American Express' fourth-quarter earnings beat the Zacks Consensus
Estimate, aided by higher loan balances, spending on cards,
primarily from the U.S., partly offset by higher-than-expected
operating, restructuring and tax expenses, and higher loan loss
provisions. Improvements were witnessed in ROE, capital ratios and
book value. The possibility of below long-term average growth in
2015 due to rise in expenses, loan loss provisions, foreign
currency fluctuation and pressured discount rate in Europe raise
concerns. Absence of Costco client in Canada may also hamper
billings this year. Low interest rates are also hurting returns
from investment securities, loan fee income and bank deposits,
thereby restricting top-line growth. Yet, a spend-centric business
model, improved credit profile, new business initiatives, capital
flexibility and healthy capital paves the way for an above-average
payout ratio. We retain 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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