American Express 2010 Annual Report Download - page 114

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The following table presents the regulatory capital ratios for the Company and the Banks:
(Millions, except percentages)
Tier 1
capital
Total
capital
Tier 1 capital
ratio
Total capital
ratio
Tier 1
leverage ratio
December 31, 2010:
American Express Company $ 13,100 $ 15,529 11.1% 13.1% 9.3%
American Express Centurion Bank $ 5,771 $ 6,170 18.3% 19.5% 19.4%
American Express Bank, FSB $ 5,586 $ 6,424 16.3% 18.8% 16.1%
(a)
December 31, 2009:
American Express Company $ 11,464 $ 13,897 9.8% 11.9% 9.7%
American Express Centurion Bank
(b)
$ 4,430 $ 4,841 13.7% 15.0% 17.1%
American Express Bank, FSB
(b)
$ 4,784 $ 5,623 14.2% 16.7% 15.1%
(a)
Well-capitalized ratios
(c)
6.0% 10.0% 5.0%
(d)
Minimum capital ratios
(c)
4.0% 8.0% 4.0%
(a) FSB leverage ratio represents Tier 1 core capital ratio (as defined by regulations issued by the OTS), calculated similarly to Tier 1 leverage ratio.
(b) Since January 2009, FSB has committed to maintain a Total capital ratio of no less than 15 percent. During 2009, enhancements were made to the American Express
Credit Account Master Trust used to securitize credit card receivables issued by both FSB and Centurion Bank. As a result of these enhancements, the Banks began
holding capital against their off-balance sheet trust assets. The Company infused $1.4 billion and $475 million of additional capital into FSB and Centurion Bank,
respectively, during 2009 and in connection with the foregoing increased capital commitment for FSB and the impact of the trust enhancements for both FSB and
Centurion Bank.
(c) As defined by the regulations issued by the Federal Reserve, OCC, OTS and FDIC.
(d) Represents requirements for banking subsidiaries to be considered “well capitalized” pursuant to regulations issued under the Federal Deposit Insurance Corporation
Improvement Act. There is no “well capitalized” definition for the Tier 1 leverage ratio for a bank holding company.
RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain of the Company’s subsidiaries are subject to restrictions
on the transfer of net assets under debt agreements and
regulatory requirements. These restrictions have not had any
effect on the Company’s shareholder dividend policy and
management does not anticipate any impact in the future.
Procedures exist to transfer net assets between the Company
and its subsidiaries, while ensuring compliance with the various
contractual and regulatory constraints. As of December 31, 2010,
the aggregate amount of net assets of subsidiaries that are
restricted to be transferred to American Express’ Parent
Company (Parent Company) was approximately $9.3 billion.
BANK HOLDING COMPANY DIVIDEND RESTRICTIONS
The Company is limited in its ability to pay dividends by the
Federal Reserve which could prohibit a dividend that would be
considered an unsafe or unsound banking practice. It is the
policy of the Federal Reserve that bank holding companies
generally should pay dividends on common stock only out of
net income available to common shareholders generated over
the past year, and only if prospective earnings retention is
consistent with the organization’s current and expected future
capital needs, asset quality and overall financial condition.
Moreover, bank holding companies should not maintain
dividend levels that undermine a company’s ability to be a
source of strength to its banking subsidiaries. Under guidance
issued by the Federal Reserve in November 2010, a large bank
holding company will face particularly close scrutiny for any
proposed dividend that exceeds 30 percent of after-tax
net income.
BANKS’ DIVIDEND RESTRICTIONS
In the year ended December 31, 2008, Centurion Bank and FSB
paid dividends from retained earnings to its parent of
$650 million and $150 million, respectively. No dividends
were paid in 2010 and 2009.
The Banks are subject to statutory and regulatory limitations
on their ability to pay dividends. The total amount of dividends
which may be paid at any date, subject to supervisory
considerations of the Banks’ regulators, is generally limited to
the retained earnings of the respective bank. As of December 31,
2010 and 2009, the Banks’ retained earnings, in the aggregate,
available for the payment of dividends were $3.6 billion and
$2.1 billion, respectively. In determining the dividends to pay its
parent, the Banks must also consider the effects on applicable
risk-based capital and leverage ratio requirements, as well as
policy statements of the federal regulatory agencies. In addition,
the Banks’ banking regulators have authority to limit or prohibit
the payment of a dividend by the Banks, if, in the banking
regulator’s opinion, payment of a dividend would constitute
an unsafe or unsound banking practice in light of the
financial condition of the banking organization.
112
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS