American Express 2009 Annual Report Download - page 38

2009 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
Travel commissions and fees in 2008 of $2.0 billion increased
$84 million or 4 percent compared to 2007, primarily
reflecting a 3 percent increase in worldwide travel sales.
Other commissions and fees decreased $529 million or 23
percent to $1.8 billion in 2009 compared to 2008, due to
lower delinquency fees reflecting decreased owned loan
balances and the impacts of various customer assistance
programs, in addition to reduced spending-related foreign
currency conversion revenues. Other commissions and fees
decreased $110 million or 5 percent in 2008 to $2.3 billion
compared to 2007 due to the reclassification to other revenues
in USCS of certain card service-related fees beginning in the
first quarter of 2008 and a lower level of fees related to a lower
average balance of owned loans, which were partially offset by
increased assessment revenues.
Securitization income, net decreased $670 million or 63
percent to $400 million in 2009 compared to 2008, primarily
due to lower excess spread, net, driven by increased write-offs
and a decrease in interest income on cardmember loans and
fee revenues. These unfavorable impacts were partially offset
by a decrease in interest expense due to lower coupon rates
paid on variable-rate investor certificates, as well as a
favorable fair value adjustment of the interest-only strip.
Securitization income, net decreased $437 million or 29
percent to $1.1 billion in 2008 compared to 2007, primarily
due to lower excess spread, net, driven by increased write-offs,
charges to the fair value of the interest-only strip reflecting
lower expected future cash flows, and a net loss on sales
compared to net gains in the prior year. These impacts were
partially offset by higher finance charges and fees due to a
greater average balance of securitized loans and lower interest
expense due to lower rates paid on investor certificates.
Other revenues in 2009 decreased $70 million or 3 percent
to $2.1 billion compared to 2008, primarily reflecting
decreased revenues from CPS, due to the migration of clients
to the American Express network, and lower publishing
revenues, partially offset by the ICBC gain. Other revenues
increased $406 million or 23 percent to $2.2 billion in 2008
compared to 2007, primarily reflecting the benefits of the CPS
acquisition, higher network and partner-related revenues, a
reclassification from other commissions and fees from USCS
as discussed above, and greater foreign exchange-related
revenues.
Interest income decreased $1.9 billion or 26 percent to
$5.3 billion in 2009 compared to 2008. Interest and fees on
loans decreased $1.7 billion or 27 percent due to decline in the
average owned loan balance, reduced market interest rates
and the impact of various customer assistance programs,
partially offset by the benefit of certain repricing initiatives.
Interest and dividends on investment securities increased $33
million or 4 percent, primarily reflecting increased investment
levels partially offset by reduced investment yields. Interest
income from deposits with banks and other decreased $212
million or 78 percent, primarily due to a reduced yield and a
lower balance of deposits in other banks. During 2008,
interest income decreased $223 million or 3 percent to $7.2
billion compared to 2007, reflecting primarily a decrease in
interest and fees on loans, which declined $192 million or 3
percent due to a lower portfolio yield, reduced market interest
rates on variably priced assets, partially offset by a slightly
higher average owned loan balance.
Interest expense decreased $1.3 billion or 38 percent to
$2.2 billion in 2009 compared to 2008. Interest expense
related to deposits decreased $29 million or 6 percent,
primarily due to a lower cost of funds which more than offset
increased balances. Interest expense related to short-term
borrowings decreased $446 million or 92 percent, due to
significantly lower short-term debt levels and a lower cost of
funds. Interest expense related to long-term debt and other
decreased $873 million or 33 percent, primarily reflecting a
lower cost of funds driven by reduced market rates on
variably priced debt, as well as a lower average balance of
long-term debt outstanding. Interest expense of $3.6 billion in
2008 was $426 million or 11 percent lower than 2007
reflecting a $248 million decrease in interest expense on
short-term borrowing, primarily due to a lower cost of funds
and a decrease in average short-term debt.
Provisions for Losses
Provisions for losses of $5.3 billion in 2009 decreased $485
million or 8 percent compared to 2008. Charge card
provisions for losses decreased $506 million, or 37 percent,
primarily driven by improved credit performance.
Cardmember loans provisions for losses increased $35
million, or 1 percent, primarily due to a higher cardmember
reserve level due to the challenging credit environment,
partially offset by a lower owned loan balance.
Provisions for losses of $5.8 billion in 2008 increased $1.7
billion or 41 percent compared to 2007. Charge card
provisions for losses increased $223 million or 20 percent in
2008 primarily due to higher loss and delinquency rates
compared to 2007, partially offset by the credit-related charge
in the fourth quarter of 2007. Cardmember loans provisions
for losses increased $1.5 billion or 53 percent due to higher
write-off and delinquency rates and higher average owned
loan balances.
Expenses
Consolidated expenses for 2009 were $16.4 billion, down $2.6
billion or 14 percent from $19.0 billion in 2008. The decrease
in 2009 was primarily driven by lower other, net expenses,
reduced salaries and employee benefits expenses, lower
marketing and promotion expense and decreased
cardmember rewards expense partially offset by greater
cardmember services expense. Consolidated expenses for 2008
were $19.0 billion, up $1.2 billion or 7 percent from $17.8
billion in 2007. The increase in 2008 was primarily driven by
higher other, net expenses, greater salaries and employee
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