American Express 2008 Annual Report Download - page 62

2008 financial review
american express company
businesses that accept the Company’s card products, and on the
effectiveness of the Company’s credit models; the impact of the
Company’s efforts to deal with delinquent Cardmembers in the
current challenging economic environment, which may affect
payment patterns of Cardmembers and the perception of the
Company’s services, products and brands, the Company’s near-
term write-off rates, including during the first half of 2009, and
the volumes of the Company’s loan balances in 2009; the write-
off and delinquency rates in the medium- to long-term of
Cardmembers added by the Company during the past few years,
which could impact their profitability to the Company; the
Company’s ability to effectively implement changes in the pricing
of certain of its products and services; fluctuations in interest
rates (including fluctuations in benchmarks, such as LIBOR and
other benchmark rates, and credit spreads), which impact the
Company’s borrowing costs, return on lending products and the
value of the Company’s investments; the Company’s ability to
meet its long-term on average and over time financial targets; the
actual amount to be spent by the Company on marketing,
promotion, rewards and Cardmember services based on
management’s assessment of competitive opportunities and other
factors affecting its judgment; the ability to control and manage
operating, infrastructure, advertising and promotion expenses as
business expands or changes, including the ability to accurately
estimate the provision for the cost of the Membership Rewards
program; fluctuations in foreign currency exchange rates; the
Company’s ability to grow its business and generate excess capital
and earnings in a manner and at levels that will allow the
Company to return a portion of capital to shareholders, which
will depend on the Company’s ability to manage its capital needs,
and the effect of business mix, acquisitions and rating agency and
regulatory requirements, including those arising from the
Company’s status as a bank holding company; the ability of the
Company to meet its objectives with respect to the growth of its
brokered retail CD program and brokerage sweep account
program and the implementation of its direct deposit initiative;
the success of the Global Network Services business in partnering
with banks in the United States, which will depend in part on the
extent to which such business further enhances the Company’s
brand, allows the Company to leverage its significant processing
scale, expands merchant coverage of the network, provides Global
Network Services’ bank partners in the United States the benefits
of greater Cardmember loyalty and higher spend per customer,
and merchant benefits such as greater transaction volume and
additional higher spending customers; the ability of the Global
Network Services business to meet the performance requirements
called for by the Company’s recent settlements with MasterCard
and Visa; trends in travel and entertainment spending and the
overall level of consumer confidence; the uncertainties associated
with business acquisitions, including, among others, the failure to
realize anticipated business retention, growth and cost savings, as
well as the ability to effectively integrate the acquired business
into the Company’s existing operations; the underlying
assumptions and expectations related to the February 2008 sale
of the American Express Bank Ltd. businesses and the
transaction’s impact on the Company’s earnings proving to be
inaccurate or unrealized; the success, timeliness and financial
impact (including costs, cost savings, and other benefits, including
increased revenues), and beneficial effect on the Company’s
operating expense to revenue ratio, both in the short-term
(including during 2009) and over time, of reengineering initiatives
being implemented or considered by the Company, including
cost management, structural and strategic measures such as
vendor, process, facilities and operations consolidation,
outsourcing (including, among others, technologies operations),
relocating certain functions to lower-cost overseas locations,
moving internal and external functions to the internet to save
costs, and planned staff reductions relating to certain of such
reengineering actions; the Company’s ability to reinvest the
benefits arising from such reengineering actions in its businesses;
bankruptcies, restructurings, consolidations or similar events
(including, among others, the Delta Air Lines/Northwest
Airlines merger) affecting the airline or any other industry
representing a significant portion of the Company’s billed
business, including any potential negative effect on particular
card products and services and billed business generally that
could result from the actual or perceived weakness of key business
partners in such industries; the triggering of obligations to make
payments to certain co-brand partners, merchants, vendors and
customers under contractual arrangements with such parties
under certain circumstances; a downturn in the Company’s
businesses and/or negative changes in the Company’s and its
subsidiaries’ credit ratings, which could result in contingent
payments under contracts, decreased liquidity and higher
borrowing costs; the ability of the Company to satisfy its liquidity
needs and execute on its funding plans, which will depend on,
among other things, the Company’s future business growth, its
credit ratings, market capacity and demand for securities offered
by the Company, performance by the Company’s counterparties
under its bank credit facilities and other lending facilities,
regulatory changes, including changes to the policies, rules and
regulations of the Board of Governors of the Federal Reserve
System and the Federal Reserve Bank of San Francisco, the
Company’s ability to securitize and sell receivables and the
performance of receivables previously sold in securitization
transactions and the Company’s ability to meet the criteria for
participation in certain liquidity facilities and other funding
programs, including the Commercial Paper Funding Facility and
the Temporary Liquidity Guarantee Program, being made
available through the Federal Reserve Bank of New York, the
Federal Deposit Insurance Corporation and other federal
departments and agencies; the Company’s ability to redeem or
otherwise access in a timely manner up to approximately $100
million invested in the Primary Reserve Fund, from which
redemptions have been currently suspended; accuracy of estimates
for the fair value of the assets in the Company’s investment
60