American Express 2009 Annual Report Download - page 58

2009 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
in billed business in 2009 reflected a 6 percent decrease in
average spending per proprietary basic cards-in-force and an
8 percent decrease in basic cards-in-force. Assuming no
changes in foreign currency exchange rates from 2008 to
2009, billed business decreased 4 percent and average
spending per proprietary basic cards-in-force increased 1
percent in 2009. Volume comparisons within the major
geographic regions ranged from a low-single-digit increase in
Latin America to mid-single-digit decreases in Asia Pacific,
Europe and Canada3. Interest income declined $396 million
or 20 percent to $1.6 billion in 2009 compared to 2008,
primarily due to an 18 percent reduction in average
cardmember loans and lower interest on bank and other
deposits, partially offset by a higher cardmember loan
portfolio yield. Interest expense of $509 million in 2009
declined $452 million or 47 percent, as compared to 2008, due
to lower average loan and receivable balances, as well as a
decreased cost of funds. Total revenues net of interest expense
of $4.8 billion in 2008 were $450 million or 10 percent higher
than 2007 due to higher discount revenue, net card fees and
other and increased interest income, partially offset by higher
interest expense.
Provisions for Losses
Provisions for losses increased $181 million or 18 percent to
$1.2 billion in 2009 compared to 2008, primarily reflecting a
higher lending reserve level. Provisions for losses increased
$218 million or 27 percent to $1.0 billion in 2008 compared
to 2007, primarily due to increased reserve levels due to the
challenging economic environment and loan and business
volume growth.
Expenses
During 2009, ICS’ expenses decreased $556 million or 15
percent to $3.0 billion compared to 2008, due to lower
marketing, promotion, rewards and cardmember services and
decreased salaries and employee benefits and other operating
expenses. Expenses in 2009, 2008, and 2007, included $4
million, $83 million, and $16 million, respectively, of
reengineering costs primarily related to the Company’s
reengineering initiatives in 2009 and 2008 as previously
3Refer to footnote 2 on page 34 under Consolidated Results of
Operations for the Three Years Ended December 31, 2009 relating
to changes in foreign exchange rates.
discussed and reengineering in the international payments
business for 2007. Expenses in 2008 of $3.6 billion were
$196 million or 6 percent higher than 2007, due to
increased salaries and employee benefits and other
operating expenses, partially offset by lower marketing,
promotion, rewards and cardmember services costs.
Marketing, promotion, rewards and cardmember services
expenses decreased $232 million or 16 percent to $1.2 billion
in 2009 compared to 2008, reflecting reduced marketing and
promotion expenses through the first nine months of 2009
and lower reward costs. Marketing, promotion, rewards and
cardmember services expenses decreased $113 million or 7
percent to $1.5 billion in 2008 compared to 2007, due to the
Membership Rewards related charge and the incremental
business-building costs in 2007 noted above, which more than
offset higher marketing and promotion expenses, and
volume-related rewards costs in 2008. Salaries and employee
benefits and other operating expenses decreased $324 million
or 15 percent to $1.8 billion in 2009 compared to 2008,
primarily due to benefits from the Company’s reengineering
activities and lower net charges during 2009 related to
reengineering initiatives. Salaries and employee benefits and
other operating expenses increased $309 million or 17 percent
to $2.1 billion in 2008 compared to 2007, primarily due to
higher salaries and employee benefits expense and increased
other operating expenses, which reflected the costs related to
the Company’s reengineering initiatives in 2008, as well as
greater professional services expense.
Income Taxes
The effective tax rate was negative 32 percent in 2009 versus
negative 129 percent in 2008 and negative 149 percent in
2007. ICS includes a tax benefit of $73 million and $198
million in 2009 and 2008, respectively, since the Company’s
internal tax allocation process provides this segment with the
consolidated benefit related to its ongoing funding activities
outside the United States. The tax benefit is likely to continue,
because Congress is expected to extend the law that provides
the basis for the benefit.
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