American Express Earnings Call Insights: Competitor Pullbacks and Expense Bases
Bill Carache – Nomura Securities: Dan, can you talk about whether you’re seeing any evidence of competitors pulling back on their investment spending particularly with the benefits from reserve releases having largely abated and the large bank issuers still not really seeing any balanced growth?
Daniel T. Henry – EVP and CFO: So, I think, Bill, if you look at card mailings really in this quarter and last quarter, they’re down from where they were earlier in the year. One other investment actions they’re taking, we don’t have great visibility into. We commented on that we continue to be very focused on operating expense, so that we can have additional resources to invest in the many opportunities we have both in our core business and global and across all of our businesses. So, we can remain very focused and actually quite reason part of the reason for our restructuring charge was to stay ahead of the curve and to ensure that we have the resources we need to invest in the business, even though it’s relatively uneven economy.
Bill Carache – Nomura Securities: So, just to make sure that I’m interpreting that correctly. So, is there a way that you are thinking about the travel services restructuring, is that kind of a source of funds that’s going to allow you to continue to invest in better growth opportunities in other areas, and then maybe along with that if you can also talk about your pecking order of investment opportunities and how attractive you see them today versus say over the course of the last couple of years how they have changed?
Daniel T. Henry – EVP and CFO: So, this was not solely a Business Travel restructuring, right. I think Business Travel is a large piece of the restructuring, but the restructurings are also taking place in servicing operations and we are having other reductions in staff groups, basically areas that are not generating revenues. Business Travel is an area where we are restructuring. It is an important business to us. It is an important adjacency to our corporate card business allows us to deepen our relationships with corporate card clients. And so while business travel hasn’t been a significant generator of revenues for us, we do continue to look at ways continually to reengineer the business. The reason that we’ve taken a bigger step in Business Travel is part of this restructuring is that we now have a new leadership team in place who propose turning up the dial on our re-engineering efforts in response to the changes that we are seeing in the business landscape and we decided to implement their proposal. But that’s not the only place that we are reengineering. We are doing on a regular basis and we have done really terrific job in our servicing areas to improve quality as you’ve seen where we continue to win the JV Power award and at the same time adopt to changing in the marketplace. So we’ve invested say in the ability to take our remittances electronically. Over 80% of our remittances are received electronically in 2012. Many people are changing the way they want to interface with us. So, for instance, we have invested in apps to allow people to communicate with us either through smartphones or tablet servicing applications. In fact, we had context through those two means increase to 5 million apps – downloaded 5 million times compared to 2.6 million times in 2011. So, we’re constantly reengineering both in business travel and servicing and in other parts of our business.
Bill Carache – Nomura Securities: If I maybe ask one last question here. Can you give a sense of what percentage of your volumes come from customers who would be directly impacted by the new threshold limits after the tax law changes?
Daniel T. Henry – EVP and CFO: So, it’s hard to say. The last time, we saw a large tax increase is back in ’93. At that time, a lot of other things going on, but we didn’t see an impact on volumes in that period. Back in ’93 billed business grew at 10% and in ’94 13%. Now it was truly a different economic environment and GDP was growing at 3% to 4% range, but we didn’t see it has an impact then. The other thing that I point out is, U.S. consumer is an important part of our business, but our businesses very diversified. We have large corporate card business, we have large international business, we have GNS partners around the world, so it’s hard to predict what if any impact that we’re going to have from the tax law change.
Robert Napoli – William Blair: I just wanted to clarify, if I could. The expense base, if you took the $23.141 billion of total expenses backed out the $802 million charges in the fourth quarter, that’s your base that you’ll grow by less than 3%?
Daniel T. Henry – EVP and CFO: So, I have to look at the numbers.
Robert Napoli – William Blair: Looking at Page 6.
Daniel T. Henry – EVP and CFO: So, the other thing that we’re going to back out, we are going to take operating expenses as we defined it on our slide, for the year, and we’re going to back out the $400 million of restructuring charge. That’s the only adjustment we’re going to make, and then going forward we will compare with that number.
Robert Napoli – William Blair: Also the rewards chart, the cardmember rewards charge too, I guess?
Daniel T. Henry – EVP and CFO: So, when you look at this, it’s not marketing, it’s not reward. If you’re going to look at Slide 17, this is what we’re defining as operating expense. So, in this quarter it was 3.7%. I don’t know what the annual number is, but I think the annual number as defined here and subtract the $400 million restructuring charge that will be our best.
Robert Napoli – William Blair: Then, I mean, you returned over a 100% of capital generated this year and your Tier 1 common is 11.9%. Would you anticipate being having the flexibility excluding – assuming you don’t make acquisitions to do something similar and what is your target Tier 1 common?
Daniel T. Henry – EVP and CFO: So, we have said our target is 10%. We have been above that level for the past couple years. So, at the low-end, we’re staying in the range that we are today. We have not completed our Basel II work that will not be done for some time now, and we want to see whether there is any impacts that come out of that. We need to complete that work and at that juncture if there are no impacts, we would probably tend to take it down from where it is today. So, from a target perspective that’s how we think about it. This year we returned 98% of capital to shareholders. I think in our CCAR submission we will have a similar philosophy that we had this year, that if we are not utilizing capital to support growth in the balance sheet or acquisitions that we will be inclined to return it to shareholders. And the fact that we have a very strong capital position is helpful on that. I think it is also helpful that last year when the Fed did their stress analysis, we didn’t see our capital ratios drop anywhere near what the other – many of the other banks did in that review. So, I think, all those things contribute to having a type of flexibility that we want from a capital perspective.
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