美國運通 (AXP) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the American Express fourth-quarter 2015 earnings conference call.

(Operator Instructions)

Also, as a reminder, today's teleconference is being recorded. At this time, I will turn the conference over to your host, Head of Investor Relations, Mr. Toby Willard. Please go ahead, sir.

Thank you very much. Welcome. We appreciate all of you joining us for today's call. The discussion contains certain forward-looking statements about the Company's future financial performance and business prospects, which are based on management's current expectations, and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements 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 other reports, already on file with the Securities and Exchange Commission.

The discussion today also contains certain non-GAAP financial measures. Information relating to comparable GAAP financial measures may be found in the fourth-quarter 2015 earnings release, earnings supplement, and presentation slides, as well as the earnings materials for prior periods that may be discussed, all of which are posted on our website at IR.AmericanExpress.com. We encourage you to review that information in conjunction with today's discussion.

Today's discussion will begin with Ken Chenault, Chairman and Chief Executive Officer, who will be joined by Jeff Campbell, Executive Vice President and Chief Financial Officer. Once they complete their remarks, we will move to a Q&A session. With that, let me turn the discussion over to Ken.

Thanks, Toby, and thanks, everyone, for joining us this afternoon. We have a lot to cover with you today, including a review of our fourth quarter, an update on the Costco portfolio sale, and our outlook for 2016 and 2017. I'm joining the call today, as I thought it was important to share my thoughts on the financial outlook, and the evolving operating environment.

Before Jeff begins, let me acknowledge that the performance we are discussing today is not what we or you are accustomed to seeing from American Express, and that we are taking significant actions to change the trajectory of our business going forward. During our remarks, we'll address three main questions:

Why has our view of 2016 and 2017 changed? What are we doing about it? Why are we confident in our ability to grow over the moderate to long-term? So with that, let me turn it over to Jeff.

Thanks, and good afternoon, everyone. To answer the questions Ken just posed, I'm going to start by explaining our 2015 results, how they have impacted our view of the future, and how they reflect the actions we are taking. I'll also acknowledge up front that across all the periods we're discussing, there are a large number of items adding complexity to our results. We've provided some normalizations, to help you better understand the underlying performance trends.

To start on page 2, our fourth-quarter and full-year performance reflected the strength and the headwinds that we have been managing throughout 2015. Versus the prior year on a reported basis, billings were up 2% for both the quarter and the full year. Adjusted for FX, billings growth was 5% during Q4, which was consistent with the prior quarter, but slightly below the full-year growth rate, as billings did decelerate modestly during the second half of the year.

During the quarter, revenues were down 8% year-over-year and were impacted by the stronger US dollar, and the gain from the sale of our investment in Concur during the prior year. Excluding FX and the Concur gain, adjusted revenue growth was relatively consistent sequentially, at 4% during the quarter. This was also in line with our adjusted full-year performance of 4%.

Our earnings per share were $0.89 in the quarter, and $5.05 for the year, and included a charge in our enterprise growth business, which was driven primarily by the impairment of goodwill and technology, together with some restructuring charges. Excluding this charge, adjusted EPS would have been $1.23 in the fourth quarter and $5.38 for the full year, down 3% from last year's EPS of $5.56, which did include a net gain of about $0.10 on the global business travel and Concur transactions. This performance is slightly above the high end of the earnings range we provided on the Q3 earnings call, with the favorability primarily driven by our continued focus on operating expenses.

In terms of key drivers for the year, our performance continued to reflect healthy loan growth, strong Card acquisitions, excellent credit performance, disciplined operating expense control, and the benefits of our strong capital position. In particular, the accelerated new Card acquisitions, loan growth, and expense control all stem from actions we took in late 2014 and throughout 2015, as it became clear that the environment was evolving, and all these actions should further help us in 2016 and beyond.

But these positives were challenged by several factors: First, the cumulative impact from the early renewals of our co-brand relationships with Delta, Starwood, British Airways, Cathay Pacific and Iberia, along with the end of our relationship with Costco in Canada, reduced EPS in the quarter and the year by approximately 5%, though we are done lapping these changes as we enter 2016.

Second, the US dollar continued to strengthen as the year progressed, reducing EPS by another approximately 3% to 4% for both the quarter and the year. At current rates, the dollar will now represent a headwind for us as we enter 2016.

Third, our decision to increase spending on growth initiatives for the year, remaining at the elevated levels we were at in 2014, further pressured our earnings in 2015, and we now intend to stay at these levels throughout 2016, before returning to lower levels in 2017. And last, the economic, regulatory, and competitive environments all became even more challenging, as the year progressed.

The combination of these factors resulted in our billings and revenue growth rates being fairly steady throughout the year, whereas we had expected to see a sequential strengthening. Despite these challenges, we leveraged our strong capital position to provide significant returns to shareholders, and again returned over $5 billion of capital through buybacks and dividends during 2015, which reduced our average share count by 5%.

These results also brought our reported return on equity for the period ending December 31 to 24%. Excluding the enterprise growth charge, our adjusted ROE was 26%, just slightly above our target, and illustrates the continued strength of our business model.

Let's now go through the components of results, beginning with billed business performance by region and segment, which is on slides 3 and 4. Billed business growth was 5% on an FX-adjusted basis during the fourth quarter, consistent with Q3, and below the full-year number of 6%. Overall, our billings growth rate decelerated modestly during 2015, while we have anticipated a sequential strengthening. Although this is disappointing, we did see positive momentum in certain segments.

International performance, excluding Canada, continued to be strong with volumes up 11% on an FX-adjusted basis versus the prior year during Q4. I would note that Costco began accepting other network products in its Canadian warehouses during Q4 2014, in advance of the termination of our relationship with them, as of the end of 2014. Therefore, the drag on our ICS growth rate from Canada was smaller this quarter, and we will fully lap this impact during the first quarter of 2016.

GNS remained our fastest growing segment, with volumes increasing 14% versus the prior year on an FX-adjusted basis, powered by continued strong performance in China, Korea, and Japan. In the USCS segment, billings growth remained consistent sequentially at 5%, despite further softening in billings on the Costco co-brand product, where volumes this quarter dropped more significantly versus the prior year. I would also note that lower gas prices continued to be a drag on USCS growth, as average prices were down 24% versus the prior year.

GCS billed business growth continued to slow, and volumes were flat versus the prior year on an FX-adjusted basis during the fourth quarter. Performance continues to be impacted by lower airline volumes, and a generally cautious corporate spending environment.

Looking forward into 2016, we expect to see a modest uptick in billings growth rates beginning in the first quarter, as we lap some of the headwinds we faced in early 2015, and as our initiatives to drive growth have more impact. Obviously, our billings growth rates during the second half of the year will be impacted by the end of our relationship with Costco in the US, around midyear.

Turning to loan performance on slide 5, loans were down 17% on a reported basis, but this is entirely related to the reclassification of a portion of our loans to held for sale, effective December 1. We now expect the sale of the JetBlue loan portfolio to occur during Q1, and I'll provide more details on the status of our Costco portfolio sale discussions later in my remarks.

Excluding the held for sale portfolios from the prior year, worldwide loans were up 7%, and US loans were up 10% versus the prior year. Excluding the negative impact of FX and Canadian loan balances, international loan growth also remained strong at 10% during Q4.

So we are pleased with the underlying trends in loan growth, and that our increased investments and efforts to grow loans since early 2015 are already having an impact. Looking forward, we expect to see strong growth in loans held for investment, and continue to believe that there are opportunities to increase our share of lending without significantly changing the overall risk profile of the Company.

I would also remind you that net interest income this quarter made up only 18% of our total revenues. Even if we continue to grow our loan portfolio at the higher rates you have seen, our overall business model will remain very spend-focused, given the expected reduction in loans associated with the co-brand relationships, which are ending this year.

Moving to our revenue performance on slide 6, reported revenues were down for the full year in the quarter, driven by the prior-year Concur gain and changes in FX. Excluding these items, adjusted revenue growth was 4% during the quarter, which is consistent with our full-year performance. Looking at our major revenue drivers, discount revenue was down 1% during the quarter, which was relatively consistent with our full-year performance.

During the quarter, our discount rate declined by 2 basis points versus the prior year, driven in part by the continued rollout of OptBlue. Going forward, we anticipate that our discount rate will decline by a greater amount during 2016, due to the continued expansion of OptBlue, a greater impact from international regulatory changes, and continued competitive pressures.

Moving to our other primary revenue driver, growth in net interest income remains strong at 9%, modestly higher than our full-year performance. Performance continues to be driven by strong loan growth.

Stepping back, while revenue growth did not accelerate sequentially, as we anticipated for the year, we were still able to consistently generate adjusted revenue growth of 4%, even in a challenging environment. Going forward, subject to FX and economic trends, we believe that our efforts are focused in the right areas, to drive acceleration in our revenue growth rate.

Turning to credit performance on slide 7, our provision was down 2% versus the prior year, as lending write-off rates remained at lower levels. Our write-off rates remained the lowest among large peer issuers. I would note that the reclassification of a portion of our loans this quarter to held for sale had a small impact on provision, but did not significantly change our performance trends or reported credit metrics.

Going forward, continued growth in loans will contribute to an increase in provision, as we expected, since we first provided our multi-year outlook last year. We also expect to see some upward pressure on our write-off rates, due primarily to the seasoning of loans related to new Card Members. That said, we remain very pleased with our loan growth and believe it is driving healthy economic results.

Moving to expense performance on slide 8, total expenses were up 1% in the quarter and down 1% for the year, but were influenced by a number of items in both the current and prior year. Overall, we continue to be very disciplined about controlling expenses, but recognize that we will need to be even more aggressive going forward, as evidenced by the $1 billion target to reduce our overall cost base, announced in today's press release.

Looking at the quarter's results, marketing and promotion expenses ramped up to $892 million, which was similar to the prior year, as we also had an elevated level of spending during Q4 2014, due to the Concur gain.

As we discussed, another one of the key areas of focus for our incremental spending on growth initiatives is driving new Card acquisitions. In this context, we are pleased to see that these efforts drove 2.1 million new Cards acquired across our US consumer, small business, and corporate issuing businesses during the current quarter, which remains well above the average level of Card acquisitions in prior periods. Now, obviously, this is a very early signpost for our investments, and it will take time for the benefits from these new acquisitions to impact our performance.

Turning to rewards, expenses were down 5% in the current quarter, driven by $109 million impact in the prior year, related to the renewal of our relationship with Delta. Our renewed co-brand relationships continued to have a significant impact on the cost of Card Member services, which was up approximately 20% versus the prior year during both Q4 and the full year. We will have lapped this, as we head into 2016.

One last item I would highlight is the tax rate, which was 38.2% in the quarter and significantly above the full-year rate due to the enterprise growth charge, the majority of which was not tax deductible. Looking forward into 2016, excluding the impact of discrete items, we believe that our underlying tax rate will be closer to the 34% to 35% range it was trending to, prior to this quarter.

While there were a number of items that impacted year-over-year growth in operating expenses, adjusted operating expenses were down 2% for the full year, and were up 2% after adjusting for FX. Both of these results are below our 3% operating expense target, and in part, reflect actions we took at the end of 2014 and throughout 2015, as we observed that the environment was evolving. We have a long track record of taking cost actions when needed, and looking forward, we plan to take a series of additional aggressive actions, which we expect will result in restructuring charges during 2016, and drive benefits in 2017 and beyond.

Now, shifting to our capital performance on slide 10, during the current quarter, we returned over 150% of the capital we generated to shareholders, while maintaining our strong capital ratios. During full-year 2015, we returned over $5 billion of capital to shareholders for the second consecutive year, and continued to increase our dividend, which is now approximately 60% higher than it was in 2011. Our full-year payout ratio of 105% reflects our confidence in the Company's ability to generate capital while maintaining its financial strength, as well as our ongoing commitment to using that capital strength to create value for our shareholders.

So let me now shift to a discussion of our negotiation efforts on the Costco portfolio sale and our 2016 to 2017 financial outlook. As we mentioned in our press release and 8-K last Friday, given the progress on our portfolio sale discussions, we are now reporting the Costco portfolio as held for sale in a separate line on our balance sheet. Given this progress, and given the importance of the transaction to our 2016 outlook, we have decided to provide a substantive update on the status of the anticipated transaction today.

Clearly, since the agreement is not final, the update is subject to change, but we believe an agreement consistent with what I will outline will be signed in the near future. We now expect there to be a sale, and for that sale to close around mid-year 2016, and we expect that our merchant acceptance agreement will extend through the transaction close.

In addition, as you would expect, we will continue to hold the co-brand loans, and co-brand Card Members will also be able to use their Cards at any AmEx accepting merchants through the transaction close date. We will be paid a premium on the assets when the transaction closes.

The ultimate gain will be determined based on the assets actually sold, but we currently estimate a gain of approximately $1 billion. We have not yet signed a definitive agreement, and given that we are still several months away from the close and the Card Member borrowing and paydown trends are difficult to predict in this type of transition, the final gain could differ from our estimate.

So now that we have concluded 2015 and progressed in our portfolio sale discussions, we can provide additional clarity on our 2016 and 2017 EPS outlook. Because year-over-year growth rates during this period will be complicated by the number and timing of the moving pieces in our results, we have focused on the absolute dollar amount of earnings we are targeting in each year. That said, we have not seen volume and revenue growth accelerate, as we expected over the past year, and the competitive, economic and regulatory environment has become more challenging.

As a result, we have become more cautious in our outlook, and now expect our earnings per share during 2016 to be between $5.40 and $5.70. It now includes a substantial benefit from the portfolio sale gain and the incremental economics associated with the Costco contract extension, and also includes the incremental spending on growth initiatives that they are helping fund. This range excludes the impact of any restructuring charges or other contingencies.

This is clearly a change in our expectations. I can assure you, though, that we are acting with a strong sense of urgency and confidence in executing on our plans to accelerate revenue growth, and even more aggressively reduce our cost base.

To help drive revenue growth, we plan to maintain our spending across a range of business opportunities during 2016, at similarly elevated levels to 2015. I would emphasize that while the gain from the portfolio sale will impact us only in the quarter we close the transaction, the increased spending on growth initiatives will occur in all four quarters, resulting in some unevenness in our quarterly performance.

On costs, as we moved through 2015 and gained more clarity on portfolio sale, as well as our revenue growth outlook, it became clear that we needed to accelerate and expand our cost reduction efforts to right size our cost base with the evolving business environment. As a result, we have launched cost initiatives that are designed to remove $1 billion from our overall cost base, which includes total operating expenses, plus marketing and promotion costs by the end of 2017. To put this into perspective, since 2007, our billed business volumes have grown by over 60%, but our adjusted operating expenses are almost flat over that period.

We achieved this disciplined cost control by continuously taking actions to increase the overall efficiency of our organization. Looking forward, we determined that those actions were no longer enough, and that we needed to be even more aggressive on eliminating costs, which is why we are targeting a $1 billion cost reduction. We plan to take action throughout 2016 to drive these benefits in 2017 and beyond, which we expect to result in restructuring charges this year.

So if you step back and think about our 2016 EPS guidance versus 2015, there are several key items impacting the year-over-year results. First, we expect the underlying business will grow based on our financial model and revenue growth, which we believe should accelerate from 2015 levels, along with operating expense leverage and capital returns. Second, the portfolio sale gain will be partially used to fund a continued elevated level of spending on growth initiatives.

Last, when the Costco volumes go away at midyear, the marginal contribution will fall away immediately, but we will need to maintain certain costs all the way into the first quarter of 2017, to ensure strong customer service. In addition, given the slower than anticipated overall revenue growth we saw in 2015, we will also need to remove more costs to offset the lower revenue, which will take some time.

Turning to capital, the portfolio sale will increase our capital ratios due to a significant reduction in risk-weighted assets. We plan to leverage this additional capital flexibility to support business-building opportunities, including growth in the loan portfolio, and potential strategic acquisitions. As you're aware, we have been aggressive historically in our capital requests through the CCAR process. Consistent with this approach, we plan to consider the opportunity for incremental capital returns related to the portfolio sale as part of our 2016 CCAR submission.

Turning to 2017, we are now targeting to earn at least $5.60 per share. If you step back and think about this versus our 2016 EPS guidance, there are again several key items impacting the year-over-year results. First, we expect the underlying business will again grow based on our simple financial model of revenue growth, operating expense leverage, and capital returns.

Second, we will have to lap the portfolio sale gain, along with a half year of getting the marginal contribution from the Costco business. Third, our more aggressive cost reduction efforts will be gaining traction, reducing our operating expense versus the 2015 adjusted base of $11.3 billion, by at least 3%. And last, our spending on growth initiatives will be lower, based on the changes we are making to drive further revenue growth more efficiently.

Looking beyond 2017, because there are so many moving pieces in the near term, it's difficult to project when we might return to our consistent 12% to 15% earnings per share growth range. I would point out, however, that to achieve our 2017 target of $5.60 per share, the core will have to be growing at a healthy rate, and overall we believe the 12% to 15% EPS growth is still an appropriate long-term target for the organization. We recognize that we're operating in a new reality, and we're focused on our plan to increase revenues, and substantially reduce our costs.

We continue to believe that the strength of our business model will allow us to drive profitable growth. Now, let me turn it back over to Ken, so he can provide some additional context.

Thank you, Jeff. Now that Jeff has taken you through our financial outlook, let me come back to the questions I set out at the start of the call: Why has our view of 2016 and 2017 changed? What are we doing about it? And why are we confident in our ability to grow over the moderate to long-term?

To give context, our performance comes against a backdrop of changes that are reshaping the payments industry. These include a reset in co-brand economics, regulatory and competitive pressure on merchant fees, and intense competition for customers. A number of cyclical factors in the broader economy also weighed on our 2015 performance, and influenced our outlook for 2016 and 2017.

As Jeff said, the economic headwinds we cited last year, including the stronger US dollar and lower gas prices have lasted longer than we previously expected. This is a long list of challenges, longer than we've seen in a number of years. We recognize them. We've been addressing them with a strong sense of urgency, and we're making progress on many fronts.

Over the past 12 to 18 months, we took decisive action in the co-brand space, accelerating contract talks with partners. We focused on those where we can earn attractive returns and provide strong customer value, which led us to deals with Delta, Starwood, Cathay Pacific, British Air, and Charles Schwab. We contained operating expenses, and restructured many areas of our business.

Now, we're set to take cost reduction to the next level, through our $1 billion improvement program. We ramped up spending on Card Member acquisition, and brought in 7.7 million new Cards in the US last year. Our investments here are paying off, and we're now focused on turning those new accounts into additional volumes.

We have stepped up investments in our international business with strong results, adjusted billed business rose by 12% last year. We expanded our merchant network, adding more than 1.2 million new merchants globally in the past year. With our OptBlue program, we're continuing our efforts to move toward parity coverage with the other Card networks in the US.

We grew our lending business faster than the market, while maintaining our industry-best credit performance. We'll continue to target new lending prospects and deepen relationships with current customers. We expanded our digital capabilities with new apps and partnerships to better serve our customers. We streamlined our management structure, creating integrated consumer, commercial, and merchant teams to accelerate growth. And taking advantage of our financial strength, we have returned more than $5 billion to our shareholders last year.

Although 2015 was challenging, we did accomplish a lot. However, let me be clear. We need to accelerate our efforts and we have a plan to do just that.

It includes three priorities: Accelerate revenue growth. Reduce our expense base. And optimize our investments, and continue to use our capital strength to create value for shareholders.

Let me start with expenses, and give you a little more context. In 2013, we set a goal to limit OpEx growth to 3% or less. We beat that goal every year since then. To do this, we took a number of restructuring actions that provided benefits in 2015, and will continue to aid us in 2016.

The plan we announced today is a major step up from there. It targets reducing our overall cost base by $1 billion by the end of 2017. Along the way, we intend to see operating expenses decline by at least 3% from our 2015 base in 2017, and we expect to see the full benefit in our run rate by the beginning of 2018. This will involve restructuring actions to streamline the Company, starting in the first quarter of this year.

I've assigned our Vice Chairman, Steve Squeri, to lead the effort. He'll work with me and our senior leaders in every area of our business, to ensure we move quickly and meet our goals. Steve is one of our most accomplished leaders. He has been at the forefront of containing our operating expenses over the past several years, and has an outstanding track record of making the organizations he's led more efficient and more effective.

As this new effort advances, we'll be taking actions to reduce costs in a thoughtful way, without compromising our ability to serve our customers, meet our compliance obligations, and grow the business. We have a strong history of meeting our reengineering commitments, and I'm confident we'll do it again.

At the same time, we're also focused on optimizing our investments. We'll continue to use Big Data analytics to improve the way we evaluate, prioritize, and execute our investment opportunities. We'll gain efficiencies from our new management structure, and we'll stop certain initiatives where we're not seeing results or a clear path to results, just as we did by refocusing enterprise growth.

Using our investment dollars more efficiently should help us as we move toward a lower level of investment spending in 2017. As we work to accelerate revenues, we'll be focused on the opportunities I cited earlier. We'll invest to grow our Card Member base and merchant network, deepen customer relationships through lending and rewards, increase our international presence, grow our commercial payments business, and develop newer adjacent opportunities like our loyalty coalition business. In addition to organic growth, we'll continue to explore opportunities to grow through acquisitions.

Even with the challenges we faced in 2015, we continue to see underlying growth in the business. Adjusted revenues rose 4% for the year, and we're confident that we can improve upon this performance. We have a tremendous set of assets to draw upon: our trusted brand, financial strength, the advantages of our closed loop, world class customer service, and our proven ability to innovate.

Our integrated payments model runs about $1 trillion in spending through our closed loop each year. That rich data enables us to create value for Card Members, and build business for our merchant partners. This is a major advantage, and it's one reason why other card issuers are trying to cobble together a closed loop of their own, despite only having a portion of the essential data.

We're not simply looking to do a better job of processing payments. We're focused on using our relationships, technology, and data to better serve our customers and open up commerce opportunities for our partners. As the boundaries between online and offline blur, I believe our business model puts us in a great position to benefit from the convergence of payments and commerce.

We have a deep and experienced management team to guide us forward. They have been tested by major challenges many times over the years, and our Company has always emerged stronger. You'll hear more about our plans to drive growth from Steve Squeri, Anre Williams, and Doug Buckminster, as well as Jeff and me during investor day on March 10.

Let me conclude by saying we recognize that we're operating in a new reality. That's why we're focused on the plan I outlined to increase revenues, reduce cost, and optimize our investments. We're confident that we can deal with our near-term challenges, return to growth, and position the Company for long-term success. Thank you.

Thanks, Ken. As a reminder, our ongoing goal is to provide a greater opportunity for more analysts to ask a question during the session. Thereof, before we open up the lines to Q&A, I will ask those in the queue to please limit yourself to just one question. Thank you for your cooperation in this process. With that, the operator will now open up the line for questions. Operator?

Thank you very much.

(Operator Instructions)

Our first question will come from Don Fandetti with Citigroup. Please go ahead.

Yes. Jeff, can you confirm, in terms of the 2016 guidance, do you have an incremental payout ratio assumed in there from the gain, or do you not have that built in yet?

Well, I think, Don, it's fair to say we take our best shot at estimating what we think a reasonable capital return is, based on our view of our capital strength and our opportunities. Of course, as you well know, we'll have to see if the Fed agrees with us, but certainly what we have built in is what we think is a very healthy return of capital.

Right. And then the $1 billion of expense cuts, clearly Costco is a big piece of the portfolio, 20%. You would expect some cost reduction from that. Can you help us think about how much of the $1 billion is Costco-related versus core business?

The way I would answer that, Don, and I would remind you, Costco is 20% of our loans and our net interest income is only about 18% of our income statement. They're about 8% of our billings for the co-brand, another 1% for merchant, other merchant acceptance. I think the broader way to really think about it is that, as Ken said in his remarks, we recognize that there are many things that have changed in the environment we're in, and as we have gone through 2015, we have not seen the revenue acceleration that we had expected to see.

If you go back to our investor day in March, if you go back to the original conference call we did last February when Ken and I talked about our decision to walk away from the Costco agreement, we said we're going to have to see how much other volumes ramp up, and what the pace is of that ramp, and exactly what the final outcome is of -- when the Costco portfolio goes away, and in what way.

Well, we have those answers now. And when you put all of that together with the evolving environment that we're in, we've concluded we need to be much more aggressive about all aspects of our cost base. So I don't think, Don, you can really attribute it to any one factor. It's the confluence of all the things that Ken and I have talked about this afternoon.

I would just add to what Jeff said is that, one, we recognized early that the economics of the co-brand marketplace were changing, and certainly that competitive pressures throughout the industry were likely to increase. And that's one of the reasons, Don, that we initiated two separate restructuring initiatives in 2014, which was well before we knew how our Costco negotiations would come out, and I think those initiatives certainly helped us to hold OpEx growth below our target again, flat in 2015.

Then in February, as we talked about, we recognized that the termination of the Costco relationship was going to create a short-term volume and revenue gap, and that's why we said it's possible that we take an additional restructuring charge. We know what the situation is now, but that also would be based in part on the revenue and volume growth that we saw in other parts of our business.

And as Jeff said in his opening remarks, the revenue and billings growth has not accelerated as we would have expected, and so we're working to right-size the cost base. They're durable costs that we can take out relatively quickly, but they are fixed costs as well, and that's going to take time to transition. But I think that the reengineering plan that we have put in place gives us a lot of confidence that we can realize the cost objectives that we have put in place, and we can do it in a way that's not going to impair our ability, very importantly, to build on the range of growth opportunities that we've identified.

Thanks.

Thank you. Our next question will come from Ken Bruce with Bank of America Merrill Lynch. Please go ahead.

Encouraging on the Card acquisitions in the quarter and the year. I guess as you're looking at what is the centerpiece of that growth, is that coming from premium Cards, credit Cards, charge Cards? Could you give us any sense as to what is underlying that growth, please?

I think, Ken, what is very pleasing to us, and this goes back to the broad range of opportunities that we have, we clearly are pleased with the growth we're seeing against premium Cards. We also have a very good small business franchise. International, as we've said, is performing well for us. Certainly, what we are benefiting from is to have a variety of Card growth initiatives.

So very frankly, it is really across the board that we're seeing the Card acquisition growth, and certainly, the point that we have emphasized, it's one thing to get the Cards, and we're excited and think we're getting the right types of Cards, but we also have a demonstrated track record of, in fact, generating spending on those Cards, and that's very important. But what I would say, the headline would be that we feel very good about the growth that we're seeing across the franchise.

Great. I'll honor your request for one question. Thanks.

Thank you. The next question will come from Sanjay Sakhrani with KBW. Please go ahead.

Thank you. I guess I want to reconcile the commentary on the weaker revenue growth trajectory into 2016 and 2017. I guess we knew the co-brand reset and the regulatory backdrop. And I understand the economic environment's a little bit weaker, but is it really mainly coming from the competitive environment affecting the business?

And maybe you could just specifically talk about what's changed over the last three to six months that's really affecting your outlook. And then when we think about strategic acquisitions, maybe you can just talk about what you guys are anticipating in terms of size, and where exactly an acquisition might fit into the business. Thank you.

Sanjay, let me maybe go back and explain how things have evolved over the last year, and then, Ken, you might want to provide a little broader context.

As you think about the course of 2015, we clearly did have an expectation that you would see a significant sequential strengthening in both volumes and revenues, and as we went through the year, that clearly did not happen. As we thought about that, Sanjay, in the context of our forward outlook, at some point when revenues weaken a little bit, as you know, we have a financial model that has lots of levers, and we can pull those levers at different times.

As we got to the end of the year, though, and looked at a full year of revenue growth not being where we thought it would be, we concluded it didn't make sense to pull the levers as hard as we would have had to pull them to get to where we had hoped to get to in 2016 and 2017, and so we have adjusted course. I think there's many, many drivers of that slower revenue growth, which Ken and I tried to get at in our remarks. But, Ken, you probably want to provide a little broader context.

Yes, I think what's important is while certainly, Sanjay, the revenues and the volumes are not where we want them to be, I would just go back. If we look at the competitive environment, and look at the large issuers, we are at least generating an adjusted 4% growth rate against the backdrop of a more challenging economic environment. And as we've continued to maintain, over the last several years, an intensifying competitive environment.

What we've seen from our large issuing peers is, despite the investments they are making and the billings growth, they are not achieving much revenue growth. So our revenue growth is certainly better. I would like it, in fact, to be accelerated, and we believe it will in 2015. I think, again, the investments that we've made in Card acquisitions have, frankly, been performing, in general, in line with our expectations.

Now, we are constantly reviewing our investment alternatives, and we're allocating those dollars where we believe we can generate the best returns. And I think, as we've said, when some of those initiatives are not working, enterprise growth was an example of that. What I've also been pleased with is the increasing way that we are using our technology and our data analytics to improve our marketing programs, and to make them more effective.

So I think there is always some lead time, as we've talked about, between when we make the investments and when we see the returns. But I think it's not just the sign posts that we've seen in Card, in bringing in new Cards, but it's also some of the sign posts that we're seeing in some of the services and capabilities that we are providing, something like Pay with Points, which we are seeing from a standpoint of young people. There is an attraction and engagement to those programs.

I think what we've done with some of our digital partnerships, I think the progress that we've made with OptBlue. And then I go back to what I think has been very strong performance in a range of international markets. So I think that's the balance.

Ken, I'd just kind of summarize. If you think about 2015, Sanjay, you had oil that kept going slower, you had FX that kept going against us, the economy was weaker than people thought, and you had the cumulative impact of regulation and competition. All that said, as we get into 2016, for all the reasons Ken talked about, our expectation is that we should expect to see some acceleration in our volume and revenue growth trends, beginning in the first quarter.

Thanks.

Thank you. Our next question in queue will come from Craig Maurer with Autonomous. Please go ahead.

Ken, we don't often get you on a call, so I think a long-term question seems appropriate. Historically, AmEx has been traded at premium to peers, due to it's spend-centric discount revenue-heavy model. Now we're hearing about ramped-up pressure on the discount rate, and aggressive lending growth against a backdrop you know, of an industry quickly giving up interchange economics to drive loan growth and share gains.

So my real question is concerning the competitive backdrop and change in how your competitors are looking at their economics. How can you maintain the model long-term that has traditionally allowed AmEx to be valued at a premium to competitors?

Well, I think that's, Craig, a multi-layered question. So let me hit it on some different pathways, as we go forward. I think one is, if you look at the issuing side of the business and you focus on the spend-centric versus the lend-centric, I go back to a point that Jeff made in talking about the fourth-quarter results, and certainly we said this in the past.

If you look at net interest income as a percentage of revenues, that range is around 15% to 20%. In the fourth quarter, it was 18%. So at the end of the day, the progress that we're making on lending, and I should add to that, growing better than the industry, with industry-leading credit performance, and I think we're getting good spending on those Cards, I think that is working well for us, as I look at it on the issuing path. So I feel pretty good about the viability of our spend-centric model.

The second thing that I would say is that there is a danger of just focusing on specific customer segments, and just focusing on one geography in the US. So what's interesting is, when you look at small business, and I think you know this, in 2014, $4.8 trillion were spent by small businesses, but only 10% of that was on plastic. And we are the market leader in small business. So I think that it's not just the payment industry dynamics that we're competing with. In this case, we're competing against cash and checks, and the fact that only 10% of $4.8 trillion is on plastic suggests there's a strong opportunity. I can do the same thing in middle market.

Then I go to international, and I look at a range of markets where the penetration against plastic is relatively low, and we've actually achieved pretty good growth rates. So 12% in billings growth, in a number of markets we're growing faster than the market. So I think when you look at the breadth of our portfolio in consumer, small business, and corporate, and the geographic, and the fact that we are competing also against cash and checks, that gives me some confidence, relative to both the growth and the economics.

Now, I will absolutely admit, that's why I started off, there's a reset on co-brand economics. That certainly is a challenge, but we are not overly dependent on co-brands. And we have a range of opportunities that we are pursuing.

On the merchant side, let's be very clear. Visa and MasterCard have different models. At this point in time, those models are working pretty well for them. But as I look at our opportunities going forward, I think there is a sea change going on in payments and commerce.

So certainly, they provide an important part of the payments process, but I think increasingly, it's going to be very important to have direct relationships with consumers and merchants. And we think direct relationships, and the insights, the information that we have from Card members and merchants is going to be even more valuable as the convergence of online and offline commerce continues. And so building on the relationships inherent in our integrated model provides the foundation, we think, to deliver a strong value to our shareholders. So, I think that that is going to be an important development as we go forward.

What I would also say is that when you look at the value that we provide, and certainly regulation is playing a role in the merchant business, but I do want to avoid an apples-to-oranges comparison between the Visa and MasterCard rate structure, which is enormously complicated, and that varies significantly by product. I would say our merchant rates really do reflect the value that we provide.

The fact that, as you know, Card Member spending is three to four times the amount on Visa and MasterCard, I think Visa has consistently increased their prices in many cases, and that obviously is a dynamic there. But when I relate that to the importance of how we drive value going forward and direct relationships that we have with the end user customer, and the merchant, and the changes in commerce, I think that we have the ability to compete. So you've got to look at the breadth of the portfolio, and the number of levers that we have to pull.

Okay. Thank you very much.

Thank you. Our next question in queue will come from Moshe Orenbuch with Credit Suisse. Please go ahead.

Great, thanks. I guess I was struck by the comment that you expect that in 2017 the level of marketing and rewards could be reduced, as you lap some of those investments. Could you talk about how much that could be, and maybe relate the level of rewards that are on the cards that you're offering to these new consumers to what your current costs of rewards is?

Moshe, to be clear, rewards were not what I was referencing. What we're talking about is when you look across the range of things we spend in the marketing and promotional area and the operating expense area. When we look at our evolving digital acquisition, our evolving use of Big Data, when we look at certain markets, Ken just talked about the breadth of our business model, where in fact we're increasingly finding the use of direct sales forces to be a more effective way to grow than certain of our more traditional marketing and promotional efforts, we absolutely look at that marketing and promotional line, and see a pathway to moderate down the level of spend, without losing any ability to grow revenues.

And so, as we think about taking the $1 billion out of the cost base, we very consciously have said while the majority of that will certainly come out of operating expenses, there are instances where, in fact, it makes more economic sense for us to pull down marketing and promotional expenses and actually grow operating expenses. We want the flexibility to do the right thing to drive revenue growth going forward.

I would just say two or three things, Jeff. One, what we've seen on the operating expense side, if I just take small business and middle market, what we've seen is the expansion of our sales force, the return on that has been substantial. Even though that adds to OpEx, that is a very, very good trade-off that we want to make. But I would just come back on the rewards point, because there are different categories of rewards. There's cash back, there's co-brands.

And the reality is, if you look at how we've managed the costs, for example, of membership rewards, I think we've been able to manage those costs very well. When we look at the engagement of our customers on membership rewards, it's been very strong. So I mention that that segment of 30 and under is very attracted to pay with points. And so the deals we've done with Airbnb and Uber are very attractive to that segment. And one of the reasons why is because we have a program that's over 20 years old, and, in fact, we have a very large number of points in our bank.

So I think, as with other categories, when you look at rewards, you've got a segment and you've got to look at the economics of cash back. You've got to look at co-brands, as we've talked about and certainly the margins have been squeezed more in co-brands. But the fact that we have a very broad-based rewards program that we've continue to evolve, we've made more digital, we've made more mobile, I think gives us a flexibility in how we manage the overall reward needs of our customers.

Thank you. We'll move on to our next question. That will come from Bill Carcache with Nomura.

Could you clarify for us the core EPS number, what that is for 2016, excluding any gain net of reinvestment? And the reason for the question is that some investors that we've spoken with are stripping out the $1 billion Costco gain, or about $0.66 a share, to get to what they are calling a core EPS number for 2016. The math I've seen is people are using the midpoint of your 2016 guidance to get to about $4.89.

That would imply negative 9% year-over-year growth for 2016. And they are comparing that to what you had previously been guiding to the modestly-positive EPS growth. I think consensus is at plus 2%. Maybe, could you give a little bit of clarity around that, just so there is not, I guess, speculation around what -- how much of 2016 is being influenced or inflated by the gain?

So I think, Bill, the way to think about it is, as I said in my remarks, we'll use the gain partially to remain at the more elevated level of growth-oriented spending that we were at in 2015. And, in fact, Moshe was just talking to us, about in terms of how we will rationally pull it down in 2017.

That is a change. If I go back to the way we first talked about 2016 in February and March last year at our investor day, our assumption had been we would begin to moderate that growth-oriented spending down in 2016. As the gain has come in, as we've looked at all the things going on in the Company, we've made the decision that the right thing to do for the long-term is to stay at that higher level.

Now, in terms of the exact amount, I guess there's a little bit of judgment, Bill, involved in that. Certainly, a very substantial piece of the gain is being used to keep our investments up at a higher level. Is it all the gain? Probably not. Is it the majority of the gain? Probably.

I'm hesitant to put a firm number on it, because that's really not reflective of how we run the Company. We look at the range of opportunities we have that we think make sense to use our shareholders' money on for the long-term. We're funding those up very fully in 2016, and that soaks up a good portion of the gain.

The point I would make, Jeff, is that American Express has had a philosophy of how we've used gains over time and where we see growth opportunities. And those of you who have followed the Company for a while, might recall that we had a fairly substantial gain over a multi-year period in the Visa and MasterCard private action. And so the damages claim was in, I think, the first amount tranche was probably $1 billion. I think it was $3 billion in total. I can't remember it exactly.

But the reality is that we believe we had a range of opportunities to invest in growing our business. Middle market was an example, and small business. And I think what we demonstrated is we used those gains in a very, very productive way.

So when I look at what we can do relative to adding new Card members, deepening customer relationships from a lending, rewards standpoint, we believe, even though commercial payments had a slower year in 2015, we see that as an area for investment going forward. So this has been pretty consistent that where we have seen opportunities, either to make investments in technology platforms, or from a growth standpoint, we've done that. And I think we've had a pretty good track record of basically achieving the outcomes that we set out to.

Thank you.

Thank you. Our next question in queue, that will come from Ryan Nash with Goldman Sachs. Please go ahead.

Two unrelated questions. Given everything that we're hearing in the economy around corporates, particularly the industrial economy, any material weakness that you're seeing across any sectors? And I guess specific for you, Ken, given the plan you laid out today, can you just talk about how Management incentives are aligned with delivering on the plan?

What I would say, Ryan, is our Management incentives start with pay with performance. And so what we have is very clear objectives around each of our businesses, whether that's consumer, commercial, merchant, international. We obviously factor in what are some of the external factors that we need to weigh, but we have very clear objectives that we have set for the Company overall, and for particular businesses, and I think we have a demonstrated track record that we hold our people accountable.

So what we have not had is a situation that someone simply says that certainly will be reflected in our compensation, is because it's a challenging economic environment, that people get a pass. That's not the way we operate as a Company. On the other side, there are different strategic initiatives and particular areas that we're going to make multi-year investments in, and we established certain sign posts to judge the effectiveness and the performance of those activities. And it is a very rigorous process that we very consistently review, not only as a Management team, but with our Board and the comp committee in particular on a regular basis throughout the year.

And just on the other part of the question, around what you're seeing from corporate to any particular sectors of weakness?

I think as we've said, hopefully, we believe that we'll see some improvement, but I think we've been very clear throughout the year, that I would say the segment that I've been most disappointed in has been the corporate segment. And I think you have heard me say this before, through the years, that the easiest expense category to cut is T&E. That's the first thing you see.

Then you start to see people cutting on technology investments, and we hope that we'll see some improvements in that in 2016. But as I evaluate 2014, that was an area that in the beginning of the year, we started off in a better place, and we saw pretty consistent decline. And certainly what we have seen in my 30-plus years' experience with the Company is cutbacks in T&E tend to be an early indicator for a slowdown. And I'm not sure what will happen going forward, but what we do believe is we'll see some improvement in the growth in commercial in 2016.

Thanks for taking my question.

Thank you. Our next question will come from Bob Napoli with William Blair. Please go ahead.

Question, I guess, Jeff, you sounded pretty confident and, Ken, about accelerating growth in 2016, starting in the first quarter. That's an unusual statement in an environment where the markets are very jittery about decelerating economic growth. What gives you confidence in seeing accelerating growth in 2016 to build it into your plan, and even say that it would -- you would see it in the first quarter?

Well, I think I could maybe answer that in two parts. Something as close in as the first quarter, Bob, you really look at just some of the things that are happening, right. So FX, while still a headwind for us, is not as big a headwind, as you get into the first quarter.

We'll see what happens with oil prices. A couple weeks ago, I would have told you that I think we are going to get to a lapping point on oil prices, although those have gotten a little bit tougher. And then when you just look at some other things going on in our business, including Costco Canada, the areas that we have been focused on throughout 2015, in terms of spending and the trends we're seeing, we do think as soon as Q1, you should see some acceleration in the volume, year-over-year volume trends that you've been seeing.

As you think more broadly across the year, certainly, we worry about all the same broad macroeconomic risks and trends that you talked about. We are just balancing that against all the other things that we're doing to try to accelerate revenue growth, and the fact that 2015 was another year of not particularly great growth, and yet we still got, on an FX-adjusted basis, to 4% revenue growth and we think we can do better than that in 2016.

Now, are you counting on an acceleration in GDP growth to get to those numbers?

No, of course not.

No. No. No.

And then you're clearly not seeing a deceleration then in pieces of your business in line with some of the concerns, you're not seeing strong trends necessarily, but you're not concerned about the US economy going into recession, for example?

Here's what I would say. We are not seeing decelerating trends. We are certainly not seeing in the overall economy, catalysts that would say that we think there are going to be improvements in GDP growth. But I think the indicators that -- and the reasons that Jeff cited, we're really focused on our business model, and the reasons why we think we'll see improved revenue growth, and I would keep it at that.

I think as with most people, I don't think we're of the view that we're going to see a dramatic change in the improvement in the US economy. We hope things hold, and I would say we hope, certainly not predicting, that things will get a little bit better, but I certainly would not bank our plan on seeing a dramatic improvement in GDP growth. That's certainly not an assumption at all that we are making for our plan.

Okay. Thank you.

Thank you. Our next question in queue will come from Chris Brendler with Stifel. Please go ahead.

You mentioned the acquisitions as a potential growth strategy earlier in the call, and I just wanted to see if you could give us any color on the potential areas of focus. You also mentioned the importance of being closer to the merchant. I was wondering if you've ever looked at the private label space as a potential area of expansion, and getting closer to the merchants through a proprietary closed-loop card within a merchant at this point?

Sort of second question, just clarify, for 2017, is there any anticipated impact in your guidance from Starwood, and also from the European interchange reduction? Is that a net positive or negative in your view? Thanks.

Quickly, Chris, you take the latter two, and then, Ken, you should chat about the M&A question. Certainly in 2015, you see an impact from European deregulation, because while we're not subject to the interchange caps, the reality is, as we've said for a while, it puts some downward pressure on our discount rate, as we renegotiate (technical issue) merchants, you saw that impact in 2015. You'll see a little bit more of it in 2016. Probably need to get all the way to 2017 before you fully lap that, that's baked into all of our thoughts.

On Starwood, we'll have to see. We think we do a great job and have a great partner for Starwood, we think we have a great partnership, and I think SPG is one of the assets that Marriott is acquiring. We'll have to see over the longer term exactly where Marriott decides to take the two programs.

So I would just say on private label, I don't see that as an area that we're going to pursue. I think as we've talked about, there are aspects of non-Card lending, both in consumer and commercial, that we're certainly taking a look at, and I think we believe that we have a range of opportunities, as we look at lending, we don't think we're getting our fair share of lend from existing customers that we have, and we see that as an opportunity.

I think that private label, you got to think through the different cycles, and as we look at the different cycles in private lending, in private label lending, we actually think that we can have more balanced growth, and have a more balanced risk profile in the way that we are conducting our lending strategy.

I would just say, to add a little bit on Starwood, and then I'll talk about how we're looking at acquisitions overall, that I would emphasize, and I think it's certainly one of the reasons why Marriott made the deal, is they were very, very focused on the high-quality customer that Starwood has. SPG, which is what their co-branded card is called, is viewed very positively. You may or may not know, when the deal was announced, there was a lot of buzz on social media from the Starwood SPG customers, saying, we really love this product.

There were a lot of good things said about AmEx. I have a lot of respect for the Marriott management, and I think our job, as we've been doing, is to provide really, really strong value. And if we do that, I think we're going to be fine. So that's what we're going to be focused on.

On the acquisition side, the reality is as we look at a range of different opportunities, I think the Loyalty Partner example is a very good one. One, we see it as a very manageable acquisition, but it also plays off a number of the capabilities and takes advantage of the merchant relationships that we have. And what you know in the Loyalty Partner model, that I think is quite attractive, is the merchant actually funds the reward on Loyalty Partner.

And so we're in the early stages, as you know, with the Plenti launch. We actually announced, I think it was two days ago, that Chili's restaurant chain has come on. Part of what you want with this program, we've got Macy's, AT&T, ExxonMobil, Nationwide, a range of companies. You want to give people a range of redemption options, where they can buy something in one place, redeem somewhere else, and having the different need categories met is very important. So we're very happy to have Chili's in the Plenti program.

But I do think, as we look at the merchant side, as we look at consumer, as we look at commercial, we think there are a range of opportunities that obviously, if we feel they are going to leverage some of the assets and capabilities, or bring us some of the assets and capabilities, what we would look, as we looked at with Loyalty Partner, is can we substantially improve the size and scale and the growth of those businesses. And so that's the philosophy that we're going to take from an acquisition standpoint.

That's fantastic. Thank you.

Thank you very much. Our next question will come from Chris Donat with Sandler O'Neill. Please go ahead.

Two related questions for guidance for 2016. Jeff, I thought you had said something about restructuring charges being part of the expenses embedded in the guidance. I'm wondering if you could quantify that at all. And then also, on one of the headwinds you're facing for 2016, on the regulation side, is it all regulation like the European stuff that was just discussed, or is it also the antitrust litigation and anti-steering rule embedded in what you put under the heading of regulation? Thanks.

So the specific things on regulation really that we're referring to, Chris, are around the European regulation, which went into effect in early December, as well as some new rulings in Australia that will also impact our business, so that's really the main driver there. In terms of 2016 guidance, to be very clear, as we said in the press release, our $5.40 to $5.70 range does not include any potential restructuring charges.

I did say, and I would expect, that it is likely we will take restructuring charges in 2016. At this point, while we have lots of work streams that have been underway for a while, we are not at a point where we can estimate those charges, and therefore give you any sense of them, which is why we didn't feel comfortable trying to build it into any guidance. That said, you might just -- if you look at history, as Ken said earlier, we have over the last couple of years done a number of restructurings and those probably give you a reasonable range to think about.

Okay.

The only other point, Jeff, I would make is, obviously I think most people are aware of the Second Circuit Court of Appeals, which issued an order granting a temporary stay of the trial court's injunction. So what that means is, as long as that order remains in effect, American Express is no longer subject to the trial court's injunction.

And so that means that we are entitled to enforce the pre-injunction, non-discrimination provisions. And so we're obviously awaiting the appellate court's decision, which we don't know when will be coming out, but I think that was an important development that occurred towards the end of the year.

Thank you. Our next question in queue will come from David Ho with Deutsche Bank. Please go ahead.

There's obviously a lot of talk about what premium multiple, or if that still exists, versus other card issuers. And specifically, obviously you have an advantage on the spend-centric model, but particularly have been rewarded for an above-average growth rate versus peers.

So if I think about your 12% to 15% target through the year, is it basically on an underlying basis, it's not a realistic target for 2017, or is it? And do you plan to provide additional visibility on the underlying growth rate of earnings, maybe ex-Costco and a lot of the moving pieces, from here through 2017?

So, David, we will do everything we can. We did choose to go to absolute levels of EPS, because there are so many moving pieces in our results as you go through the 2015 to 2016 to 2017 timeframe. It is very difficult, I think, for people to make sense of just talking about growth rates. As I said in my remarks, though, if you carefully do the math, you only get to the at least $5.60 in earnings per share that we're targeting in 2017, if you have what I would call a very healthy core growth rate, as you move from 2016 to 2017.

In 2015 alone, I would point out to you, I took people through the math. If you think about the 5% or so of EPS, that the co-brand reset costs which we'll lap, the FX impact of 3% to 4%, and the $0.10 or so, it's about 2 points of EPS growth that 2014 had, as the net gain from the Chief, Global Business Travel and Concur transactions, you end up with a core that's growing not quite where we would think a still-appropriate consistent target is of 12% to 15%, but showing pretty good growth. And to get to that 2017 number, you're going to have to do better than that and get the acceleration in revenue growth that Ken and I talked about.

To try to put a specific number on it gets, I think, very confusing, and you start to run together, well, what's part of our $1 billion cost reduction versus normal OpEx leverage, and that's a combination of those things that led us to say, here's the absolute numbers we think we can get to.

I think, Jeff, what it does go to is really the strength, the underlying strength of the business model, as you pointed out, relative to the performance in 2015. And as we've talked about, what we see as the opportunities going forward in 2016 and 2017.

Thank you.

Thank you. Our next question in queue will come from Cheryl Pate with Morgan Stanley. Please go ahead.

I just wanted to follow up on the revenue growth question and spend a little bit more time on the MDR guidance, and looking for that to be a little bit more severe compression than what we saw this year. Can you just help us think about some of the moving pieces there in terms of relative impact? Is it coming more from the international piece? Is it more OptBlue, as that continues to build out? And on the flip side of that, as we talk about continuing to build out the acceptance piece, is there an acceleration in time line as to when you expect to get to parity relative to a Visa/MasterCard?

So three things, Cheryl, on my specific comment that we do expect to see more year-over-year declines in the discount rates in 2016. The drivers are really just what you said. Number one, OptBlue, as we continue to build it out, the cumulative impact does grow a little larger, as you get into 2016. We continue to believe that program is good for us economically. We passed the break-even point in 2015 and we think we are making great progress in that program.

Two, you do see a greater impact in 2016 from the regulation in Europe, and its impact on merchant negotiations, as I talked about earlier. And three, you do have some mix issues, right? So in the first half of the year, oddly enough, as we completely finish lapping Costco in Canada, that was helping our year-over-year discount rate a little bit in 2015.

As you have seen a little bit less growth in the corporate card business, that tends to be spending at a mix of merchants that tends to be a little bit higher, in terms of discount rate. And as growth in the US has been a little slower than it has been historically relative to the US, that also causes -- puts a little bit of pressure on the discount rate from a mix perspective. So it's all of those things that drove the comment I made about expecting a larger year-over-year discount rate decline in 2016. And, Ken, you might want to comment on coverage in OptBlue.

Yes, the point I would make is, Cheryl, I can't give you a specific timeframe, but the farthest I'll go is to say in several years, which certainly 10 years ago, I wouldn't even come close to saying it's several years. I think we've made some really strong progress. I've been pleased with the momentum that we've seen with OptBlue.

I just reinforce what Jeff said is the growing mix of business within the retail and everyday sector is obviously very critical to the expansion of OptBlue. And, obviously, some of the regulation that we're seeing in some of the key international markets. But as we've talked about before, the increased coverage also has an impact on improving the perception of coverage, which should help our growth.

Now, that takes time for perception to catch up with reality, and to the earlier point that Jeff made, if we can start to see some improvement in the corporate business, that's going to help. But we consciously understood that with expansion of OptBlue, we were going to have a greater mix of retail and everyday, and that's something that we want to see, because that increases the utility of our Card products.

Great. Thank you.

Thank you. Our next question in queue will come from David Togut with Evercore. Please go ahead.

Thank you very much. For 2016, could you please quantify the elevated spending on growth initiatives, break it down into each of the major buckets of spending, and then walk us forward into 2017, giving us a sense of how each of these major buckets of spending will change? And in particular, I'm wondering how you can reduce spending on these areas, particularly given the more competitive environment you talked about, a tougher economy, and a tougher regulatory environment? Thanks.

Well, David, the short answer is no, I'm not going to walk you through that level of detail, because we would consider it competitively sensitive to be that precise about the areas we're targeting for opportunity, and also because as the world changes, it's very important that we retain flexibility to react to the evolving environment.

I think I would go back to the themes I talked about earlier. What makes us believe we can moderate spending, without losing our ability to grow revenues? Well, it's our evolving use of Big Data, the growth in the percentage of our new Card acquisitions that comes through [digital] channels that are very efficient, and it's through focusing on the areas of greatest opportunity.

The only point I would make, Jeff, and I would say we're in an even better situation, because of the progress we've made on data analytics and performance marketing. But if we go back over the last 15 years, the reality is, we've gone through periods of elevated spending where we saw opportunities, and then we've reaped the benefits three or four or five years down the road, even when we have moved down those levels of spending.

So we have an opportunity, and we're taking advantage of it, and I would say the analytics and the capabilities that we've developed give me confidence that we'll take advantage of those opportunities, and the efficiencies that we have brought to bear in our business over the last several years have really produced good results. So we feel that that dynamic is something that we can continue, and we're going to continue to push very aggressively.

Thank you. Our next question in queue will come from Arren Cyganovich with D.A. Davidson. Please go ahead.

Thanks. Just as a point of clarification on the expenses. I think in Ken's remarks, he said that you expect operating expense to decline by at least 3% from the 2015 base. Is the 2015 base just your GAAP total, which includes, I think, around $519 million of one-time charges? Just trying to get a better understanding of that.

So to be very precise, think about a 2015 base of [11.3], which takes out those -- doesn't include the Q4 charge. And so as we think about the $1 billion cost target, the reality is, we've done the easy stuff. It will take us till end of 2017 to get to a full run rate, but if you think about full-year 2017 results, we should get at least down 3% below 2015.

Thank you.

So, operator, we'll take one more question.

Thank you, sir. That will come from Mark DeVries with Barclays. Please go ahead.

Yes, thanks. Just one quick follow-up on Starwood. Do you have any provisions in your co-brand partnerships, whether it be a Starwood or a Delta, that preclude or limit the co-brand partner's ability to dilute the value of the points by changing and redemption options?

And then just one follow-up on the guidance, what does it contemplate in terms of FX and provisions for 2016?

All right. So we'll split this up. I'll do Starwood; I'll have Jeff talk about FX. Obviously, it would be totally inappropriate for me to go into the terms of the contract, but what I would say that's very clear is that if you have a group of customers that, in fact, have relied on getting very strong value for a product, the last thing you want to do is diminish the value of the product. And as I said earlier, not just from us, but if you look at independent card surveys, the SPG product is one of the highest-rated products from a value standpoint.

So I think that the Marriott people are very customer-centric, very smart, and I don't think they would have done this deal if the objective was to dilute the value of products to some of their most important customers. So that would just be my perspective. I don't have any information from them there, but I do know, in some of what I have read publicly, they have talked about their excitement about having this type of customer, and the value that they put on it. And so that would be my perspective.

And on FX, our comments today are based on the world as it exists today. And so we basically presume all of the increase or strength of the US dollar that you've seen today, but not that it continues to get worse.

On provision, we've been very consistent in saying, we see a continued pathway to have loan growth grow at a good clip. Obviously, provision will grow with it, and as we continue to get the cumulative impact of a lot of really good growth in loans, you have a different mix, more early-tenured folks. So there's a little bit of seasoning that will also drive the provision rates up a bit. So that's all built into the commentary we've made today.

Great. Well, thanks, everybody, for joining the call, and thank you for your continued interest in American Express.

Thank you. And, ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation, and for using AT&T's Executive Teleconference. You may now disconnect.