- Delinquencies increased from 2.9% of managed loans in the third quarter to 3.2% as write-off rates on a managed basis for this segment also increased from 3.7% in the third quarter to 4.3%.
- Fixed-rate debt and hedges within the U.S. card business declined by $11 billion and the effective funding rate on that amount was 3.2%.
- This was replaced by funding based on higher market rates of approximately 5.1% and resulted in about $48 million of incremental expense in the quarter versus last year.
- In the U.S. proprietary business, Consumer spending grew 10%, Small Business spending increased 14%, and Corporate Services volumes improved by 11%.
- In total, U.S. volumes for retail and everyday spend grew 14%, and this category represented about 72% of U.S. billings and travel and entertainment-related spending rose 9%.

- International Card Services reported a net loss of $68 million, compared with net income of $99 million a year ago, again principally attributed to the increased expense related to Membership Rewards and increased investments in business-building initiatives.
- Revenues net of interest expense increased 16% to $1.2 billion, reflecting higher Cardmember spending, as well as higher loan balances, which were partially offset by higher interest expense.

Total expenses increased 55%, and marketing, promotion, rewards and Cardmember services expenses increased significantly.

- Human resources and other operating expenses increased 11 percent from a year ago.
- Provisions for losses increased 5% from a year ago as growth in the loan portfolio was offset by a lower level of write-off and delinquency rates.
- Outside the U.S. proprietary billings billed business grew 11% on an FX adjusted basis, driven by 9% growth within the Consumer and Small Business activity and 14% growth within Corporate Services.

- Global Commercial Services reported net income of $110 million, down from $117 million a year ago, principally attributed to the increased expense related to Membership Rewards.

- Revenues net of interest expense increased 15% to $1.1 billion, reflecting higher spending by corporate Cardmembers and increased travel commissions.
- Total expenses increased 18%, and human resources and other operating expenses increased 10% reflecting continued growth in the business.

- Marketing, promotion, rewards and Cardmember services expenses increased significantly, reflecting $39 million after-tax of the previously mentioned charges related to the Membership Rewards liability estimation enhancements.
- Provisions for losses increased $24 million from year-ago levels, primarily reflecting higher volumes and write-offs.

- Global Network & Merchant Services reported net income of $254 million, up 26% from $201 million a year ago.

- Revenues net of interest expense increased 14% to $1.0 billion, and this reflected continued strong growth in merchant-related revenue, primarily from higher company-wide billed business.
- Billed business rose 39%, driven by continued robust growth both in and outside of the U.S.
- Spending on Global Network Services cards increased 39% from year-ago levels, reflecting continued growth in spending on cards issued by bank partners, and cards-in-force issued by bank partners increased 35%.
- Total expenses increased 10%, reflecting higher human resources costs and expanded marketing and promotion activities, including portions of the previously mentioned incremental business-building investments.

- Corporate and Other reported net income of $536 million, compared with net income of $5 million a year ago, primarily due to the previously mentioned $700 million after-tax gain from the Company’s settlement agreement with Visa, offset in part by the $46 million after-tax litigation-related costs associated with the lawsuit against Visa and the $31 million after-tax contribution to the American Express Charitable Fund.

- The year-ago quarter also included $42 million after-tax gain related to the rebalancing of an investment portfolio that lengthened average maturities to more accurately anticipate future redemptions of outstanding Travelers Cheques and Gift Card products.

Fiscal 2008 Outlook

- The company’s business plan for 2008 assumes a moderately weaker U.S. economy and reflects the slowing billed business growth and rising write-off rates that the company saw during the latter part of the quarter.
- The firm assumes billed business growth of 8% to 10% compared to the 10% FX adjusted growth it saw in December, and also assumes that the managed U.S. lending write-off rate will be in the 5.1% to 5.3% range for the year versus the 4.3% in the fourth quarter.
- Expectations to pull back on certain discretionary expenses and assume marketing and promotion expense will be somewhat below the 2007 levels, thus allowing the firm to capitalize on competitive opportunities and position the company to continue to gain share over the medium to long term.
- The plan assumes 2008 reported earnings per share to increase in the 4% to 6% range, and the 2008 first quarter earnings level were forecasted to be below that of 2007.
- The company has a strong planning and forecasting process which dynamically incorporates changes in the environmental conditions, and it remains focused on reengineering.
- The plan for 2008 anticipates that the return on equity should be consistent with the company’s 33% to 36% target.

Key questions and answers from the fourth quarter earnings call conducted by American Express Co. on January 28, 2008.

David Hochstim (Bear Stearns): Could you clarify about what the trend was like over the month of December for the billed business?

Daniel T. Henry: In December it was a sudden drop of about 300 basis points from a level that was running at about 13% down to about 10%.

David Hochstim (Bear Stearns): Could you just clarify what you were saying about marketing spending in 2008?

Daniel T. Henry: Yes, I think what we have said is we anticipate that marketing promotion expenditures in 2008 would be slightly below what we spent in 2007.

Meredith Whitney (Oppenheimer & Co.): In terms of expected charge-offs, do you assume that they will be responsible for more or less predictability in earnings? Is that a contributing factor at all?

Daniel T. Henry: What we did in the fourth quarter has nothing to do with changes from either accountants or regulators. It is management exercising their judgment to bring coverage ratios up to an appropriate level.