American Express 2012 Annual Report Download - page 82

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The gross unrealized losses are attributed to overall wider credit
spreads for state and municipal securities, wider credit spreads
for specific issuers, adverse changes in market benchmark
interest rates, or a combination thereof, all as compared to those
prevailing when the investment securities were acquired.
Overall, for the investment securities in gross unrealized loss
positions identified above, (i) the Company does not intend to
sell the investment securities, (ii) it is more likely than not that
the Company will not be required to sell the investment
securities before recovery of the unrealized losses, and (iii) the
Company expects that the contractual principal and interest will
be received on the investment securities. As a result, the
Company recognized no other-than-temporary impairments
during the periods presented.
SUPPLEMENTAL INFORMATION
Gross realized gains and losses on the sales of investment
securities, included in other non-interest revenues, were as
follows:
(Millions) 2012 2011 2010
Gains $ 127 $16$ 1
Losses (1) —(6)
Total $ 126 $16$(5)
Contractual maturities of investment securities, excluding equity
securities and other securities, as of December 31, 2012 were as
follows:
(Millions) Cost
Estimated
Fair Value
Due within 1 year $ 318 $ 319
Due after 1 year but within 5 years 255 264
Dueafter5yearsbutwithin10years 204 220
Due after 10 years 4,253 4,464
Total $ 5,030 $ 5,267
The expected payments on state and municipal obligations and
mortgage-backed securities may not coincide with their
contractual maturities because the issuers have the right to call
or prepay certain obligations.
NOTE 7
ASSET SECURITIZATIONS
CHARGE TRUSTS AND LENDING TRUST
The Company periodically securitizes cardmember receivables
and loans arising from its card business through the transfer of
those assets to securitization trusts. The trusts then issue
securities to third-party investors, collateralized by the
transferred assets.
Cardmember receivables are transferred to the American
Express Issuance Trust (the Charge Trust), and the American
Express Issuance Trust II (the Charge Trust II), collectively
referred to as the Charge Trusts. Cardmember loans are
transferred to the American Express Credit Account Master
Trust (the Lending Trust). The Charge Trusts and the Lending
Trust are consolidated by American Express Travel Related
Services Company, Inc. (TRS), which is a consolidated subsidiary
of the Company. The trusts are considered VIEs as they have
insufficient equity at risk to finance their activities, which are to
issue securities that are collateralized by the underlying
cardmember receivables and loans.
TRS, in its role as servicer of the Charge Trusts and the
Lending Trust, has the power to direct the most significant
activity of the trusts, which is the collection of the underlying
cardmember receivables and loans in the trusts. In addition,
TRS, excluding its consolidated subsidiaries, owns approximately
$0.8 billion of subordinated securities issued by the Lending
Trust as of December 31, 2012. These subordinated securities
have the obligation to absorb losses of the Lending Trust and
provide the right to receive benefits from the Lending Trust,
both of which are significant to the VIE. TRS’ role as servicer for
the Charge Trusts does not provide it with a significant
obligation to absorb losses or a significant right to receive
benefits. However, TRS’ position as the parent company of the
entities that transferred the receivables to the Charge Trusts
makes it the party most closely related to the Charge Trusts.
Based on these considerations, TRS is the primary beneficiary of
both the Charge Trusts and the Lending Trust.
The debt securities issued by the Charge Trusts and the
Lending Trust are non-recourse to the Company. Securitized
cardmember receivables and loans held by the Charge Trusts and
the Lending Trust are available only for payment of the debt
securities or other obligations issued or arising in the
securitization transactions. The long-term debt of each trust is
payable only out of collections on their respective underlying
securitized assets.
There was approximately $3 million and $15 million of
restricted cash held by the Charge Trusts as of December 31,
2012 and 2011, respectively, and approximately $73 million and
$192 million of restricted cash held by the Lending Trust as of
December 31, 2012 and 2011, respectively, included in other
assets on the Company’s Consolidated Balance Sheets. These
amounts relate to collections of cardmember receivables and
loans to be used by the trusts to fund future expenses and
obligations, including interest paid on investor certificates, credit
losses and upcoming debt maturities.
CHARGE TRUSTS AND LENDING TRUST TRIGGERING
EVENTS
Under the respective terms of the Charge Trusts and the Lending
Trust agreements, the occurrence of certain triggering events
associated with the performance of the assets of each trust could
result in payment of trust expenses, establishment of reserve
funds, or in a worst-case scenario, early amortization of investor
certificates. During the year ended December 31, 2012, no such
triggering events occurred.
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