American Express 2013 Annual Report Download - page 103

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANKS’ DIVIDEND RESTRICTIONS
In the years ended December 31, 2013 and 2012, Centurion Bank paid
dividends from retained earnings to its parent of $1.4 billion and $2.0
billion, respectively, and FSB paid dividends from retained earnings to
its parent of $1.8 billion and $1.5 billion, respectively.
The Banks are subject to statutory and regulatory limitations on
their ability to pay dividends. The total amount of dividends that may
be paid at any date, subject to supervisory considerations of the Banks’
regulators, is generally limited to the retained earnings of the
respective bank. As of December 31, 2013 and 2012, the Banks’
retained earnings, in the aggregate, available for the payment of
dividends were $4.6 billion and $4.7 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, 2013, 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 U.S. 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, 2013 (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 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 millions 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 $440 million in excess of any
accrued liability related to these 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 2011,
and $300 million ($186 million after-tax) from MasterCard in 2011.
These payments are included in other expenses within Corporate &
Other. During the second and fourth quarter of 2011, the Company
received the final payments on the MasterCard and Visa litigation
settlements, respectively.
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