American Express 2010 Annual Report Download - page 47

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As of December 31, 2010, the Company’s excess cash and
readily-marketable securities available to fund long-term
maturities were as follows:
(Billions) Total
Cash $ 20.3
(a)
Readily-marketable securities 7.1
(b)
Cash and readily-marketable securities 27.4
Less:
Operating cash 6.5
(c)
Short-term obligations outstanding 0.6
(d)
Cash and readily-marketable securities available to fund maturities $ 20.3
(a) Includes $16.7 billion of cash and cash equivalents and $3.6 billion held in
other assets on the Consolidated Balance Sheet for certain forthcoming
asset-backed securitization maturities in the first quarter of 2011.
(b) Consists of certain available-for-sale investment securities (U.S. Treasury
and agency securities, and government-guaranteed debt) that are considered
highly liquid.
(c) Cash on hand for day-to-day operations.
(d) Consists of commercial paper and U.S. retail CDs with original maturities of
three and six months.
The upcoming approximate maturities of the Company’s long-
term unsecured debt, debt issued in connection with asset-
backed securitizations and long-term certificates of deposit
are as follows:
2011 Quarters
Ending:
Unsecured
Debt
Asset-Backed
Securitizations
Certificates of
Deposit Total
Debt Maturities(Billions)
March 31 $ — $ 3.2 $ 2.0 $ 5.2
June 30 1.4 1.5 1.6 4.5
September 30 0.6 0.6 0.7 1.9
December 31 6.9 — 1.3 8.2
Total $ 8.9 $ 5.3 $ 5.6 $ 19.8
The Company’s financing needs for 2011 are expected to arise
from these debt and deposit maturities as well as changes in
business needs, including changes in outstanding cardmember
loans and receivables as well as acquisition activities.
The Company considers various factors in determining the
amount of liquidity it maintains, such as economic and financial
market conditions, seasonality in business operations, growth in
its businesses, potential acquisitions or dispositions, the cost and
availability of alternative liquidity sources, and regulatory and
credit rating agency considerations.
The yield the Company receives on its cash and readily-
marketable securities is, generally, less than the interest
expense on the sources of funding for these balances. Thus,
the Company incurs substantial net interest costs on
these amounts.
The level of net interest costs will be dependent on the size of
its cash and readily-marketable securities holdings, as well as the
difference between its cost of funding these amounts and their
investment yields.
Securitized Borrowing Capacity
During December 2010, the Company entered into a $3 billion,
3-year committed, revolving, secured financing facility
sponsored by and with liquidity backup provided by a
syndicate of banks. The facility gives the Company the right
to sell up to $3 billion face amount of eligible notes issued from
the Charge Trust at any time through December 16, 2013. The
purchasers’ commitments to fund any unfunded amounts under
this facility are subject to the terms and conditions of, among
other things, a purchase agreement among certain subsidiaries,
the note purchasers and certain other parties.This facility will be
used in the ordinary course of business to fund seasonal working
capital needs, as well as further enhance the Company’s
contingent funding resources. The borrowing cost of the
facility includes a fixed facility fee. In addition, the drawn
balance incurs a weighted average cost of funds to the
participating banks plus 25 basis points. On December 16,
2010, the Company drew $2.5 billion from the facility, which
was still outstanding as of December 31, 2010. The Company
incurred an interest cost on the drawn amount that was equal to
the weighted average cost of funds, which was approximately
1-month LIBOR, plus 25 basis points.
Federal Reserve Discount Window
The Banks are insured depository institutions that have the
capability of borrowing from the Federal Reserve Bank of
San Francisco, subject to the amount of qualifying collateral
that they pledge. The Federal Reserve has indicated that both
credit and charge card receivables are a form of qualifying
collateral for secured borrowing made through the discount
window. Whether specific assets will be considered qualifying
collateral for secured borrowings made through the discount
window, and the amount that may be borrowed against the
collateral, remains in the discretion of the Federal Reserve.
The Company had approximately $32.5 billion as of
December 31, 2010, in U.S. credit card loans and charge card
receivables that could be sold over time through its existing
securitization trusts, or pledged in return for secured borrowings
to provide further liquidity, subject in each case to applicable
market conditions and eligibility criteria.
45
AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW