weakened
as 2008 progressed. We saw a particularly acute
slowdown in the fall as the financial crisis intensi-
fied and the stock market and consumer confidence
plunged. This situation, combined with dismal
holiday sales for most retailers, particularly those in
the luxury category, made for a very difficult fourth
quarter in which overall cardmember spending fell
10 percent. This was the first quarter since 2001 that
cardmember spending declined from the prior year.
In past recessions, spending by affluent
consumers held up relatively well compared to
the broader population, which insulated American
Express to some extent because of the concentra-
tion of high-income cardmembers in our portfolio.
This downturn is different in that it is hitting
the affluent particularly hard. Many of these
consumers have significantly cut back on their dis-
cretionary spending as they have seen their home
values, personal wealth and job security erode.
billed busine ss
(in billions)
cards-in-force
(in millions)
65.4
04
71.0
05
78.0
06
86.4
07 08
92.4
Worldwide cardmember spending rose 6 percent over 2007, although as economies slowed, we experienced deceleration in quarter-over-
quarter growth rates and a decrease in spending in the fourth quarter. Total cards-in-force increased by 7 percent to 92.4 million.
$416
04
$484
05
$561
06
$647
07 08
$683