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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table details the Company’s cardmember loans
and receivables exposure (including unused lines-of-credit on
cardmember loans) in the United States and outside the United
States as of December 31:
(Billions) 2011 2010
On-balance sheet:
United States $82$77
Non-U.S. 22 21
On-balance sheet(a)(b) $ 104 $98
Unused lines-of-credit – individuals:
United States $ 195 $ 184
Non-U.S. 43 42
Total unused lines-of-credit – individuals $ 238 $ 226
(a) Represents cardmember loans to individuals as well as receivables from
individuals and corporate institutions as discussed in footnotes (a) and
(d) from the previous table.
(b) The remainder of the Company’s on-balance sheet exposure includes cash,
investments, other loans, other receivables and other assets including
derivative financial instruments. These balances are primarily within the
United States.
EXPOSURE TO AIRLINE INDUSTRY
The Company has multiple important co-brand, rewards and
corporate payment arrangements with airlines. The Company’s
largest airline partner is Delta and this relationship includes
exclusive co-brand credit card partnerships and other
arrangements including Membership Rewards, merchant
acceptance, travel and corporate payment programs. American
Express’ Delta SkyMiles Credit Card co-brand portfolio accounts
for approximately 5 percent of the Company’s worldwide billed
business and less than 15 percent of worldwide cardmember
loans. Refer to Notes 4 and 8 for further information on
receivables and other assets recorded by the Company relating to
these relationships.
In recent years, there have been a significant number of airline
bankruptcies and liquidations, driven in part by volatile fuel
costs and weakening economies around the world. Historically,
the Company has not experienced significant revenue declines
when a particular airline scales back or ceases operations due to a
bankruptcy or other financial challenges because volumes
generated by that airline are typically shifted to other
participants in the industry that accept the Company’s card
products. The Company’s exposure to business and credit risk in
the airline industry is primarily through business arrangements
where the Company has remitted payment to the airline for a
cardmember purchase of tickets that have not yet been used or
“flown”. The Company mitigates this risk by delaying payment
to the airlines with deteriorating financial situations, thereby
increasing cash withheld to protect the Company in the event the
airline is liquidated. To date, the Company has not experienced
significant losses from airlines that have ceased operations.
NOTE 23
REGULATORY MATTERS AND CAPITAL
ADEQUACY
The Company is supervised and regulated by the Federal Reserve
and is subject to the Federal Reserve’s requirements for risk-
based capital and leverage ratios. The Company’s two U.S. bank
operating subsidiaries, Centurion Bank and FSB (collectively, the
“Banks”), are subject to supervision and regulation, including
similar regulatory capital requirements by the FDIC and the
Office of the Comptroller of the Currency (OCC). On July 21,
2011, pursuant to the Dodd-Frank Reform Act, supervision and
regulation of FSB was transferred from Office of Thrift
Supervision (OTS) to the OCC.
The Federal Reserve’s guidelines for capital adequacy define
two categories of risk-based capital: Tier 1 and Tier 2 capital (as
defined in the regulations). Under the risk-based capital
guidelines of the Federal Reserve, the Company is required to
maintain minimum ratios of Tier 1 and Total (Tier 1 plus Tier 2)
capital to risk-weighted assets, as well as a minimum leverage
ratio (Tier 1 capital to average adjusted on-balance sheet assets).
Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional, discretionary actions
by regulators, that, if undertaken, could have a direct material
effect on the Company’s and the Banks’ operating activities.
As of December 31, 2011 and 2010, the Company and its
Banks met all capital requirements to which each was subject.
Further, the most recent regulatory notification categorized the
Company and its Banks as well-capitalized institutions under the
prompt corrective action regulations. No conditions or events
have occurred since that notification that have caused
management to believe any change in the Company’s or its
Banks’ capital classification would be warranted.
98