American Express 2012 Annual Report Download - page 109

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 under a number of
circumstances, including, 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.
NOTE 24
COMMITMENTS AND CONTINGENCIES
LEGAL CONTINGENCIES
The Company and its subsidiaries are involved in a number of
legal proceedings concerning matters arising out of the conduct
of their respective business activities and are periodically subject
to governmental and regulatory examinations, information
gathering requests, subpoenas, inquiries and investigations
(collectively, governmental examinations). As of December 31,
2012, the Company and various of its subsidiaries were named as
a defendant or were otherwise involved in numerous legal
proceedings and governmental examinations in various
jurisdictions, both in and outside the United States. The
Company discloses its material legal proceedings and
governmental examinations under “Legal Proceedings” in its
Annual Report on Form 10-K for the year ended December 31,
2012 (Legal Proceedings).
The Company has recorded liabilities for certain of its
outstanding legal proceedings and governmental examinations.
A liability is accrued when it is both (a) probable that a loss with
respect to the legal proceeding has occurred and (b) the amount
of loss can be reasonably estimated. As discussed below, there
may be instances in which an exposure to loss exceeds the
accrued liability. The Company evaluates, on a quarterly basis,
developments in legal proceedings and governmental
examinations that could cause an increase or decrease in the
amount of the liability that has been previously accrued or a
revision to the disclosed estimated range of possible losses, as
applicable.
The Company’s legal proceedings range from cases brought by
a single plaintiff to class actions with hundreds of thousands of
putative class members. These legal proceedings, as well as
governmental examinations, involve various lines of business of
the Company and a variety of claims (including, but not limited
to, common law tort, contract, antitrust and consumer
protection claims), some of which present novel factual
allegations and/or unique legal theories. While some matters
pending against the Company specify the damages claimed by
the plaintiff, many seek a not-yet-quantified amount of damages
or are at very early stages of the legal process. Even when the
amount of damages claimed against the Company are stated, the
claimed amount may be exaggerated and/or unsupported. As a
result, some matters have not yet progressed sufficiently through
discovery and/or development of important factual information
and legal issues to enable the Company to estimate a range of
possible loss.
Other matters have progressed sufficiently through discovery
and/or development of important factual information and legal
issues so that the Company is able to estimate a range of possible
loss. Accordingly, for those legal proceedings and governmental
examinations disclosed or referred to in Legal Proceedings where
a loss is reasonably possible in future periods, whether in excess
of a related accrued liability or where there is no accrued
liability, and for which the Company is able to estimate a range
of possible loss, the current estimated range is zero to $430
million in excess of any accrued liability related to those matters.
This aggregate range represents management’s estimate of
possible loss with respect to these matters and is based on
currently available information. This estimated range of possible
loss does not represent the Company’s maximum loss exposure.
The legal proceedings and governmental examinations
underlying the estimated range will change from time to time
and actual results may vary significantly from current estimates.
Based on its current knowledge, and taking into consideration
its litigation-related liabilities, the Company believes it is not a
party to, nor are any of its properties the subject of, any pending
legal proceeding or governmental examination that would have a
material adverse effect on the Company’s consolidated financial
condition or liquidity. However, in light of the uncertainties
involved in such matters, the ultimate outcome of a particular
matter could be material to the Company’s operating results for
a particular period depending on, among other factors, the size
of the loss or liability imposed and the level of the Company’s
earnings for that period.
VISA AND MASTERCARD SETTLEMENTS
As previously disclosed, the Company reached settlement
agreements with Visa and MasterCard. Under the terms of the
settlement agreements, the Company received aggregate
maximum payments of $4.05 billion. The settlement with Visa
comprised an initial payment of $1.13 billion ($700 million
after-tax) that was recorded as a gain in 2007. Having met
quarterly performance criteria, the Company recognized $280
million ($172 million after-tax) from Visa in each of the years
2011 and 2010, and $300 million ($186 million after-tax) from
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