American Express' second-quarter earnings topped the Zacks
Consensus Estimate banking on increased card member spending, gains
from GBT spin-off, controlled expenses, lower loan loss provisions
and improved performance in the U.S. These factors drove the ROE
and book value. Improved credit trends, new business initiatives,
capital flexibility and stable ratings, paved the way for an
above-average payout ratio. However, lower borrowing on cards along
with rising payment of outstanding debt may raise interest expense
and impede loan fee income. We also remain cautious about the scope
of expense growth given the impact of regulations and lawsuits.
Overall, a spend-centric business model and healthy capital warrant
enhanced growth over time, justifying our Neutral recommendation.
Founded in 1850, New York-based American Express Company is a
diversified financial services company, with worldwide operations
and a strong brand name. It is a significant player in charge and
credit payment card products, and travel-related services
worldwide. The company is primarily organized into two groups, the
Global Consumer Group and the Global Business-to-Business
American Express sells its products and services to various
customer groups including consumers, small businesses,
middle-market companies, large corporations and banking and
financial institutions through various channels such as direct
mail, online applications, sales forces and direct response
Considering a combination of factors, the company primarily
operates through five reportable segments:
U.S. Card Services (USCS): This segment is aligned within the
Global Consumer Group and issues a wide range of card products and
services to consumers and small businesses in the U.S.
Additionally, it provides consumer travel services to card-members
and other consumers.
International Card Services (ICS): This segment is also aligned
within the Global Consumer Group and issues proprietary consumer
and small business cards outside the U.S.
Global Commercial Services (GCS): This segment is aligned within
the Global Business-to-Business Group and offers global corporate
payment as well as travel-related products and services to large
and mid-sized companies.
Global Network & Merchant Services (GNMS): This segment is
also aligned within the Global Business-to-Business Group. The
segment operates a global general-purpose charge and credit card
network, which includes both proprietary cards and cards issued
under network partnership agreements. It also manages merchant
services globally, which includes signing merchants to accept cards
as well as processing and settling card transactions for them.
Further, this segment offers merchants point-of-sale products,
servicing and settlements and marketing programs.
Corporate & Other: This segment consists of corporate
functions and supplementary businesses. The corporate functions
include the company's publishing business, Travelers Checks and
other prepaid products. The Enterprise Growth Group (EGG) program
is also reported under this segment.
During the fourth quarter of 2008, American Express became a
bank holding company under the Bank Holding Company Act of 1956.
Since then, the Federal Reserve Board has been the company's
primary regulator. As of Dec 31, 2013, American Express had 62,800
On Mar 26, 2014, the company's comprehensive capital plan (CCP)
was approved by the Federal Reserve, which enables it to increase
share repurchases and dividend payouts.
American Express Co. (AXP): Read the Full Research
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