American Express 2010 Annual Report Download - page 44

FUNDING PROGRAMS AND ACTIVITIES
The Company meets its funding needs through a variety of
sources, including debt instruments such as direct and third-
party distributed deposits, senior unsecured debentures, asset
securitizations, securitized borrowings through a conduit facility
and long-term committed bank borrowing facilities in
certain non-U.S. regions.
The following discussion includes information on both a
GAAP and managed basis. The managed basis presentation
includes debt issued in connection with the Company’s
lending securitization activities, which were off-balance sheet.
The adoption of new GAAP effective on January 1, 2010 resulted
in accounting for both the Company’s securitized and non-
securitized cardmember loans in the Consolidated Financial
Statements. As a result, the Company’s 2010 GAAP
presentations and managed basis presentations prior to 2010
are generally comparable. Prior period Consolidated Financial
Statements have not been revised for this accounting change.
For a discussion of managed basis and management’s rationale
for such presentation, refer to “U.S. Card Services —
Cardmember Loan Portfolio Presentation” below.
The Company had the following consolidated debt, on both a
GAAP and managed basis, and customer deposits outstanding as
of December 31:
(Billions) 2010 2009
Short-term borrowings $ 3.4 $ 2.3
Long-term debt 66.4 52.3
Total debt (GAAP basis) 69.8 54.6
Off-balance sheet securitizations —28.3
Total debt (managed basis) 69.8 82.9
Customer deposits 29.7 26.3
Total debt (managed) and customer deposits $ 99.5 $ 109.2
The Company seeks to raise funds to meet all of its financing
needs, including seasonal and other working capital needs, while
also seeking to maintain sufficient cash and readily-marketable
securities that are easily convertible to cash, in order to meet the
scheduled maturities of all long-term borrowings on a
consolidated basis for a 12-month period. The Company has
$8.9 billion of unsecured long-term debt, $5.3 billion of asset
securitizations and $5.6 billion of long-term deposits that will
mature during 2011. See “Liquidity Management” section for
more details.
The Company’s equity capital and funding strategies are
designed, among other things, to maintain appropriate and
stable unsecured debt ratings from the major credit rating
agencies, Moody’s Investor Services (Moody’s), Standard &
Poor’s (S&P), Fitch Ratings (Fitch) and Dominion Bond
Rating Services (DBRS). Such ratings help to support the
Company’s access to cost effective unsecured funding as part
of its overall financing programs. Ratings for the Company’s ABS
activities are evaluated separately.
Credit
Agency Entity Rated
Short-Term
Ratings
Long-Term
Ratings Outlook
DBRS All rated entities R-1 A Stable
(middle) (high)
Fitch All rated entities F1 A+ Stable
Moody’s TRS and rated operating
subsidiaries Prime-1 A2 Negative
(a)
Moody’s American Express
Company Prime-2 A3 Negative
S&P All rated entities A-2 BBB+ Stable
(a) In November 2010, Moody’s revised its ratings outlook for TRS and rated
operating subsidiaries from “Stable” to “Negative”.
Downgrades in the Company’s unsecured debt or asset
securitization program’s securities ratings could result in
higher interest expense on the Company’s unsecured debt and
asset securitizations, as well as higher fees related to borrowings
under its unused lines of credit. In addition to increased funding
costs, declines in credit ratings could reduce the Company’s
borrowing capacity in the unsecured debt and asset
securitization capital markets. The Company believes the
change in its funding mix, which now includes an increasing
proportion of FDIC-insured (as defined below) U.S. retail
deposits, should reduce the impact that credit rating
downgrades would have on the Company’s funding capacity
and costs. Downgrades to certain of the Company’s unsecured
debt ratings that have occurred over the last several years have
not caused a permanent increase in the Company’s borrowing
costs or a reduction in its borrowing capacity.
SHORT-TERM FUNDING PROGRAMS
Short-term borrowings, such as commercial paper, are defined
as any debt or time deposit with an original maturity of
12 months or less. The Company’s short-term funding
programs are used primarily to meet working capital needs,
such as managing seasonal variations in receivables balances.
Short-term borrowings were fairly stable throughout 2010;
however, the Company did reflect an increase in short-term
borrowings in November and December 2010, due to the
reclassification of certain book overdraft balances (i.e.,
primarily due to timing differences arising in the ordinary
course of business). The amount of short-term borrowings
issued in the future will depend on the Company’s funding
strategy, its needs and market conditions.
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AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW