American Express 2008 Annual Report Download - page 42

2008 financial review
american express company
As of December 31, 2008, the Company’s cash and readily-
marketable securities position was as follows:
(Billions) Total
Cash and cash equivalents $16.9(a)
Readily-marketable securities 5.1(b)
Total cash and readily-marketable securities 22.0
Short-term debt outstanding (9.0)
Excess liquidity investment portfolio $13.0
(a) Excludes cash and cash equivalents on hand for day-to-day operations of
$3.6 billion.
(b) Consists of certain available-for-sale investment securities (U.S. Treasury
and government-sponsored agencies) that are considered highly liquid.
In addition, the Company received $3.39 billion of CPP
proceeds on January 9, 2009.
The upcoming approximate maturities of the Company’s
long-term debt and debt issued in connection with off-balance
sheet securitizations are as follows:
(Billions) Debt Maturities
Quarter Ending: Long-term
Off-
Balance
Sheet Total
March 31, 2009 $ 2.3 $1.5 $ 3.8
June 30, 2009 7.2 0.6 7.8
September 30, 2009 2.6 2.7 5.3
December 31, 2009 2.8 — 2.8
Total $14.9 $4.8 $19.7
The Company’s funding needs for 2009 are expected to arise
from these debt maturities as well as changes in business needs,
primarily changes in outstanding cardmember loans and
receivables. Based upon current expectations for reductions in
loan and receivables balances, the Company believes that its
excess cash and readily-marketable securities are sufficient to meet
its funding needs throughout 2009. This excludes any impact if
the securitization trusts were to trigger certain events that would
require an early amortization.
The Company considers various factors in determining
the amount of liquidity it maintains, such as economic
and financial market conditions, seasonality in business
operations, growth in its businesses, the cost and availability
of alternative liquidity sources, and regulatory and credit rating
agency considerations.
The amount of cash and readily-marketable securities the
Company expects to maintain will be substantially greater
than its historical levels of holdings. The Company expects to
incur higher net interest cost on these amounts, which will be
dependent on the amount the Company actually maintains, as
well as the difference between its cost of funding these amounts
and their investment yields.
Cash and Readily-Marketable Securities
At December 31, 2008, the Company held, as part of its contingent
liquidity plan, a total of $16.9 billion of short-term instruments
and $5.1 billion of longer-term readily-marketable securities.
These investments are of high credit quality, highly liquid short-
term instruments and longer term, highly liquid instruments, such
as U.S. Treasury securities, government-sponsored entity debt, or
government-guaranteed debt. These instruments are managed to
either mature prior to the maturity of borrowings that will occur
within the next 12 months, or are sufficiently liquid that the
Company can sell them or enter into sale/repurchase agreements
to immediately raise cash proceeds to meet liquidity needs.
Securitized Borrowing Capacity
Securitized borrowings through its conduit facility and the
Federal Reserve discount window are significant sources within
the Company’s liquidity plan.
Conduit Facility
The conduit facility is a $5 billion committed bank agreement that
gives the Company the right to sell up to $5 billion face amount
of AAA-rated certificates issued from the American Express
Credit Account Master Trust (the Lending Trust). This facility
can be utilized in any amount up to $5 billion and at any time
through June 29, 2009. The purchasers’ commitments to fund
any unfunded amounts under this facility are subject to the terms
and conditions of, among other things, a purchase agreement
among subsidiaries, the purchasers and certain other parties.
This agreement contains, among other things, a condition that
the ratings of “Aaa” by Moody’s and “AAA” by S&P’s on the
certificates shall not have been reduced or withdrawn (and are not
on credit watch or negative outlook for possible downgrade below
such ratings).
Federal Reserve Discount Window and Term Auction Facility
FSB and Centurion Bank are insured depository institutions that
have the capability of borrowing from the Federal Reserve Bank of
San Francisco, subject to the amount of qualifying collateral that
they pledge. On October 3, 2008, the Banks were approved to
access the discount window and the TAF, subject to the discretion
of the Federal Reserve Bank of San Francisco and sufficient credit
and charge card receivables pledged as collateral, thereby providing
the Banks with an additional source of liquidity, if needed.
The Company has approximately $41.6 billion in U.S. credit
card loans and charge card receivables that could be sold over time
through its existing securitization trusts, its undrawn committed
securitization facility referred to above, or pledged in return for
secured borrowings, to provide further liquidity, subject in each
case to applicable market conditions and eligibility criteria.
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