American Express 2013 Annual Report Download - page 40

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW
asset-liability management activities. The Company has in place a
funding policy covering American Express Company and all of its
subsidiaries.
The Company’s proprietary card businesses are the primary asset-
generating businesses, with significant assets in both domestic and
international Card Member receivable and lending activities. The
Company’s financing needs are in large part a consequence of its
proprietary card-issuing businesses and the maintenance of a liquidity
position to support all of its business activities, such as merchant
payments. The Company generally pays merchants for card
transactions prior to reimbursement by Card Members and therefore
funds the merchant payments during the period Card Member loans
and receivables are outstanding. The Company also has additional
financing needs associated with general corporate purposes, including
acquisition activities.
FUNDING PROGRAMS AND ACTIVITIES
The Company meets its funding needs through a variety of sources,
including direct and third-party distributed deposits and debt
instruments, such as senior unsecured debentures, asset
securitizations, borrowings through secured borrowing facilities and
long-term committed bank borrowing facilities in certain non-U.S.
regions.
The Company had the following consolidated debt and customer
deposits outstanding as of December 31:
TABLE 20: SUMMARY OF CONSOLIDATED DEBT AND CUSTOMER
DEPOSITS
(Billions) 2013 2012
Short-term borrowings $ 5.0 $ 3.3
Long-term debt 55.3 59.0
Total debt 60.3 62.3
Customer deposits 41.8 39.8
Total debt and customer deposits $ 102.1 $ 102.1
The Company seeks to raise funds to meet all of its financing needs,
including seasonal and other working capital needs, while also seeking
to maintain sufficient cash and readily marketable securities that are
easily convertible to cash, in order to meet the scheduled maturities of
all long-term funding obligations on a consolidated basis for a 12-
month period. Management does not currently expect to make any
significant changes to the Company’s funding programs or liquidity
strategy in order to satisfy Basel III’s liquidity coverage ratio standard
based upon its current understanding of the requirements.
The Company’s funding plan for the full year 2014 includes,
among other sources, approximately $6.0 billion to $12.0 billion of
unsecured term debt issuance and $3.0 billion to $9.0 billion of
secured term debt issuance. The Company’s funding plans are subject
to various risks and uncertainties, such as future business growth, the
impact of global economic, political and other events on market
capacity, demand for securities offered by the Company, regulatory
changes, ability to securitize and sell receivables, and the performance
of receivables previously sold in securitization transactions. Many of
these risks and uncertainties are beyond the Company’s control.
The Company’s equity capital and funding strategies are designed,
among other things, to maintain appropriate and stable unsecured
debt ratings from the major credit rating agencies: Moody’s Investor
Services (Moody’s), Standard & Poor’s (S&P), Fitch Ratings (Fitch)
and Dominion Bond Rating Services (DBRS). Such ratings help
support the Company’s access to cost-effective unsecured funding as
part of its overall funding strategy. The Company’s asset-backed
securitization (ABS) activities are rated separately.
TABLE 21: UNSECURED DEBT RATINGS
Credit Agency Entity Rated
Short-Term
Ratings
Long-Term
Ratings Outlook
DBRS All rated entities R-1 (middle) A (high) Stable
Fitch All rated entities F1 A+ Stable
Moody’s TRS(a)
and rated operating
subsidiaries
Prime-1 A2 Stable
Moody’s American Express
Company
Prime-2 A3 Stable
S&P TRS and rated
operating
subsidiaries(b)
A-2 A- Stable
S&P American Express
Company
A-2 BBB+ Stable
(a) American Express Travel Related Services Company, Inc.
(b) S&P does not provide a rating for TRS short-term debt.
Downgrades in the ratings of the Company’s unsecured debt or asset
securitization program securities could result in higher funding costs,
as well as higher fees related to borrowings under its unused lines of
credit. Declines in credit ratings could also reduce the Company’s
borrowing capacity in the unsecured debt and asset securitization
capital markets. The Company believes its funding mix, including the
proportion of U.S. retail deposits insured by the Federal Deposit
Insurance Corporation (FDIC), should reduce the impact that credit
rating downgrades would have on the Company’s funding capacity
and costs.
SHORT-TERM FUNDING PROGRAMS
Short-term borrowings, such as commercial paper, are defined as any
debt with an original maturity of 12 months or less, as well as interest-
bearing overdrafts with banks. The Company’s short-term funding
programs are used primarily to meet working capital needs, such as
managing seasonal variations in receivables balances. The amount of
short-term borrowings issued in the future will depend on the
Company’s funding strategy, its needs and market conditions.
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