Lehman Brothers 2006 Financial Services Conference. Gary L. Crittenden Executive Vice President and Chief Financial Officer September 14, 2006

Transcription

1 Lehman Brothers 2006 Financial Services Conference Gary L. Crittenden Executive Vice President and Chief Financial Officer September 14, 2006

2 AXP Performance vs. Long Term Targets Revenue Target 1 8% % % % YTD 06 13% EPS 12-15% 15% 12% 2 16% 2 22% 2 17% 2 ROE Pre-Spin % 21% 22% 25% 30% Post-Spin 28-30% 31% 4 33% 4 1. Targets are on average, over time. 2. Income from continuing operations. EPS growth on a net income basis b was 14% in 2003, 17% in 2004, 11% in 2005 and (7%) YTD as of June 30, Calculated on a trailing 12-month basis using reported net income over average total shareholders lders equity (including discontinued operations). 4. Pro forma ROE, is determined on a trailing 12-month basis using income from continuing operations (which excludes discontinued operations) over average month- end shareholders equity for the period from 9/30/05 through 12/31/05 for 2005 and d from 9/30/05 through 6/30/06 for YTD, Source: Revenue and EPS growth for AXP continuing operations based on data reported in Company s s 8-K 8 K reports dated 10/6/2005 and 4/5/06. 2

3 Metric Trends FY 2003 FY 2004 FY 2005 YTD 2006 Billed Business* 13% 18% 16% 16% Cards In Force 6% 8% 9% 11% Avg. Basic Cardmember Spending** Mgd. Cardmember Loans*** 9% 13% 10% 8% 14% 8% 15% 16% Credit Performance Travel Sales 3% 25% 4% 5% Travelers Cheque and Prepaid Sales (13%) 4% (1%) 2% Pvt. Bank Holdings 16% 15% 10% 7% *Activities related to proprietary cards, including cash advances s and certain insurance fees, and cards issued under network partnership agreements. **Computed from proprietary card activities only. ***On a GAAP basis, loan growth was 14% in 2003, 10% in 2004, 23% % in 2005 and 29% YTD as of June 30,

4 Returns: AXP ROE 1996 YTD 06 40% 35% 30% 25% 20% 15% 26% 21% 31% 29% 28% 25% 22% 23% 32% 26% 22% 30% 20% 31% 33% 21% 22% 31% 25% 33% 30% 10% 11% 5% 0% * YTD'06 * Reported AXP Historical TRS Segment Pro Forma AXP* ROE is calculated on a trailing 12-month basis using reported net income over average total shareholders lders equity (including discontinued operations). *Pro forma ROE, is determined on a trailing 12-month basis using income from continuing operations (which excludes discontinued operations) over average month-end shareholders equity for the period from 9/30/05 through 12/31/05 for 2005 and d from 9/30/05 through 6/30/06 for YTD,

5 AXP Capital Returned to Shareholders ($ in millions) % of Capital Returned $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ Q2 06 Cumulative Return: 68% % 72% 69% 76% 83%* 55% 56% 77% 54% 54%** 87% 48% 105% * 1998 includes shares issued to Nippon Life in December 1997, as well as the related repurchases of those shares in ** Excluding the capital needed to support the Threadneedle and Rosenbluth acquisitions, capital returned was 69% YTD'06 YTD'06 5

6 Spend-Centric Model Investments in Premium Value Attractive Customer Base Premium Economics High Average Spending 6

7 Lend-Centric Economic Model Profitability per Card Transactors Unprofitable Customers % Revolve Profitable Customers Revolvers Revolve-centric model 7

8 Profit Impact of Spend-Centric Model AXP Spend-centric model vs. Lend-centric model Revenues Spend Discount Rate Fee Revenues Net Spread (4-5x higher) Expenses Cost to Acquire Rewards Cost of Services Credit Total Profit 8

9 ROE Impact of Spend-Centric Model Return on Equity (ROE) = Net Income Required Equity Investment LEND-CENTRIC Higher equity Lower ROE AXP SPEND-CENTRIC Lower equity Higher ROE 9

10 2005 Spend Velocity 6.0x AXP Citi JPM MBNA Discover COF* Note: Spend velocity is defined as annual billed business divided d by average managed receivables. AXP spend velocity determined using average GAAP (i.e., owned) receivables was 8.1x for *U.S. Cards portfolio only Source: Company data and public filings. 10

11 Higher ROE Earns a Higher Valuation Financial Services Industry ( , by quarter) Price to Book ratio Return on Equity (%) 1% lift in ROE creates a 5% lift in value Source: Compustat, Hoover s 11

12 Total Expenses as a % of Revenue 100% 95% 90% 85% 80% 75% 70% YTD'06 *See Note 1 in Appendix for computation methodology. 12

13 Expenses as a Percentage of Revenue 30% 25% 20% M&P, Rewards & CM Svces Other Opex Human Resources 15% 10% Provision 5% Interest 0% YTD'06 *See Note 2 in Appendix for computation methodology. 13

14 Expanded Opportunity: GNS Billed Business ($B) Cards in Force (MM) CAGR : 20% $30 14 CAGR : 25% 42% YOY Growth $25 12 $20 $15 28% YOY Growth 10 8 $ $5 2 $ YTD ' YTD '06 14

15 Expanded Opportunity: Small Business Spend Penetrated by Plastic U.S. Consumer International Consumer U.S. Small Business Global Middle Market < 40% < 25% < 15% < 10% Source: 2004/2005 internal data and The Nilson Report. 15

16 Expanded Opportunity: Small Business Billed Business YOY Growth, U.S. 16% 20% 20% 19% 18% 2% 4% Q'06 2Q'06 16

17 Expanded Opportunity: Small Business 2005 Average U.S. Spend per Cardmember, Indexed $11.7K AXP Small Business 17

18 Expanded Opportunity: Small Business 2005 Spend Velocity, U.S. 6.0x AXP Small Business Note: Spend velocity is defined as annual billed business divided d by average managed receivables. AXP spend velocity determined using average GAAP (i.e., owned) receivables was 8.1x for Source: Company data 18

19 Expanded Opportunity: Middle Market Spend Penetrated by Plastic U.S. Consumer International Consumer U.S. Small Business Global Middle Market < 40% < 25% < 15% < 10% Source: 2004/2005 internal data and The Nilson Report. 19

20 Global Middle Market Sales Force Expansion 40% 60% 56% 44% CAGR: Overall: 28% US: 15% Int l: 44% US Int'l 20

21 Expanded Opportunity: Middle Market 2005 Average U.S. Spend per Cardmember, Indexed $11.7K AXP Middle Market 21

22 Expanded Opportunity: Middle Market 2005 Spend Velocity, U.S. 6.0x AXP Middle Market Note: Spend velocity is defined as annual billed business divided d by average managed receivables. AXP spend velocity determined using average GAAP (i.e., owned) receivables was 8.1x for Source: Company data 22

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24 Appendix Note 1: Data for the periods from derived from (i) total expenses for AXP less reported expenses for the American Express Financial Advisors segment ( AEFA ) and (ii) total reported revenues for AXP less reported revenues for AEFA. On a consolidated basis, including AEFA, reported expense as a percentage of total revenues was 84%, 83% and 93% for each year in , as per the Annual Reports for each year YTD data derived from reported company data. Note 2: For Human Resources expense, data for the periods from derived from (i) total reported human resources expense for AXP less reported human resources expense for the American Express Financial Advisors segment ( AEFA ) and (ii) total reported revenues for AXP less reported revenues for AEFA. On a consolidated basis, including AEFA, reported human resources expense as a percentage of total revenues was 28% for each year in YTD data derived from reported company data. For Other Opex expense, data for the periods from derived from (i) total reported other operating expenses for AXP less reported other operating expenses for AEFA and (ii) total reported revenues for AXP less reported revenues for AEFA. On a consolidated basis, including AEFA, reported other operating expenses as a percentage of total revenues was 22%, 21% and 25% for each year in YTD data derived from reported company data. For Provision and Interest expenses, data for the periods from derived from (i) total reported provision expense or interest expense (as the case may be) for AXP less reported provision expense or interest expense (as the case may be) for AEFA and (ii) total reported revenues for AXP less reported revenues for AEFA. On a consolidated basis, reported provision expense as a percentage of total revenues was 17%, 17% and 21% for each year in , respectively. On a consolidated basis, including AEFA, reported interest expense as a percentage of total revenues was 5%, 6% and 7% for each year in , respectively YTD data derived from reported company data. For Marketing & Promotion, Rewards and Customer Services expense, data for the periods from derived from (i) total reported marketing & promotion and rewards and customer services expense for AXP less reported marketing & promotion and rewards and customer services expense for AEFA and ii) total reported revenues for AXP less reported revenues for AEFA. On a consolidated basis, including AEFA, reported marketing & promotion, rewards and customer services expense as a percentage of total revenues was 12% for each year in YTD data derived from reported company data and internal company data. 24