美國運通 (AXP) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q4 2020 Earnings Call. (Operator Instructions) As a reminder, today's call is being recorded.

I would now like to turn the conference over to our host, Head of Investor Relations, Ms. Vivian Zhou. Please go ahead.

Thank you, Alan, and thank you all for joining today's call. As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These 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 statements are included in today's presentation slides in our reports on file with the SEC. The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials as well as the earnings materials for the prior periods we discussed. All of these are posted on our website at ir.americanexpress.com.

We will begin today with Steve Squeri, Chairman and CEO, who will start with some remarks about the company's progress and results. And then Jeff Campbell, Chief Financial Officer, will provide a more detailed review of our financial performance. After that, we will move to a Q&A session on the results with both Steve and Jeff.

With that, let me turn it over to Steve.

Thanks, Vivian. Good morning, and belated Happy New Year to everyone, and hope you and your families are healthy and safe.

As you saw, we earned $1.76 per share or $9.35 billion in revenues in the fourth quarter. And while we're still seeing the impacts of the COVID pandemic on our business, the trends have steadily improved as the year went on. At the beginning of the pandemic, we had little visibility into the future. But we did have a plan for managing the company through this period of uncertainty, focusing on 4 priorities: supporting our colleagues, protecting our customers and our brand, remaining financially strong, and at the same time taking steps to structure our company for longer-term growth.

We've made substantial progress against each of these priorities. As I talked about last quarter, we see this cycle playing out in 3 phases. Phase 1 has been about managing through the peak of the uncertainty, which is what we focused on for most of 2020. We are now solidly in Phase 2, which is about investing to rebuild our growth momentum. Our goal in Phase 2 is to prepare us for Phase 3, a return to pre-COVID levels of earnings and our financial growth algorithm.

Our progress in managing through Phase 1 confirms the strength and resilience of our differentiated business model. Key elements of this model, such as the diversity and scale of our customer base, our brand, our global merchant network and our integrated payments platform have given us a solid foundation to build on as we move into the next phase. As we've seen throughout this period, our customers have been resilient and adaptive. Since the lows in mid-April, overall Card Member spending has steadily improved. Our card members quickly adapted to the current environment with an acceleration in their shift to online and card-not-present spending.

Non-T&E spending recovered to pre-COVID levels in Q3 and continued to grow throughout the holiday season in Q4. Consumer holiday spending was up 11% globally year-over-year, exhibiting particularly strong online growth of 40%. In addition, our value propositions and brand continue to resonate with our customers. Attrition rates in our proprietary products remain lower than last year, and our customer satisfaction levels remain above pre-COVID levels. We again ranked #1 in J.D. Power's Annual Credit Card Satisfaction Study of U.S. consumers for the 10th time in the 14 years the study has been conducted.

Throughout the year, our merchant network continued to grow globally. We sustained virtual parity coverage in the United States and we added more than 3.7 million merchant locations internationally in 2020. Credit performance continued to be outstanding, thanks to our robust underwriting and risk management capabilities and the quick adjustments we've made as the pandemic hit.

Our Q4 delinquencies and write-offs are at some of the lowest levels we've seen in a few years and are best-in-class. Our business model has also helped to further strengthen our already strong capital and liquidity position over this period. And our colleagues have proven to be even more agile and highly engaged in moving the company forward despite dealing with disruptions of the pandemic that - which has been brought to their lives at work and at home.

All in all, I feel good about all that we accomplished in 2020 and some of the highlights of which you can see on Slide 2. I am even more confident that our strategy is the right one to position us for growth going forward. That being said, the effects of the pandemic will continue to linger in the short term. The pace of economic recovery is dependent on the course of the virus and the speed with which vaccines can be distributed. For us, the timing of how quickly we can get to Phase 3 and return to pre-pandemic levels of earnings is also tied to a recovery in consumer travel and entertainment spending, and therefore, dependent on how soon lockdowns ease, travel restrictions lift and the general public begins to feel comfortable traveling again.

We continue to be confident that consumer spending on travel and entertainment will come back to pre-COVID levels. We just can't predict right now how quickly. Given this environment, we are looking at 2021 as a transition year during which our focus will be on rebuilding growth momentum. By rebuilding growth momentum, we mean firing up our core acquisition and retention engines, scaling key next horizon opportunities and retaining the flexibility in our financial model.

To accomplish this, we plan to aggressively increase investments in our core strategic business areas with a specific focus on the following. In our Consumer and Commercial businesses, we plan to continue to ramp up our Card Member acquisition activities, inject additional value into targeted products and continue our strategy of periodic refreshes of our premium products. Additionally, in our commercial business, we plan to continue to invest in scaling our cash flow and supplier payment solutions beyond the card. A few examples of how we're doing this include the work already underway to integrate and relaunch Kabbage's suite of products, including a digital business checking account for small businesses as well as continuing our efforts to expand the penetration of our AP automation solutions, where we have seen volumes double in the last year alone.

On the network side, we plan to continue our focus on increasing coverage as well as improving perceptions of coverage and welcome acceptance globally. We're also investing in enhancements to our network to deliver value to our various partners and to support the growth of debit capabilities in China.

Finally, we plan to continue investing heavily in new and expanded digital capabilities across our businesses. The nature of the pandemic has accelerated customer engagement with many of our digital features, services and experiences we rolled out in 2020 and over the past several years, and we think these trends are here to stay.

At a high level, those are the key areas where we plan to increase investments this year to generate the momentum that will help carry us through the recovery and into the future.

Before I hand the call over to Jeff, let me end with a few words about how we're thinking about our financial performance in 2021 and beyond. On last quarter's earnings call, I talked about how my confidence in the long term was growing, though the near term remains harder to predict. Today, I'm even more confident about our growth potential in the medium and long term, but I'm still cautious about predicting the precise pace of the recovery in 2021.

As I discussed, our plan for this year calls for maximizing investments in those areas that enable us to rebuild growth momentum. With this in mind, we will not be focused on a particular EPS target in 2021, though Jeff will provide you with some scenarios of potential outcomes in a few minutes. In reflecting on COVID's impact on the economy and our business in 2020 and where we are as we begin 2021, we look at this 2-year period as a pause in the growth momentum we had been generating for the previous 10 consecutive quarters before the pandemic began.

As a result, we will be focused on achieving our aspiration of being back to the original EPS expectations we had for 2020 in 2022 and for the company to be positioned to execute on its financial growth algorithm going forward. I believe we have the right plan for achieving this aspiration. The foundation of our business is solid, our brand, customer relationships and partnerships are strong. Our colleagues are focused and committed, and we have shown that we can adapt to rapidly changing conditions.

I'll now hand the call over to Jeff to review our financial results, and then we'll take your questions after that. Thank you for your time.

Well, thank you, Steve, and good morning, everyone. Today, I'll discuss our fourth quarter results in the context of what was clearly an unprecedented full year 2020. I'll also provide you a sense of how you're thinking about the future with some scenarios, potential outcomes for 2021.

Let's get right into our summary financials on Slide 3. Our results in the fourth quarter continue to improve sequentially, but we're still significantly impacted by the global pandemic and the resulting containment measures that governments are taking around the world. Fourth quarter revenues of $9.4 billion were down 18% year-over-year, driven by declines in spend-lend and other travel-related revenues, while card fee revenues continued to grow.

Net income was $1.4 billion, and earnings per share was $1.76 in the fourth quarter, down 13% from a year ago. Now as I've said over the past 3 quarters, the key drivers of our financial performance in this environment remain volume and credit trends. So I'll again spend the most time on these 2 topics.

Turning to the details of our volumes, first, let's start with billed business, which you will see several views of on Slides 4 through 10. The rapid pace of change in billings has slowed since September. And so we have returned to showing quarterly trends in our billed business slides since we think looking at trends on a quarterly basis is more meaningful due to the noise you see in monthly trends from days mix and the timing of holidays.

Starting with Slide 4. Overall billed business declined 16% year-over-year in the fourth quarter. Our proprietary billed business, which makes up 86% of our total billings and drives most of our financial results, was down that same 16%, and the remaining 14% of our overall billings which comes from our network business, GNS, was down 15% in the fourth quarter, all on an FX-adjusted basis.

When you look at our billed business performance in 2020 and think about what this might mean for 2021, it's important to think about T&E spending and non-T&E spending separately given the very different impacts the pandemic has had on these volume trends, as you can see on Slide 5.

Non-T&E spending, which has long been the majority of our volumes, hit a trough in the second quarter but was back above pre-pandemic levels by the third quarter and grew 4% year-over-year in the fourth quarter as our card members, particularly consumers and SMEs, have adapted their spending behaviors to the current environment.

T&E spending, on the other hand, has remained down much more significantly, declining 65% year-over-year in the fourth quarter, though it did show some continued modest sequential improvement driven primarily by consumers. As a reminder, prior to the pandemic, non-T&E spending was around 70% of our proprietary billed business. And today, it represents almost 90%, as you can see on Slide 6.

Looking at the billings mix by customer type at the bottom of the slide, you see that the majority of our T&E spending has historically come from our consumer business, and that is even more true today.

Taking a closer look at T&E on Slide 7, you see that consumer T&E continued to recover faster than that of SMEs and large corporations. We expect this trend to continue, given the pent-up demand for travel that we see in our consumer base and our expectations that corporations, particularly large ones, will continue to limit their T&E spending for some time.

We also continue to see different paces of recovery within the categories of T&E. Cruises, which are a very small part of our business, have been slower to recover, followed by the airlines, but both showed modest improvement sequentially in Q4. Restaurant spending, on the other hand, has been the most resilient throughout, decelerated slightly during Q4 due to colder weather in the U.S. and renewed dining restrictions in certain geographies.

Moving on to Global Consumer on Slide 8. We continued to see an acceleration in online and card-not-present spend growth throughout 2020, especially during the holiday season, which drove 5% growth in non-T&E spending in the fourth quarter.

Turning next to our Global Commercial billed business on Slide 9, non-T&E spending has returned to pre-COVID levels and grew 2% year-over-year in the fourth quarter. Within our commercial segment, you continue to see a tale of 2 very different customer types. Spending from small and medium-sized enterprise customers who historically have the highest mix of non-T&E spending has been the most resilient throughout 2020. Whereas large and global corporate card spending, which historically has been primarily T&E, has been down the most during the pandemic. I will remind you here that spending from our SME customers now represents 86% of our Commercial billed business.

You also see the impact of different mixes of T&E spend when you look at our international regions on Slide 10, which have more travel-related spending historically, and thus are showing larger overall declines in volume. More generally, it remains remarkable how much of the world is moving in a fairly similar pattern, which speaks to the global impact of this pandemic.

To sum up on volumes, we feel good about the pace of recovery in non-T&E spending throughout 2020 and expect it will continue to grow steadily in 2021. But more broadly in 2021, our overall volume recovery to pre-pandemic levels will be primarily driven by what happens with T&E since non-T&E has already substantially recovered. While we currently expect spending in Q1'21 to remain relatively in line with Q4 of 2020, outside of some impact from normal seasonality, our current assumption is that by Q4 of 2021, T&E spending will have recovered to around 70% of Q4 2019 levels.

Moving next to loans and receivables on Slide 11. Loan and receivable balances were up 4% and 7% sequentially in the fourth quarter relative to the third quarter, driven by higher spending volumes during the holidays. However, loan and receivable volumes were down 17% and 24% year-over-year, respectively, in the fourth quarter driven by the continued declines in spending volumes that I just spoke about. We also continue to see higher pay-down rates from revolving card members on our credit cards.

Looking forward into 2021, I would expect the recovery in loan balances to lag the recovery in spending volumes if the higher pay-down rate trends we saw in 2020 continue. In addition, I would remind you that we typically see a modest sequential decline in balances in the first quarter of every year due to seasonal spending patterns.

Turning next to our traditional credit metrics on Slide 12, you will see that the credit trends in the fourth quarter remained remarkably strong with Card Member loans and receivable write-off dollars, excluding GCP, down 30% and 59% year-over-year, respectively. In addition, our write-off and delinquency rates continued to be down year-over-year and down sequentially in the fourth quarter, reaching the lowest quarterly loss rates we've seen in several years for both Card Member loans and receivables.

Looking at the total balance of loans and receivables that are in delinquent status or in one of our financial relief programs on Slide 13, those balances continue to decline sequentially to $4 billion at the end of Q4 and now stand $1.2 billion higher than they were pre-pandemic. Historically, the credit outcomes of card members that are enrolled in these programs are better than delinquent card members that do not with around 80% of enrolled balances successfully completing these programs and the repayment trends of the card members currently enrolled in FRP have been in line with our historical experience.

It is unusual to see credit performance this strong in an environment like this. It all starts with the changes we've made over the last few years in our risk management practices, which gave us a solid starting position as well as the way we mobilize our organization to ensure that we have the appropriate programs and people in place to support our card members who needed financial assistance. Of course, like others, our customers are also helped by external factors such as record levels of government stimulus and the broad availability of forbearance programs. As a result, we do remain cautious about the potential for a significant downturn in the pace of economic recovery. And that caution is reflected in the macroeconomic outlook that informs our credit reserves.

Moving on to Slide 14, you will see that the macroeconomic assumptions that were used in the modeling of CECL reserves for the expected lifetime losses of the loans and receivables have modestly improved in both the baseline and downside scenarios since Q3. But the 2 scenarios do remain sharply divergent.

In our reserve calculations for the fourth quarter, we continued to weight heavily towards the more pessimistic downside scenario due to the continued caution that I just spoke about. Despite this caution, the impact of this modest improvement in the set of macroeconomic assumptions on our reserve models and our strong credit performance led us to release $674 million of reserves in the fourth quarter, as you can see on Slide 15.

This reserve release, coupled with our low write-offs, drove a provision expense benefit of $111 million in the fourth quarter. We ended the year with $5.8 billion of reserves, representing 7.3% of our loan balances, 0.6% of our Card Member receivables balances, respectively. We believe that the reserves on our balance sheet, which are up $1.5 billion from their pre-pandemic levels, are appropriate, given the broad range of economic outcomes envisioned in our baseline and downside scenarios and our caution about the potential for a significant downturn in the pace of economic recovery.

Turning now to the details of our revenue performance on Slide 16. Fourth quarter revenues were down 18% year-over-year, driven by declines in spend, lend and other travel-related revenues, while net card fees continued to grow, as you can see on Slide 17.

Net card fee growth remained strong throughout 2020 and grew 12% in the fourth quarter, demonstrating the impact of the continued Card Member engagement that Steve discussed. But growth has been decelerating steadily because of our decision to pull back on new card acquisitions as we were managing through the peak of uncertainty during this crisis in the second quarter.

Although we started to ramp up new card acquisition in the third and fourth quarter, and will continue to increase investments in this area this year, it will take time for card fee growth to reaccelerate. As a result, I do expect card fee growth to dip into the single digits midway through this year before it starts to eventually reaccelerate.

Moving on to the details of net interest income and yield on Slide 18. Net interest income declined 17% on an FX-adjusted basis, roughly in line with the loan declines we saw in the fourth quarter. Net interest yield on our Card Member loans increased 10 basis points year-over-year in the third quarter, driven by modest tailwinds from funding costs and pricing for risk, mostly offset by declines in revolving loan balances.

Looking forward, I'd expect net interest income to be relatively flat to Q4 in the first quarter and then increase modestly as loan volumes recover.

Turning next to our largest component of revenue, discount revenue, on Slide 19. As expected, the contraction in discount revenue continued to be a bit larger than the decline in billed business due to the difference in T&E and non-T&E billings trends. This difference drove an 11 basis point decline in the average discount rate in the fourth quarter relative to the prior year since, as a reminder, we, on average, earn higher discount rates with T&E merchants versus non-T&E merchants. The discount rate was also down modestly sequentially due to the seasonal trend we typically see in the fourth quarter. Looking forward into 2021, I'd expect discount revenue to recover generally in line with billed business with the discount rate trends impacted by the pace of T&E recovery.

Coming back to total revenues on Slide 20, you see that the overall revenue trends in 2020 have broadly moved in line with billed business trends given the spend-centric nature of our business model. While I would expect first quarter 2021 revenues to be broadly in line with Q4 outside of some impact from seasonality, if T&E spending recovers to around 70% of 2019 levels by Q4, as I mentioned earlier, you'll probably see overall revenue growth of around 9% to 10% for full year 2021. And if T&E recovers more slowly or quickly, you would see full year revenue growth that's somewhat lower or higher than that 9% to 10%.

Moving on to Slide 21. We're continuing to break out our expenses between variable customer engagement expenses, which moved naturally in line with spend volumes and benefits usage and marketing and OpEx, which are driven by management decisions. Variable customer engagement expenses in total were down 24% for the full year, driven by lower spending and lower usage of travel-related benefits. The year-over-year declines in variable customer engagement expenses provided around a 50% offset to the full year revenue declines we saw in 2020.

In the fourth quarter, that offset was closer to 40% as we began to see some higher spending and usage of travel-related benefits. And I would expect that relationship to continue into the first quarter of 2021.

Moving on to the marketing expense line. We invested $1 billion in the fourth quarter as we ramped up our investments in new card acquisition and continued to invest in value injection. As Steve mentioned, in 2021, our focus is on rebuilding growth momentum and maximizing our investments to do so. As a result, we could spend as much as a little over $4.5 billion in marketing this year.

Our ultimate marketing investment levels will be governed by the universe of attractive investment opportunities that we see as we move throughout the year and the pace at which we wind down our value injection efforts as customers begin to experience again the full benefits of our existing value propositions.

Turning to operating expenses. You can see that they were down 6% year-over-year in 2020 as we kept tight control over our expense base while selectively investing in areas critical for our long-term strategies. In 2021, we expect our operating expenses to be around $11.5 billion, below 2019 levels, as we continue to keep tight control over our operating expenses while also investing to rebuild growth momentum.

Last, while you saw some quarterly volatility this year in our effective tax rate, the final fourth quarter tax rate was a bit below 23% and I'd expect around a 23% effective tax rate in 2021, absent any legislative changes.

Turning next to capital and liquidity on Slide 22. Our capital and liquidity positions remain tremendously strong as they have been all year. Our CET1 ratio ended the year at 13.5% after hitting in the third quarter our highest level since we began reporting this ratio. And our cash and investment balance ended the year at $54.6 billion and has been at record high since the start of the pandemic due to our distinctly countercyclical balance sheet.

We remain confident in the significant flexibility we have to maintain a strong balance sheet and liquidity in periods of heightened stress and uncertainty. Looking forward, we are committed to our dividend distribution and to our long-term CET1 target ratio of 10% to 11%. We plan to resume share repurchases starting this quarter up to our maximum Fed authorized capacity of around $440 million in Q1. Beyond Q1, our capital distributions will be a function of the Fed's guidelines, our capital generation and the growth in our balance sheet.

To sum up, we feel good about how we've navigated through the unprecedented challenges of 2020, and we feel well positioned to rebuild our growth momentum in 2021. We now know a lot about how our customers and our business are performing in this environment. The two areas that do remain harder to predict for 2021, though, are the same two we have talked about since the pandemic began: the ultimate credit outcomes and the pace of the recovery in T&E spending, as I mentioned earlier.

That said, the range of potential outcomes on credit and reserves is the most impactful to our performance in 2021. And so on Slide 23, we have outlined 2 scenarios. Most importantly, scenario 1 assumes that the caution we have shown in our Q4 credit reserves about the potential for a significant downturn to the pace of economic recovery turns out to be warranted. Such an economic outlook would likely put some pressure on our current assumption of a 70% T&E recovery by Q4, and this would likely drive a somewhat weaker revenue recovery. The combination of these things could lead to an EPS outcome as low as around $5.

Scenario 2, most importantly, assumes that we do not see a significant downturn in the pace of economic recovery, leading us to continued strong credit performance and having no need to maintain our current level of credit reserves. This sort of economic outcome would also likely drive a somewhat stronger revenue recovery. The combination of these factors could lead us to a much stronger EPS outcome in the area of $7.

In either scenario, our investment levels will be governed by the universe of attractive investment opportunities that help us to rebuild growth momentum, along with the trajectory of our value injection efforts, not by focusing on a specific EPS outcome. We run the company to maximize value for our shareholders in the long term. Although we can't predict precisely where 2021 EPS will land or provide an EPS guidance range at this time, we believe that our focus on managing the company to rebuild growth momentum is the right one to help us achieve our aspiration of being back to the original EPS expectations we had for 2020 in 2022 and for the company to be positioned to execute on its financial growth algorithm.

And with that, I'll turn the call back over to Vivian.

Thank you, Jeff. (Operator Instructions) Thank you for your cooperation. And with that, the operator will now open up the line for questions. Operator?

(Operator Instructions) Our first question will come from the line of Sanjay Sakhrani with KBW.

I appreciate all the context for 2021 and 2022 because I know it's pretty fluid. But I guess, as we think about the assumptions you've outlined, how confident are you on the 70% T&E rebound in the fourth quarter 2021? I mean, do you need a broad-scale reopening? Or do you think, just naturally, the behaviors will be better this year versus last year when we were in shock kind of post COVID?

And then I'm just wondering how much of an uptake are you assuming from the new customer acquisitions that started last quarter. Could that be additive to your guidance? And then last one on the assumptions. Just the reserve releases, like how much of that are you assuming in your $7 number in this year versus 2022?

We'll try those 3 questions.

It's all around one theme.

Yes. Well, the first thing I will say is there was no real guidance. I mean, we gave sort of some scenarios. But let's talk about the first part of the string here. And then I think Jeff can jump in at the end with the releases. But we're in a completely different spot than we were sort of last year. I mean, when we were talking last year at any given point in time, we didn't have a vaccine.

And so while the vaccine right now is, what I would call it, fits and starts, I mean, is there enough -- at the beginning, there wasn't enough places to sort of -- to do vaccine distribution. Now they have vaccine distribution points, but you don't have enough vaccine to distribute, hard to get appointments. There's a lot of disconnect. That will sort itself out. And it will sort itself out over a period of a couple of months, not over a couple of years. And so we believe that by June or so, you will either have sort of a herd immunity or a perceived herd immunity.

The other thing that we believe is that there is a huge pent-up demand for travel. It's probably -- and nobody on this call that doesn't want to travel or go someplace or don't know their friends or family don't want to do the same thing. And so when we look at it, I don't think you'll see a widespread international travel, but you will see domestic travel and domestic travel being domestic travel here in the United States, domestic travel sort of within the European Union, things like that. You're probably not going to see a lot of long-haul this year.

And so look, I'm fairly confident that we will see the predictions that we have come through as it relates to travel. I mean, we're talking about consumer travel potentially being back about 80% with overall travel being back about 70%. Business travel will come back a little bit slower. But I'd be shocked if we're sitting here at this time next year and we say, geez, well, we really missed it on travel. I just don't see that happening. I have a lot of confidence in the vaccines. But again, these vaccines are going to take some time to get into the marketplace.

I mean, what do you have? Like 20 million people in the United States at this point sort of vaccinated or something like that, and it's only January. And so I believe that as we get into this summer season, this June, July, August and September, you will see a rush for people to travel, especially air travel. I think cruise lines, that's more of a 2022 phenomenon. So we feel really good about consumer travel coming back. I think our airline partner with Delta, Ed said the same thing on his earnings call. So we feel real confident about that.

And as far as new cards, I mean, look, new cards take a while to get back to get into the mix. But what we have booked in our sort of our own internal forecast, not the scenarios, is that the cards that we booked last year will behave probably slightly slower than normal cards would behave just because you're not going to have those card members traveling right out of the gate, they'll probably be more of a second half phenomenon. And so their spending may ramp a little bit slower than normal.

Having said that, we are really focused on getting -- we don't talk a lot about cards, but cards lead to billed business acquired, which we do talk a lot about. We are really focused on ramping up our acquisition engine, and we believe there are a lot of good opportunities out there for us to acquire cards.

Sanjay, I'll add 2 things on cards and then talk about reserves. I would point out on cards. We were really pleased in the fourth quarter to see in the U.S. consumer business our Platinum and Gold new Card Member acquisition numbers were essentially at 2019 levels. That's a really good sign to us.

The other point I'd make is just to reiterate what Steve said is that it's really a 2022 impact to a great extent. 2021 is about rebuilding new card acquisition numbers. It won't affect the 2021 results that much because the 2021 results, then to go to your last question, are all about what happens. It's credit.

And I guess I'd encourage everyone to think about 2 numbers. So I cited in my script that relative to the beginning of the year, we now end the year with $1.5 billion more in credit reserves. We also, relative to the beginning of the year, ended the year with $1.2 billion more in delinquent accounts and accounts in our financial relief programs. And yet I also pointed out that historically, 80% of the dollars that go into our financial relief programs, we end up collecting and doing fine with.

So what that should tell you is that our credit reserves assume a very conservative economic outlook. And so you have to see more bad stuff happen in the economy. Small businesses going bankrupt, lots of consumers being laid off, you have to expect more bad things like that to happen for all of those reserves to be needed. So we're not making an economic call, Sanjay. We're saying, well, if all that bad stuff happens, like in the real downside scenario of our economic forecast, then we're going to need all those reserves we have on the books, and you're probably that's sort of where the low scenario comes from.

Conversely, if, while rocky, there's a fairly steady recovery, we have a lot of excess reserves that you probably are going to release and that sort of leads you towards the high scenario. So we'll have to see. But either way, our focus remains rebuilding growth momentum this year because it's all about 2022.

Our next question will go to the line of Betsy Graseck with Morgan Stanley.

Okay. So the question I had was around your proprietary card acquisition trends, which you put in the deck, and I just wanted to get an understanding as to which programs are you seeing drive this kind of...

Ms. Graseck, your line is still open.

Well, should we just go ahead and answer what we think Betsy was in the middle of asking, Steve, around new card acquisition?

Yes, yes. And I think Jeff just really answered it. I mean, when we look at new card acquisition, our Platinum and our Gold levels were at levels of 2019, and so we feel really good about that. I think our Cashback cards were actually doing quite well as well. What we have not seen, and this makes all the sense in the world, is our co-brand acquisition. And our co-brand acquisition, I mean, look, the reason you do co-brand cards, you do that to combine value propositions between us and our partners, but you also get tremendous distribution. And right now, not a lot of people stay in hotels, not a lot of people taking flights. So you lose those distribution opportunities.

Having said that, what our co-brand cards, though, are performing either in the United States or in other markets at or better than our proprietary cards from a spending perspective because, as I've said all along, people spend to gather those points to take those trips because they have such a pent-up demand for travel. And our retention numbers on our co-brand cards are at the same levels they were in 2019. So we feel good about proprietary acquisition, which again, is being driven by Platinum and Gold and some Cashback. Our co-brand acquisition is not as ramped up because we depend on our -- the co-brand channels.

But having said that, our co-brand performance is really, really good. And Ed made that comment, Ed Bastian made that comment in his earnings remarks as well. So hopefully, Betsy, we provided a little bit of -- somewhere around the answer you -- I answered the question you were trying to ask before you got cut off.

Our next question will come from the line of Mark DeVries with -- of Barclays.

I had some questions about the scenarios. Just clarifying the 2021 scenario. Is the scenario 2, essentially, Jeff, all the things you kind of outlined for your expectations such as the 70% rebound in T&E spend and the 8% -- or the 9% to 10% revenue growth and everything from marketing and OpEx as well as benign credit?

And then second part of that is just 2022 aspiration. Kind of what do you guys need to see to get there?

Well, maybe I'll take the first part, Steve, and you should take the second. So on 2021, Mark, I guess the point is the overwhelming driver of a low scenario or a high scenario are what happens or is going to be what happens with credit, as I said a few minutes ago. Now sure, if credit turns out to be really strong, your revenue is going to be a little on the strong side and vice versa. But what we're trying to do, if you go throughout my remarks, is give you a very clear sense of how we're going to manage the company this year. And that's why I told you what we're going to manage OpEx to and what we might spend on marketing. And we're going to do those things because we're all about rebuilding growth momentum this year.

The ultimate credit outcome and just how quickly discount revenues come back is going to be driven by the external environment. And that's why you have a low and a high scenario, but it really is not going to impact how we run the company this year, which of those 2 scenarios comes out. So that's what we're trying to communicate by calling these scenarios as opposed to a guidance range. And then, Steve, maybe you want to talk about...

Yes. Look, I think 2022, 2 top line assumptions: you have consumer T&E fully recovered and you have a reasonably healthy economy in 2022. So we're not expecting corporate travel to come back. I don't think that's going to be a driver of it. And so if you have that as your baseline, then I think we're right within where we want to be. And the key thing that we need to do is -- and we've said this as we went through both of our remarks, our investment levels will be higher than they've ever been. That's our plan. We are planning, provided we have and we have light to -- we see light at the end of the tunnel in terms of investment opportunities, we will continue to invest and take advantage of all those investment opportunities that are available to us. If they're not there, we'll pull back. But we believe they will be there. We will look to ramp up our card acquisition. We will look at value injection early on in the year. We'll look at value proposition refreshes throughout the year. We're going to focus on welcome acceptance and keeping parity coverage in the United States. We're going to drive really hard at international acceptance.

I mean, look, we signed 3.7 million merchants internationally last year, not including China. Take China off the table for a second, but we're going to drive international acceptance, as we've said. We're going to continue to work and invest in our network. We're going to launch Kabbage in our small business checking account and get more primacy with our small business customers. And we're going to get some traction in China as well. So we are really focused in 2021 in investing across all dimensions of our -- each one of our business lines and preparing ourselves for 2022 by building that strong foundation of retaining card members, acquiring new ones and building that merchant network and continuing to build up network capabilities and digital capabilities. We believe with the healthy economy and T&E consumer spending just about fully recovered, we'll be within our range.

We'll go next to the line of Rick Shane with JPMorgan.

I'd like to start with a question about non-marketing, non-rewards expense. In Q4, that was literally the only line item that was comparable to 2019 levels. I'm curious if you think that there's going to be better opportunity for operating leverage on that metric and what sort of drove the normal rate there versus everything else we saw in the business.

Well, let me, Rick, take it up one level and then come back if you don't think this is responsive. I mean what we are focused on overall is managing the operating expenses of the company, which is everything other than the variable customer engagement costs and marketing. And we have a very clear plan in 2021 to manage those to about $11.5 billion. That is below 2019 levels. If you were to look at some businesses we've sold over the years, it's frankly about where the number was a decade ago, in 2012 and 2013.

So I think -- we think we have a very long track record of being very disciplined about managing what I think of as the infrastructure cost of the company, which means that as revenues and billings recover and grow, there's tremendous leverage from holding that a little below 2019 level. There's always a little bit of quarterly noise, particularly the Q4, some of the lines in OpEx you'll see every year, if you go back and look at history, go up a little bit. But that's the disciplined approach that we're taking here. So I don't know if I got to the nub of your question, Rick, but that's probably how we think about it.

Yes. The other thing I would add is that if you look at this number on the face of it, it's pretty much the same number we've had in 2012 from an operating expense perspective. But yet, the business is very different than it was in 2012. We're focused on different things. We've acquired a bunch of companies, which are in here. And our focus has been completely different. So I think the team has done a really good job of, on an ongoing basis, taking expense out and then putting in investment back in. And so as you think about this, what you need to do is constantly look at this operating base. And the way we look at it, that's providing us leverage. So if we think about the core business that we had, we're getting enough leverage out that to fund other opportunities within the business, whether that be Kabbage, whether that be the acquisition of a Mezi or a Resy or a lounge buddy, so forth and so on. And yet, you go back 10 years, we're at the same place. And so we believe, when we look at it as managers of the business, we're getting tremendous operating leverage because we're able to add these things on without layering on a lot of operating cost and that's how we look at it.

We'll go next to the line of Ryan Nash with Goldman Sachs.

So maybe a 2-part question. So Steve, you noted in your color that for 2022, you expect T&E to be, on the consumer side, to be fully recovered and a healthy economy. So maybe first, can you maybe just talk about what some of the drivers would be in terms of the shortfall from lower corporate travel and then potentially higher spending? You outlined OpEx and marketing this year could be $4.5 billion. Will there be a pullback in spending? Or could we see revenues accelerating as card member growth picks up?

And then secondly, you talked earlier in your remarks about attrition being below pre-COVID levels. We're in this kind of weird transition period right here where consumers have pent-up demand, like myself, but can't leverage anything in the near term. So can you maybe just expand on the comments about injecting greater value in and how you're thinking about product refreshes? And does the pandemic at all change the way you approach refreshes in terms of what's included in the value proposition?

Yes. So I think let's talk about the second one first. And if I remember the first question, I'll come back to it. It seemed like a couple of minutes ago. So I'm just teasing you, Ryan. But when I -- when we look at sort of value injection, I think because people couldn't travel, what we tried to do was to do 2 things: to not only provide them value in the short term, but to sort of shift their mindset on how they use the card. And so when you look at what we did with Platinum and with OPEN Platinum and Centurion, by putting in things like streaming credits and wireless credits and some shipping credits, we had 78% of our U.S. Platinum card members take advantage of of that value injection. We had about 50% of our small business customers take advantage of that.

But the really interesting point, in consumer Platinum, 17% of our base was not putting wireless on their card. They are now. So we had an uptick of 17%. Now this is something that any of you who have embedded your card in a payment stream to try and get it out is very difficult. Recurring billing is probably the stickiest thing you have. And so for the first time, 17% of our Platinum card base actually put wireless on a card, which is you might think surprising, but people put spending in compartments, and 10% put streaming on the card.

So the value injection is meant for us to do 2 things: number one, steer people where we want them to go; and number two, provide real value to them. And we did that. And I think that, that has really helped us from a retention perspective because, obviously, people want value. We'll continue to do that. And then we'll look at our overall value propositions just as we've had over the course of the last 3 years and continue to refresh those. And I think you'll see those refreshed and we'll expand the aperture of that.

So you will expand beyond traditional T&E value proposition enhancements. We'll look at other T&E value proposition enhancements because safety in traveling will become even more important, I think, to our premium cardholders. And we'll work with our partners. A lot of the value we put in is either co-funded or merchant funded, and we'll continue to work with our partners to do that.

So we feel really good about the retention that we saw, and we feel really good about the value injection because of the behavioral shift that it drove, and we believe that, that will be sticky, which is why you see an increase in our non-T&E spending on a sequential basis, and we believe that will continue. So that's the first part.

As far as the second part of the question, look, we do believe -- the first question was, we believe that consumer travel will be back because it is the pent-up demand. I see the vaccines working. We see herd immunity coming, and we certainly see that happening by the fourth quarter. If, God forbid, the vaccines, the efficacy proves it doesn't work, we got a whole different issue for the entire economy, and we're not talking about American Express traveling. We're talking about different things at this particular point. But all indications are vaccine will work, it will be distributed and off we'll go.

As far as corporate spending, look, our corporate card business, which is near and dear to all of us, drives about 9% of our overall billings and about 60% of that is T&E. There are companies that are still traveling. And the T&E piece of corporate spending is across multiple disciplines. It's across lodging, it's across restaurants, it's across car rental, and it's across air as well. And so we have pharmaceutical sales reps that travel by car, they stay in hotels and they spend on food. That's still going on. Where you see not a lot of T&E spending is consultants who cannot go actually to their clients. But when you think about industrials and manufacturing, that is still going on. And you think about local salespeople that still need to get out to some of their accounts.

But having said that, we don't anticipate that coming back, but we don't believe that's a big driver of our overall profitability. As we've said, it's not a big driver of our revenue. That 9% billings does not equate to either 9% revenue or 9% profitability. And we believe that what we will gain from a consumer and our small business perspective will more than make up for any shortfall that would occur in our corporate card business.

And I'd just add 2 other things, Ryan. Sort of the other leg of stool is small business, where travel just isn't that big a piece of their spending. And those small businesses are already going strong, and we just need them to continue steady recovery.

The other thing I just want to clarify for everyone is reminding you that when we went into 2020, 12 months ago on a January call, it seems like years ago, we gave you guidance for 2020 of $8.85 to $9.25, and that's the kind of target that we're aspiring to achieve in 2022.

Our next question will come from the line of Chris Donat with Piper Sandler.

In terms of the merchant discount rate, Jeff, you said that it would depend on the T&E spending. I'm just wondering where we are taking a longer-term view on OptBlue and some of the downward pressure you'd seen on the MDR in recent years. Are we basically through that? And can we expect maybe the more likely scenarios that you see an increase in MDRs? Do you see more T&E spend? Or is there any downside risk to the...

So 2 things. We're completely through any downward pressure from OptBlue. That's in the rearview mirror. And obviously, if you look at what's happened at discount rate, discount rate has been driven down by mix. And it's like I've always said, I always focus on discount rate by industry and mix overall because if you look at sort of where we are right now, at 2.25% or -- I think that's where we are right now, is 2.25%, is "Oh my God, you're at 2.25%." But you're at 2.25% with 65% T&E decline.

And so as T&E comes back, that MDR will move back up, but OptBlue will not have any pressure at all in that discount rate. So we expect, as T&E moves up, overall discount rate will go up. But having said that, if non-T&E winds up going through the roof, and that puts pressure on MDR, that's fine. We're okay with that. Because, again, we manage this industry by industry, and I can't control mix. But if, in fact, our non-T&E, which is -- has a lower MDR on average than T&E, if that continues to grow and grow, I think everybody would be happy with that.

We'll go next to the line of Mihir Bhatia with Bank of America.

I appreciate 2021, you're looking at it as a little bit of an investment year and repositioning -- maybe positioning the company for growth. So EPS is not that much of a focus maybe in 2021. But is there another metric that maybe we should focus on, whether it's billings growth, new card acquisitions, something like that? As we go through the year, I guess, how will you or should -- or do you think investors should judge American Express' progress towards -- through the year towards the 2022 goal of getting back to, call it, $9 a share. Is there a bogey you could provide maybe on card acquisitions or something else? Maybe is it 2 million a quarter in new acquisition, something like that? Anything you could talk about there?

Well, I think it all comes back, Mihir, as you pointed out, to rebuilding growth momentum. And so that's a function of watch our success in bringing new customers into the franchise and in putting new products into the hands of our existing customers, and we'll talk about that every quarter. Watch our success on some of the longer-term things that Steve talked about, how we're doing with China, how we're doing with the Kabbage acquisition. Watch externally what's happening with credit and what's happening with the recovery in T&E spending. And those are the key things that I think you want to watch, and it's what we're managing the company for and what we'll give you an update on each quarter.

Yes. And we'll continue to update on those things as well as merchant acquisition, which is also going to be important. So sort of the things that I talked about in my first answer, exactly what Jeff just said, it -- again, as we said, I think as you see more card acquisition momentum, that is a good sign. You see us put more value propositions in there. But also take a look at our merchant network as well. And the macroeconomic and the sort of the health -- the state of health, not only in the United States but in the world in general.

We'll move on to the line of Lisa Ellis with MoffettNathanson.

Glad to be joining these calls. My question is on the Biden administration in 2 areas, stimulus and regulation. On stimulus, just given your overall experience with 2020, how would you expect kind of the proposed next round of stimulus to effect 2021? Meaning, overall, like good because of the boost in spending and reduction in delinquencies or more bad because consumers are using a lot of these funds for debt reduction?

And then second, on regulation, Biden has indicated an increased focus on consumer protection and other aspects of banking regulations. So what are -- what of his policy areas are you most focused on keeping an eye out for?

Well, it's kind of hard to figure out at this point what they will do -- what will be done from a consumer regulation perspective. You don't know if that's going to be done on debt collection, you don't know where that will be. But look, we've been around 170 years, through lots and lots of administrations. We started this sort of regulatory journey, I guess, over the last -- really, really focused on our industry over the last 15 years or so. And it all started, I think, with UDAP. And look, we'll comply. We will comply, and we will do what we need to do. And I don't think it's going to be a major deterrent to us running our business in any way.

I mean, look, have we added more compliance people over the years? Yes. Do we spend more time with regulators? Yes. Will -- could that be more? Yes, it could probably be more. But when you think about the underlying economics of our business, I really don't think it's going to impact our spend. And if you think about our model, our model is a get the card, have a fee, spend and then we have lend. We're not as dependent on lending revenues or lending profits as our competitors are, which is probably where a lot of regulation will come in, if it does come in.

So we'll just see how that all plays out. And we've been through -- I've been through many administrations since I've been at American Express. We'll do what's required, and we've moved on. We've demonstrated we can have success under all scenarios. And what they're not talking about is, they're talking about consumer protection. We're really not talking about discount rate regulation. That has not been broached at all in any of these conversations.

The only comment, Lisa, I'd add on stimulus is given the demographic of our customer base, clearly, we are not -- what we want are healthy consumers and healthy small businesses who are spending. Lending is not, as you know, a big part of our business model. So the system being awash in liquidity results in higher pay-down rates. Well, that's -- we're happy to take that trade for a healthier economy and for more spending and for more recovery. So we feel good about the credit performance and the spend performance we've had thus far and more stimulus. Should that be the political outcome here? I have to view as a good thing for us.

We'll move on to the line of Bob Napoli with William Blair.

Very good call. On the 2022 targets, I think a couple of the keys are the reacceleration of international, that was your highest growing segment, I guess, geographically, prior to the pandemic. And then also, I mean, I think the B2B payments. Kabbage, I think there are some comments, Steve, about watching Kabbage. So just some commentary around your confidence that -- and what you're seeing internationally. I know you're adding locations, but are you confident you're at least maintaining market share or gaining share?

Well, here's what I would say. What's interesting, Bob, is that we are adding a lot of locations. Obviously, international is being a little bit more challenged than the U.S. Our international spending, our international cards tend to be a lot more T&E focused. And so they're down a little bit more. But we believe that will come back. And so we haven't run the numbers on sort of market share at this particular point. But as you know, we were certainly gaining market share in like 8 of the key markets that we participate in. And we believe, again, that there's that pent-up demand for travel, our attrition numbers are the same, showing the same sort of signs that they show in the United States. When we talk about attrition, we talk about global attrition, and there really is no difference between international, how international is performing versus how the U.S. is performing. So we feel good that, that will come back and both small business and consumer international were 2 of the fastest growing areas.

As far as Kabbage goes, I think the thing that we're really excited about is Kabbage is it gives us a platform that we can interact with our small businesses. And so to be able to go to one platform to not only get a working capital loan, to get a term loan, to have now a business checking account, to be able to have your card product, to do cash flow analysis on the platform, it gives us sort of an all-in-one platform to serve the needs of small businesses, which is why we did that and what we've been shooting for over the last couple of years, it was just a very fortuitous time and a very fortuitous acquisition for us. And we'll be rolling that out end of Q1 into Q2 and continuing to make enhancements on Kabbage.

So we're really excited about it and the opportunities that it brings from a small business perspective.

We'll go next to the line of Bill Carcache with Wolfe Research.

Steve and Jeff, can you discuss how the return on each dollar of investment spending today is trending versus pre-pandemic levels on the consumer side? How did the acquisition costs and IRR of new accounts you're acquiring today compare versus historical levels? And on the commercial side, how are you assessing the profitability of those investments?

Well, I think what I'd say overall, Bill, is I take you right back to our comments that our investment levels in '21 are going to be driven by that universe of attractive opportunities, not necessarily by a particular budget. So we were really pleased with what we saw in Q4, citing the example of the U.S. consumer Platinum and Gold progress that we talked about earlier, and we also have some non-travel co-brands on the business side that have been very strong. So we feel good about the returns.

I think you've heard Steve and I say for many years that we always generally have more good investment opportunities or marketing opportunities with positive returns than we can fund. And we're setting off in '21 to aggressively rebuild our growth momentum.

We'll go next to the line of Don Fandetti with Wells Fargo.

Steve, on competition, you've leaned pretty hard into OpEx. Are you seeing the same thing from Chase? And then is there any significance to their cxLoyalty acquisition? My sense was maybe it was just like playing catch-up, but was there anything more strategic to that competitively?

Look, I think when we think about competition, you got to think about competition across a wide range of places that we compete. And there's no more competitive space than the consumer space in the United States. I mean there's -- obviously, we've got competition in the U.K. We've got some competition, obviously, for small business here, corporate competition and so forth. So I do think it's just important to understand, we compete on many, many fronts. And while the consumer business is a large piece of it and probably the most highly competitive, and it has been for probably 10 years.

Look, we anticipate that not only JPMorgan, but Bank of America, Citi, Capital, everybody is going to be out there looking to get card members to bring more into the fold and to drive top line revenue. So I don't think there's been a step down in competition. I think you will see a -- I think Jamie said on his call, he's stepping up his investments. And I think just pretty much every CEO would say the same thing. So we anticipate that it's going to be just as competitive as it's been as we have seen over the last few years.

And look, we look forward to it, and we look forward to competing. And we believe our value propositions will continue to stand up well to our competitors. Look, I don't know about their acquisition and what it is that they're trying to achieve. They got a lot of smart people over at JPMorgan. And I think they do a really great job running their business, and we've got a lot of respect for them. And so I'm sure they'll figure out how to integrate this into their value propositions to compete in the most effective way that they deem is the right way to go about it. And we'll continue to do what we do, and we feel good about the hand that we hold and off we'll go, and we'll see what happens.

But I think for more color on that, I would ask Jamie and Gordon.

And our final question will come from the line of Craig Maurer with Autonomous Research.

I wanted to ask quickly about trends you're seeing. U.K., can you discuss how their lockdowns impacted volume at the end of the quarter and into first quarter?

And secondly, what type of rebound are you seeing in Australia as that country has now become relatively COVID-free?

Well, 2 comments. In the U.K. and Europe more generally, as you would expect, Craig, you saw in December and now into January some significant declines in restaurants and other T&E. But what you continue to see stability in, though, is the non-T&E spending. So it's an interesting observation that as Europe has locked down more, it has the expected impact on restaurants and lodging, the people who were doing locally. But it doesn't have an impact on non-T&E. And to go to Australia, like many of our non-U.S. markets, was more heavily than the U.S. driven by T&E. And of course, T&E, that country has completely shut itself off from the world in terms of cross-border travel, and there are also many restrictions on cross-state travel within Australia. So non-T&E spending in Australia, as it does around the world, looks good. But the T&E spending, while restaurants are a little stronger there than you might see elsewhere in the world, that's not where the bigger dollars are.

The bigger dollars are in other parts of travel, and that's going to be slower to come back and is going to await a lessening of the government lockdowns.

With that, we will bring the call to an end. Thank you, Steve. Thank you, Jeff. Thank you again for joining today's call, and thank you for your continued interest in American Express. The IR team will be available for any follow-up questions. Operator, back to you.

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