美國運通 (AXP) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the American Express fourth-quarter 2011 earnings release.

At this time, all lines are in a listen-only mode.

Later, there will be an opportunity for your questions and instructions will be given at that time.

If you should require assistance during the call (Operator Instructions).

As a reminder this conference is being recorded.

I'll now turn the conference over to your host, Rick Petrino.

Please go ahead,

Thank

you.

Welcome and thanks for joining us for today's discussion.

The discussion today contains certain forward-looking statements about the Company's future financial performance and business prospects which are subject to risks and uncertainties and speak only as of today.

The words believe, expect, anticipate, estimate, optimistic, intend, plan, aim will, should, could, likely, and similar expressions are intended to identify forward-looking statements.

Factors that could cause actual results to differ materially from these forward-looking statements including the Company's financial and other goals are set forth within today's earnings press release and earnings supplement which were filed in an 8-K report and in the Company's 2010 10-K report, already on file with the Securities and Exchange Commission.

In the fourth quarter 2011 earnings release and earnings supplement as well as the presentation slides, all of which are now posted on our website at ir.americanexpress.com, we have provided information that describes certain non-GAAP financial measures used by the Company and the comparable GAAP financial information.

We encourage you to review that information in conjunction with today's discussion.

Today's discussion will begin with Dan Henry, Executive Vice President and CFO, who will review some key points related to the quarter's earnings through the series of slides included with the earnings documents distributed, and provide some brief summary comments.

Once Dan completes his remarks, we will move to Q&A.

With that, let me turn the discussion over to Dan.

Okay.

Thanks, Rick.

So we will start on slide two, the fourth-quarter summary financial performance.

Total revenues net of interest expense were $7.7 billion, 7% growth on both a reported and FX basis.

That compares to the third quarter where we had 9% growth reported and 6% FX adjusted.

So down 200 basis points on a reported basis but up 100 basis points on an FX adjusted basis.

Net income is $1.2 billion.

EPS is $1.01.

That is up 15%.

You might remember that in the fourth quarter last year, we had a reengineering charge which was $74 million after-tax.

In the fourth quarter of this year we also have reengineering and that's $32 million on an after-tax basis.

So if you were to back those out, EPS growth would be 11%.

So, return on equity was strong at 28%.

You can see that shares outstanding have decreased compared to last year, and that reflects our share of buyback programs.

Moving to slide three, now this is a full-year slide for 2011.

And total revenues, net of interest expense, was $30 billion.

That's up 7% on an FX adjusted basis.

That's very favorable compared to most of the other issuing competitors.

EPS was $4.09, up 22%, so that strong performance is well above our EPS target of 12% to 15% growth.

Moving to slide four, which is back to the fourth quarter and these are our metrics.

Billed business was $219 billion.

That's a record level of billed business for us.

The growth was 11%, both on a reported and FX basis.

So that compares to 16% reported growth and 13% FX growth in the third quarter.

So, a slight decline in billed business growth from the third quarter, which is what we have seen across the industry.

So, cards in force are at $97 million.

GNS cards grew at 18% and proprietary cards grew at 2%.

So in total, 7% growth.

Average basic Cardmember spending grew 8% so we can to have a high level of customer engagement.

Loan growth was 3%, generally better than the industry and travel sales growing at 5% reflect growth in our corporate and consumer travel businesses.

We move to slide five.

Again, this is full-year metrics.

So we have billed business of [$822 billion] (corrected by company after the call).

That's growth of 13% on an FX adjusted basis and this will result in us gaining share again in 2011.

If you look at average Cardmember spend for the year on FX adjusted basis it was 11%.

So again, high level of Cardmember engagement.

If we move to slide six, this is billed business growth by region.

So if you look at the yellow line, which is Latin America and Canada, growth was 13%, down 100 basis points from the third quarter.

The dark blue line is the US and the green line is Asia.

And they are both down about 200 basis points compared to the third quarter.

So these three regions held up reasonably well.

If you look at the lowest line which is the light blue line, that is Europe, and there we had a decrease to 4% from the 8% growth we had in the third quarter.

So, the UK, Germany and France, all have growth in the mid-single digits.

Italy actually had a slight decline.

If we move to slide seven, so this is billed business growth by segment so total billed business growth is the purple line, and you can see that on an FX adjusted basis it decreased from 13% in the third quarter to 11% in the fourth quarter.

GNS is the yellow line with circles and that decreased from 23% growth to 17% growth.

It's due in part to a decline in Europe, but it's primarily due to the US where Macy's is now in the numbers for a full year.

GCS or Global Corporate Services, the green triangles, declined from 14% to 11% growth and the decline is slightly higher in Europe but it's broad-based globally.

USCS, which is the blue diamonds, is down only 100 basis points from 12% to 11%.

And ICS -- International Consumer, the light blue squares, moved from 9% to 6% growth primarily due to Asia and Europe.

Next, we move to slide eight so this is comparing lending billed business compared to managed loan growth.

So loan balances continue to grow, up 3% compared to a year ago.

But it grows at a much slower rate than the growth rate of spending on lending products as you can see from the chart.

This reflects that consumers continue to be cautious about taking on credit card loans and a change in our strategy to focus on premium lending.

Transactors continued to be a larger percentage of our loan book and the lending trust paydown rate in December was 30%.

Moving to slide nine, net interest yield.

Now historically we have just shown the US yield, but here we're also showing the yield for International Card.

So International loans represent 14% of loans as of December 31, 2011.

Yields are in line with our previous guidance of yields being in the high 8% to 9% range.

You can see that the US yield is now reasonably stable.

In International, we are seeing the impact of our premium lending strategy as we see a decline in revolve rates, more transactors, and a change in bucket mix due to improved credit.

Going forward, yields will continue to be influenced by credit quality, the percentage of the portfolio that is revolving, and cost of funds.

Moving to slide 10, revenue performance, discount revenue reflects 11% growth in billed business, a slightly lower discount rate, 1 basis point lower than last year.

The impact of the GNS billed business and higher contra revenues including partner payments.

This brings the growth for discount revenue to 8%.

Card fees grew in line with the growth in proprietary cards in force, 2%.

Travel commissions and fees are up 9%, reflecting higher travel sales and higher supplier revenues.

Other commissions and fees include revenues from Loyalty Partner, which was purchased in March of 2011.

Offset by an accrual for late fees the Company expects to refund to certain charge card accounts.

Other revenues increased 20%, reflecting higher GNS partner royalty revenues and a contractual payment from a GNS partner.

Net interest income is lower by 1%.

In the US it was up 2% with loan growth of 4% up to $53.7 billion with yield declining 20 basis points compared to last year.

International was down 10%.

Loans decreased $400 million to $8.9 billion and yields declined 140 basis points for the reasons I described a minute ago.

All in, we had revenue growth of 7% in the fourth quarter compared to 6% FX growth in the third quarter.

Not at our 8% target but, given the environment, good performance.

Moving to slide 11, provision for loans, charge card provision was $237 million compared to $183 million last year.

The write-off rate is up slightly, as expected, as we grow the charge card business; and as a result, accounts receivables are up accordingly.

Here, credit metrics continue to be at historic lows.

The loan provision was $149 million compared to $37 million last year.

So the reserve release this quarter was $300 million.

That's $400 million less than last year.

So that change would push up provision, increase it.

However, the write-off rate this quarter was 2.3% compared to a write-off rate of 4.3% in the fourth quarter last year.

So the write-off dollars in this quarter were $400 million, $300 million less than last year.

So the lower reserve release pushed it up by $400 million; lower write-off dollars pushed it down $300 million so a net increase of about $100 million.

Again, here the credit metrics continued to be at historic lows.

Next is slide 12 which is charge card credit performance.

So the write-off rates in the charge card portfolio have increased slightly, both sequentially and compared to last year, but remain at historical lows.

The slight increase in charge card metrics align with the Company's charge card strategic objectives for growing and expanding the business.

Slide 13, lending write-off rate.

So lending write-off rates continue to improve.

These are also at historic lows.

And these are the best write-off rates in the industry and they reflect our high-quality risk capabilities, our affluent customer base, and our focus on premium lending.

Moving to slide 14, so this is lending 30 days past due.

In the US, you can see that the past due percentages are stabilizing which is what you would expect at some point.

International continues to improve.

And again, these are industry-leading metrics.

If we move to slide 15, so, this chart is helpful as we look forward.

On the right side we see bankruptcies continue to be lower than last year.

I would remind you that about two thirds of the bankruptcies are already written off when we are notified.

Now the upper left-hand green triangles are the accounts that are rolling from current to 30 days past due.

So the green triangles represent May, June, and July.

And they would write off in five months later if they continued to be delinquent or they would write off in the fourth quarter of 2011.

So looking at the upper left-hand chart, if you look at the next three blue triangles, they are slightly higher than the green triangles.

So, if the 30 day past due to write-off rate, which is the bottom chart, remained constant then you would expect the first quarter 2012 write-off rate would be either flat or up a tick.

I'll also remind you that bankruptcies and recoveries affect the write-off rate.

You can see the US delinquencies are stabilizing.

Now, as I've mentioned in prior quarters, our objective is not to manage our business in order to minimize write-offs.

Going forward we will continue to balance our risk profile with the Company's strategic growth objectives, and over time we do not expect the loss rate to stay at these historic low levels.

Moving to slide 16, here you can see on the chart across the top are the lending reserve releases by quarter.

Then the light blue bars are the write-off dollar amounts in each quarter.

And the dark bar is the provision so basically the write-off dollars less the reserve releases.

You can see the write-off dollar, the light blue bars, are decreasing as write-offs have come down.

Also, reserve releases are decreasing as the past due rate rate of improvement slows.

So, the reserve release -- these reserve releases should diminish as we go forward.

Slide 17, our lending reserve coverage.

You can see that the credit metrics continue to improve.

Reserves as a percentage of loans and reserves as a percentage of past dues have come down both in the US and worldwide.

Although we released $300 million of reserves in the quarter, coverage remains at appropriate levels.

Moving to slide 18, so this is expense performance, so total expenses increased 1% or decreased 2% if you adjust for the MasterCard settlement payment that we received in 2010 but not in the fourth quarter of 2011.

And that compares to 10% adjusted growth in the third quarter.

So, looking at marketing and promotion this decreased 12% from the high levels of spending that we had in the fourth quarter of 2010.

But marketing is still [9%] (corrected by company after the call) of revenues which are the historic levels that we have been at and reflect an appropriate level of investment to drive business growth.

Rewards increased 10%, in line with spending on rewards products.

There was a slight increase in membership rewards ultimate redemption rate estimate in both the fourth quarter of this year and the fourth quarter of 2010 so it had no effect on the growth rate of rewards experienced in the fourth quarter of this year unlike the second and third quarter when higher ultimate redemption rate growth caused high growth rates on the rewards line.

Operating expense had a zero growth.

It actually decreased by 4% if you adjust for the MasterCard settlement.

And this compares with 9% adjusted growth in the third quarter.

We provided guidance that we would slow growth in operating expense as we exited 2011, and we have.

This demonstrates our ability to control operating expenses.

So let me give you a little bit more detail on operating expenses on slide 19.

So, salaries and benefits are down 2%.

So, I remind you in the fourth quarter of 2010, we had severance costs related to reengineering initiatives of $113 million compared to severance costs in the fourth quarter of this year of $26 million.

If we excluded both these items we'd have a growth rate of 4%, approximately what you'd expect.

Professional services is 6% lower, reflecting lower consulting fees and lower technology expenses, the type of items that we can flex up and down.

Occupancy increased 9% and includes costs associated with Loyalty Partner as well as lease termination costs associated with the Company's reengineering.

Adjusted other net is adjusted to exclude Visa/MasterCard.

So here our interest rate hedges are functioning exactly as intended.

However, accounting rules require us to mark the hedges.

So, there's no economics here and over the life of the hedge, the marks will equal zero.

But in this period, we had a benefit compared to last year.

And we had a litigation-related reserve release.

And these two items really create the variance compared to the fourth quarter of 2010.

So if we move to slide 20, this is year-over-year operating expense and this is a view of operating expense over the past eight quarters.

You can see the increase in operating expense in the fourth quarter of 2010, which is in the middle of the chart, at $3.2 billion.

So, this was driven by some one-time costs including the severance-related reengineering initiatives and some higher incentive compensation.

But it also included increases in our ongoing investments.

You can see that the quarters in 2011 have been in a $3 billion to $3.1 billion range.

This reflects higher levels of investments that we had in 2010, including investments in internal sales force, initiatives related to the digitization of our business, greater third-party merchants sales force, costs related to Loyalty Partner, new business initiatives including Serve, and technology development expenditures, all designed to drive business growth.

We are at an investment level that enables us to drive business growth, and at the same time we are continuing to implement our plan to contain operating expenses as we head into 2012.

Now, when you think about 2012, you should also be mindful that the first quarter of 2011 was the low point for operating expenses in 2011, as you can see on the chart.

So now move to slide 21.

So this is expenses and the flexibility over time.

Adjusted expenses are all expenses excluding provision, as well as the Visa and MasterCard settlement payments.

Now we recognize that we are currently at elevated levels.

Over time, we expect this ratio to migrate back toward historical levels in two ways.

First, through revenue growth and our plan to contain operating expenses as we head into 2012.

You can see that we have started to make progress in the fourth quarter of this year.

Slide 22, our capital ratios.

You can see the tier one common capital ratio remains at 12.3%.

We generated approximately $700 million of capital net through net income plus employee plans less our dividend and our share repurchases while the risk weighted assets have increased due to seasonal growth in loans and accounts receivable.

I would point out that year-over-year the tier one common ratio has increased from 11.1% at the end of last year to 12.3% at the end of 2011.

So we continue to have strong capital ratios.

Looking at slide 23, so this chart provides history on share repurchases.

For the full year 2011, we returned 56% of capital generated to shareholders.

We only repurchased $350 million in the fourth quarter as the request we made in our CCAR filing with the Fed last January was a total repurchase for 2011 of $2.3 billion.

Since acquisitions in 2011 were less than we planned and repurchases were capped at $2.3 billion, our tier one common ratio increased from 11.1 last year to 12.3% at the end of 2011.

We were mindful of this when we made our CCAR submission this year on January 9 and endeavored to create more flexibility.

Moving to slide 24.

So, this is our liquidity snapshot; we continued to hold excess cash and marketable securities to meet the 12 months of funding maturities over the next 12 months.

So we hold $18 billion in excess cash and securities, and the next 12 months of maturities is $14 billion.

Slide 25, this is retail deposits.

So we raised $4.8 billion in deposits in the quarter, in part to fund its seasonal needs and part to replace maturing long-term debt.

Direct deposits increased by $1.4 billion in the quarter, and over the course of 2011 we raised $6.7 billion in direct deposits.

As we've discussed, deposits provide greater degrees of funding diversity for us.

Page 26 is some history on our ABS and unsecured debt issuances over the past three years and an estimate of the range of potential issuances in 2012.

We plan to continue to access the ABS in unsecured debt markets in addition to raising deposits as part of having a broad funding diversity.

So, with that let me conclude with a few final comments.

Results in the quarter reflect the continuation of the positive business trends evident during the last several quarters, as well as the realization of a planned slowdown in the growth of operating expenses.

Spending growth remains strong and we continue to grow well above the average rate of our large issuing competitors, despite difficult prior-year comparisons and a challenging global economic environment.

Certain regions internationally did show slowing growth, especially in Europe where growth slowed to 4% though all regions continued to grow and overall billings held up well in reaching our new record high.

We also saw our average loans continue to grow modestly year-over-year, lending loss rates continued to improve.

Loss rates in both the US and international lending portfolios have reached all-time lows.

Despite the continued improvement, provision expense did increase as reserve releases were lower this year than the prior year.

Our strong billings growth, coupled with higher other non-interest revenues, drove solid revenue growth.

Our revenue growth, which reflects the benefits of our spend-centric model, stands in contrast to many other issuers who are still facing year-over-year revenue declines.

In the fourth quarter, strong revenue growth was paired with significant reductions in the total expense growth rate to generate strong earnings.

Despite the improvement in expense growth, we are still investing in the business and these investments are driving higher average spend and growth in the card base while enabling us to build capabilities for the future.

We feel very good about the recent performance but acknowledge that the global economic environment remains uncertain.

Looking ahead, we recognize that the year-over-year comparisons will be more difficult and that we will not have the benefit of the Visa and MasterCard settlement proceeds and significant credit reserve releases.

But we continue to believe that our business model is well-positioned for the challenges ahead.

We are continuing to implement our plan to contain operating expenses as we head into 2012.

And in the fourth quarter, we saw a clear evidence of our ability to do that.

Going forward, we will continue to monitor spend trends around the world but we are very pleased with our results.

2011 was a great year for American Express as we achieved record billing levels and record earnings while facing the highly competitive environment and challenging economic backdrop.

So, thanks for listening and we are now ready for questions.