Second Quarter Guidance

- The Q2 loan loss rate is forecast to be higher than the Q1 level.

Key questions and answers from the first quarter fiscal 2008 earnings call conducted by American Express Company on April 24, 2008.

Meredith Whitney (Oppenheimer & Co.): There was a significant market decline in consumer spending for the month of November to December. Can you comment on consumer spending and cutting of consumer credit lines?

Daniel T. Henry: We saw a 300 basis point drop in December in the U.S. consumer and small business and in the first quarter we had a 300 basis point drop across various lines of business in the U.S. compared to the fourth quarter. The 300 basis point drop first quarter to fourth quarter is consistent with what we saw in December and we’re seeing a continuation of that. In terms of the line reductions that we’ve done with regard to certain lending customers, as soon as we saw the deterioration in credit we took a look at our credit policies and practices and we have heightened default rates across the board. We have also been surgical in terms of looking at certain geographies because default rates are higher in certain geographies. We’ve also looked at certain industries where they have weakness and in those we’ve taken special actions as well.

The number of line reductions in the first quarter was significantly more than we would have seen on average in 2007 and we’ve seen probably fewer line increases. We’re trying to be very focused on balancing and controlling credit properly. On the other hand, we don’t want to damage the long term health of the business so really balancing long term considerations for customers with the desire to control credit in the short term.

Meredith Whitney (Oppenheimer & Co.): There has been a flurry of large caps like you changing their funding strategy over the last few weeks or augmenting their funding strategy. Could you update us on changes in that area and on your securitization strategy?

Daniel T. Henry: We haven’t changed our strategy; we fund across a number of areas and we borrow in the commercial paper market and in the unsecured market and thirdly, we borrow through securitizations. There has therefore been an absence of availability in the unsecured one to five year market over the last six, seven or eight months. However, there has been perfect availability in commercial paper. We continue to fund the way we always have and we have not seen any price increases in that funding vehicle. We do have availability in the unsecured market of about five to 10 years. Liquidity has been there for us and also there’s plenty of liquidity in the securitization market. Now, in the unsecured and the securitization market, we have seen the impact of what’s taking place in LIBOR impacting what we borrow at. Additionally, the credit spreads above LIBOR in the first quarter were higher than we’ve seen historically. However, there’s plenty of liquidity and you have to pay up a little bit.

On our website we included some information about the debt funding we’re doing. In there we indicated that we were going to fund this year $37 billion over the course of the year. In fact, because of the slowdown in the business, that’s now $34 billion. We funded about $7.8 billion of that in the first quarter and in the first 15 days of April we funded another $4.8 billion. There’s been plenty of availability in terms of funding for us. We have a very strong liquidity and funding plan. We’re a strong A plus rated company. We’re well regarded in the marketplace and we’ve been able to fund.

Craig Maurer (Calyon Securities (USA), Inc.): On the credit side, the reserve coverage ratio that you have in place right now seems to be in line with where you’ve been. Are we to assume that you’re going to maintain that similar level of coverage or that will be increasing?

Daniel T. Henry: The reserve coverage of delinquencies in charge card is 96% this quarter compared to 95% last quarter. On the lending side, on an owned basis, the coverage ratio was 100% in the fourth quarter and is now 101% and if you look at lending on a managed basis it went from 106% to 105%. We’re therefore keeping it in the first quarter at dimensionally a similar level that we had at year end. Where we’ll take reserve coverage in the future will depend upon the economy and the delinquencies that we’re seeing in our own business and what credit actions we’re taking. When you’re setting we also take into consideration what your recent acquisitions have been so I think we’ll take all those factors into consideration in the future in terms of where we’ll set our reserves and our coverage ratios.

Craig Maurer (Calyon Securities (USA), Inc.): Have you thought about how the GE acquisition will affect that coverage yet?

Daniel T. Henry: It’s about $4 billion of business and I don’t think it will have a dramatic impact on the overall ratios. We’ll make an evaluation on what the appropriate coverage ratios are for that particular portfolio based on historical experience.

Robert Napoli (Piper Jaffray): On the funding side, can you quantify the percentage of your funding that is floating rate at this point and how much benefit you got? Your spreads were up and LIBOR is up and obviously the Fed has cut rates a lot and you must be benefiting. How much benefit you’re getting from the interest expense side? Would you expect that to offset the higher credit losses that you’re probably going to see this year versus your prior plan?

Daniel T. Henry: Approximately 30% of our funding is fixed either because it is fixed rate or it’s fixed through hedges. In the annual report, we make a disclosure as it relates to charge card or fixed rate lending products. A 100 basis point drop in funding costs yields us about $225 million in benefit. You’d have to think about our funding costs not just where the Fed has gone because it’s the LIBOR rate that’s key and you have to factor in where credit spreads and both LIBOR have gone. As it relate to our variable rate book, you have to think about it a little differently because when we designed the product we want to lock in a spread and when interest rates go up or down that’s the cost that gets passed on to the customer.

Inherent in there is an assumption that there’s a relationship between Fed funds and LIBOR rates because we price to our customer off prime, which is driven by Fed funds. Now that LIBOR is not moving in tune with Fed funds, that has a negative impact on us and that’s moderating the benefit that we’re getting. Over time, it will be important for us to have Fed funds move back more in line with LIBOR rather than move back more in line with Fed funds. We’re clearly getting a benefit but you have to factor in all the things I discussed to fully understand what the impact will be. As we go forward the rest of the year how much benefit we’ll get will also depend on the relationship of those two curves.

Sanjay Sakhrani (Keefe, Bruyette & Woods): Should we think about the 2008 guidance as being 4% to 6% EPS growth and not think about the charge off and worldwide billed business guidance you provided in January?

Daniel T. Henry: That’s correct.

Sanjay Sakhrani (Keefe, Bruyette & Woods): The small business is an area where some of your competitors are recording some deterioration. What is your comment?

Daniel T. Henry: In some prior periods, we’ve said small business was a leading indicator that credit was going to deteriorate. That wasn’t the case this time. We should keep in mind that small business, by the nature of the business, has higher credit losses in good times or bad times than consumer. However, what we’ve seen so far is both a similar impact to both consumer and small business during the cycle in terms of our card members. In terms of our merchant business, we had some higher provisions in this quarter partly because some of the small businesses are merchants. We have therefore set up reserves to cover ourselves on the merchant side.