American Express 2013 Annual Report Download - page 42

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW
During 2013, the Company transferred Card Member receivables
from the American Express Issuance Trust (Charge Trust) to the
Charge Trust II, dissolving the Charge Trust. The Company will
continue to utilize the Charge Trust II for securitization of Card
Member receivables.
LIQUIDITY MANAGEMENT
The Company’s liquidity objective is to maintain access to a diverse
set of cash, readily marketable securities and contingent sources of
liquidity, so that the Company can continuously meet expected future
financing obligations and business requirements for at least a 12-
month period, even in the event it is unable to raise new funds under
its regular funding programs during a substantial weakening in
economic conditions. The Company has in place a liquidity risk policy
that sets out the Company’s approach to managing liquidity risk on an
enterprise-wide basis.
The Company incurs and accepts liquidity risk arising in the
normal course of offering its products and services. The liquidity risks
that the Company is exposed to can arise from a variety of sources,
and thus its liquidity management strategy includes a variety of
parameters, assessments and guidelines, including, but not limited to:
폷Maintaining a diversified set of funding sources (refer to Funding
Strategy section for more details);
폷Maintaining unencumbered liquid assets and off-balance sheet
liquidity sources; and
폷Projecting cash inflows and outflows from a variety of sources and
under a variety of scenarios, including collateral requirements for
derivative transactions.
The Company’s current liquidity target is to have adequate liquidity in
the form of excess cash and readily marketable securities that are
easily convertible into cash to satisfy all maturing long-term funding
obligations for a 12-month period. In addition to its cash and readily
marketable securities, the Company maintains a variety of contingent
liquidity resources, such as access to undrawn amounts under its
secured borrowing facilities, committed bank credit facilities and the
Federal Reserve discount window.
As of December 31, 2013, the Company had $13.0 billion in excess
cash available to fund long-term maturities:
TABLE 25: SUMMARY OF EXCESS CASH AVAILABLE FOR LONG-
TERM MATURITIES
(Billions) Total
Cash(a) $ 13.2
Less:
Commercial Paper 0.2
Cash available to fund maturities $ 13.0
(a) Includes $19.5 billion classified as cash and cash equivalents, less $6.3 billion
of cash available to fund day-to-day operations. The $13.2 billion represents
cash residing in the U.S.
The upcoming approximate maturities of the Company’s long-term
unsecured debt, debt issued in connection with asset-backed
securitizations and long-term certificates of deposit are as follows:
TABLE 26: DEBT MATURITIES
(Billions) Debt Maturities
2014 Quarters
Ending:
Unsecured
Debt
Asset-Backed
Securitizations(a)
Certificates
of Deposit Total
March 31 $ — $ 0.5 $ 0.7 $ 1.2
June 30 2.1 1.0 0.5 3.6
September 30 1.5 2.5 0.5 4.5
December 31 2.2 — 1.0 3.2
Total $ 5.8 $ 4.0 $ 2.7 $ 12.5
(a) Excludes a $3.0 billion draw on the Charge Trust II secured borrowing facility,
maturing on July 15, 2016 and a $2.0 billion draw on the Lending Trust
secured borrowing facility maturing on September 15, 2015. The draw on the
Charge Trust II facility was repaid on January 15, 2014 and the draw on the
Lending Trust facility was repaid on February 18, 2014.
The Company’s financing needs for the next 12 months are expected
to arise from these debt and deposit maturities as well as changes in
business needs, including changes in outstanding Card Member loans
and receivables and acquisition activities.
The Company considers various factors in determining the amount
of liquidity it maintains, such as economic and financial market
conditions, seasonality in business operations, growth in its
businesses, potential acquisitions or dispositions, the cost and
availability of alternative liquidity sources, and regulatory and credit
rating agency considerations.
The yield the Company receives on its cash and readily marketable
securities is, generally, less than the interest expense on the sources of
funding for these balances. Thus, the Company incurs substantial net
interest costs on these amounts. The level of net interest costs will be
dependent on the size of the Company’s cash and readily marketable
securities holdings, as well as the difference between its cost of
funding these amounts and their investment yields.
Securitized Borrowing Capacity
As of December 31, 2013, the Company maintained its committed,
revolving, secured borrowing facility, with a maturity date of
September 15, 2015, that gives the Company the right to sell up to $2.0
billion face amount of eligible AAA certificates from the Lending
Trust. On July 18, 2013, the Company terminated its existing $3.0
billion Charge Trust II committed, revolving, secured borrowing
facility with a maturity date of July 15, 2014 and entered into a new
three-year committed, revolving, secured borrowing facility with a
maturity date of July 15, 2016 that gives the Company the right to sell
up to $3.0 billion face amount of eligible AAA notes from the Charge
Trust II. Both facilities are used in the ordinary course of business to
fund seasonal working capital needs, as well as to further enhance the
Company’s contingent funding resources. As of December 31, 2013,
$3.0 billion and $2.0 billion were drawn on the Charge Trust II facility
and Lending Trust facility, respectively.
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