American Express Co Earnings Call Insights: GNS Business and Domestic Interchange Rates
American Express Co (NYSE:AXP) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Craig Maurer – Credit Agricole Securities: Dan, first let me congratulate you on your ride off into the sunset. It’s been a pleasure. A question regarding the GNS business in Europe and the 12% of the $505 million you discussed. I’m not sure – I don’t think any of us know, in terms of the breakdown of GNS revenue, is there any component of that that would be susceptible to the cap that they are placing on interchange or is that strictly network and acquiring fees or is there some level of interchange split with the issuer? As a follow-up, is there any guidance going forward on cardmember reimbursements that we can think about in terms of suppression of revenue or help on expenses? Thanks.
Daniel T. Henry – EVP and CFO: So the (stress) is not even out yet. So getting very specific in terms of answering all the elements of your question is really not possible. I think the main point that we wanted to make is that the cap relates to four-party systems and from our understanding does not relate to three-party systems which is our system. Therefore our proprietary business – the proprietary consumer business and corporate card business is not impacted. However, in our GNS business we think the cap will apply. As a result of that, we’ll have an impact directly on that business. Exactly how that’s going to play out will depend on exactly what the draft says and the debate that will take place between now and the time that the final rules are issued, which will be several quarters in the future. So, it’s hard to be more specific at this point. And it is our intent, once we have a chance to read the draft, to touch on this topic at the Financial Community Meeting which will take place on August the 8. In terms of cardmember reimbursements, as we identify items, we look for root causes, and if there’s a need for us to modify our procedures going forward, we do that, and if it’s appropriate to have reimbursements to customers, we do that as well. As I said in the second quarter of last year and this year, the number is at a similar level. It has varied from quarter-to-quarter in terms of how much it is. Forecasting of what might happen in the future is difficult, because certainly anything we know about, we have addressed at this juncture. But certainly in the close of our work of reviewing our policies and our practices, it’s potential we could identify other items, and if they do, we will remediate those and if appropriate have reimbursements, but there’s really no way to forecast what that might be.
Domestic Interchange Rates
Sanjay Sakhrani – KBW: Two questions, one on Europe. I was just hoping if you could just talk about how you would deal with the competitive pressure of lower rates from Visa and MasterCard when domestic interchange rates go down, and kind of how you would offset any potential impacts to the extent that you had to take your pricing down? And also I just wanted to get a sense of how much of you volume is commercial as well? And then just second, that Canadian VAT benefit you mentioned, I just want to know how much that was?
Daniel T. Henry – EVP and CFO: So, certainly as I said, there is a going to be a direct impact as it relates to GNS and the business we do with GNS partners and then there will be an indirect impact, but that’s something again that will be very dependent on what the final rules actually say, and how we need to react in the marketplace. You know certainly we have faced these types of challenges in other markets, and I think we would react in the way that’s been beneficial in terms of our overall business. It’s hard to really specifically say what’s going to happen because we already know what the draft rules are exactly. We know what the final rules will. But that will take place in the market place. This is something that I think will play out honestly likely over a couple of quarter, but likely over couple of years. But we will be very thoughtful about how we approach that. In terms of the commercial piece of the European business, that’s a disclosure that we have historically made at this juncture. I thought there was useful information that it was to actually what percentage the GNS billings were of the total billings in Europe. So, hopefully that was helpful. Canadian benefit, kind of flows in this category of an amount we put was large enough that we should mention, but not large enough to give the dollar amount which has kind of been our practice on a fair number of items like this. But to let you know that there is something in there that is affecting the line item and therefore the growth rate.