To Our Shareholders, American Express turned in record earnings in 2007, fueled by growth in cardmember spending that ranked in the top tier of the industry. This strong performance was tempered by events at the end of the year, however, as the U.S. housing downturn and credit crunch began to spill over to other parts of the economy. In December, we began to feel the effects of the weakening U.S. economy as cardmember spending slowed and past-due loans and write-off rates rose. These trends led us to increase lending reserves in the fourth quarter and to adopt a more cautious outlook for 2008.

While the changing market conditions clearly affected us, they do not diminish the progress we achieved during the year or the leadership position we have established within the payments industry. We believe we are better equipped to weather a downturn than we were in years past. And, with many of our competitors focused on issues in their businesses, we have an opportunity to expand our market leadership.

2007 Financial Results

Those who follow our company know we measure our performance against specific long-term financial targets: earnings per share growth of 12 to 15 percent, revenue growth of at least 8 percent and return on equity of 33 to 36 percent, on average and over time. In 2007, we exceeded each of these goals:

• Diluted earnings per share from continuing operations rose 16 percent to $3.39
• Revenues net of interest expense increased 10 percent to $27.7 billion
• Return on equity reached 37 percent

Growth across our global payments and network businesses drove our performance, as we continued to capitalize on the shift away from cash and checks in all sectors—consumer, small business and corporate.

Worldwide spending by American Express cardmembers increased 15 percent to a record $647 billion. This rate of growth placed us ahead of all major card issuers, most of whom reported only single-digit increases. Cardmember loans rose 22 percent on a managed basis and 26 percent on a GAAP basis, also well above industry averages. During the year, we added nearly 8.5 million new American Express cards, which brought total cards-in-force to 86.4 million. Consumer and business travel, which complement our payments business and serve our customers around the world, had strong years as well.

We achieved these results while also investing substantially in activities to build future business. Expenses for marketing, promotion, rewards and cardmember services increased 20 percent from a year ago. This commitment of resources shows the priority we place on funding initiatives that will drive revenue growth over the moderate to long term. Throughout the year, we worked hard to bring new and innovative rewards to our customers, provide services that simplify and enrich their lives, and anticipate their evolving needs.

Despite the progress we made, our outlook for the short term changed at the end of the year. Declining home values and spreading weakness in the U.S. credit markets—developments that we watched carefully throughout the year—began to affect even affluent consumers. The December slowdown we experienced in U.S. consumer spending was broad-based across all regions of the country. The rise in delinquencies and loan write-offs in the latter part of the year was most pronounced in California, Florida, Nevada and other areas of the country most affected by the housing slump. By the end of the fourth quarter, delinquencies in the managed U.S. lending portfolio rose to 3.2 percent from 2.9 percent in the prior quarter. The write-off rate rose to 4.3 percent from 3.7 percent for the same periods.

In light of these trends, we took a $438 million credit-related charge against fourth-quarter earnings. This action allowed us to raise worldwide lending reserves to 100 percent of past-due loans and to increase reserve coverage in the charge card portfolio to 95 percent. While the charge reduced fourth-quarter income from continuing operations, which was down 6 percent from a year ago, it has put us in an appropriately stronger position for what we expect to be a more challenging 2008.

2008 Outlook

In early January, amid clear signs that the U.S. economy was weakening, we announced our expectations for slower growth in cardmember spending and weaker credit trends in the year ahead. These factors, we said, would lead to slower growth in earnings per share in 2008 than we have generated in recent years.

Our planning assumptions were based on a moderate downturn in the U.S. economy and a more cautious view of the business environment in the coming year. Of course, the situation is fluid and any significant change in the economic and credit environment could alter our 2008 outlook.

Economists have differing views about the possible extent and timing of the current downturn and subsequent recovery. Regardless of how the economy may shift, we believe that the quality of our cardmember base and the characteristics of our business model should help us to deal with the conditions better than many of our competitors.

American Express is known for establishing relationships with prime and affluent customers. Even as we grew lending balances significantly in 2007, we maintained our traditional credit standards and customer focus. As a group, new cardmembers who joined American Express over the past year had credit scores and other financial characteristics that are comparable to our existing base. And the diversity of that base, with our mix of consumer and business-to-business customers and multiple products around the world, is another positive factor in our performance.

Our business model is built on driving cardmember spending. Lending is a planned and profitable outcome of our spend-centric strategy as we offer cardmembers the flexibility to revolve payments, but it is not our primary focus. Moreover, our emphasis on developing rewards-based relationships typically increases customer loyalty and improves credit performance. Because of this approach and our risk management capabilities, our write-off and past-due rates have remained the lowest among all major players in the industry using comparable methodology.

These characteristics work in our favor, but they surely do not insulate us from a more severe deterioration in the economy. We are closely watching credit indicators, and while we are not making major changes to our underwriting or authorization practices at present, we are making targeted credit line adjustments where we see the greatest risk, tightening card approvals for certain segments and working with cardmembers who may be having difficulty. Our objective, as always, is not solely to minimize loss rates but to maximize long-term profitability by allowing good spending that will generate growth.

At the same time, we are keeping a tight rein on operating expenses and will continue to reengineer our business processes to increase efficiency. We also will use the added flexibility that we have built into our planning and budgeting processes in recent years to adjust to changing market conditions and direct investments to higher-return options. We intend to continue to invest in growth opportunities at a high level.

Shareholder Returns

A tougher operating environment is never welcome news for investors, and our share price felt the effects of general anxiety about the economy even before we witnessed any noticeable changes in consumer behavior. For the year, American Express’ stock declined 14.3 percent. This performance compared favorably to our closest peer group, the S&P Financials, which declined 20.8 percent amid subprime losses and other well-publicized problems in the financial sector. Outperforming a lagging sector is small consolation, however, especially when our share price underperformed broader indices. For the year, the Dow Jones Industrial Average rose 6.4 percent and the S&P 500 rose 3.5 percent.

We continue to focus on those elements that we believe will create long-term value for our shareholders: our unique spend-centric business model, an excellent position in the premium segment of the market, the industry’s most successful rewards programs, a brand that resonates with consumers and corporate customers, responsible capital management, and our ability to deliver products and services that stand out. As always, we will strive to ensure that our shareholder returns reflect the significant growth potential of our business.

Having spent 27 years at American Express, I know the value of keeping a long-term perspective. Of course, we are not immune from further deterioration in the economy, and we will manage the business appropriately in a slower-growth environment. But our organization is more flexible, our payments businesses are more diverse and our customer relationships are stronger than at any time in recent memory. In short, I believe we are prepared to manage through the near-term challenges and capitalize on the substantial long-term growth opportunities in payments.

Periods of uncertainty often present opportunities to extend market leadership. Consider our experience during the last U.S. economic downturn in 2001. Our position was much different, and weaker, at that time. We had to deal not only with a deteriorating economy, but also with the effects of September 11, which further reduced cardmember spending and brought travel to a virtual standstill. Faced with these severe challenges, we made the decision to invest in the business while others retrenched. This marked the start of a multi-year investment strategy that led to one of the strongest periods of growth in the company’s history.

Since the end of 2001, the company’s earnings per share have grown 23 percent annually, return on equity has more than tripled and spending by American Express cardmembers has more than doubled. In the U.S., our card business has gained share faster than any competitor, and we have increased share in many international markets as well.

In the prior downturn of the early 1990s, we began the process of broadening our range of card products, introduced rewards programs, expanded merchant coverage in the retail and everyday spending categories, and reengineered the business to free up resources to invest in growth opportunities.

Our practice has been not just to manage through periods of economic weakness but to exploit them for competitive gain, to build and invest so that we come out of a cycle stronger than we went in.

It’s also instructive to look a bit further back in our history. This year will mark the 50th anniversary of the American Express Card. Back in 1958, charge and credit cards were a novel idea. Given our experience in travel and overseas payments, it now seems natural that American Express would enter this new business.

But the choice wasn’t so clear-cut at the time. The decision faced strong opposition inside the company, with senior leaders evenly divided on the issue. Among the main concerns: Many thought it was foolish to launch a charge card when the U.S. economy was in a recession. Fortunately, those with the longer-term perspective, who could see the opportunities ahead, prevailed.

American Express has thrived over the years because of our belief in providing outstanding service and new solutions to meet the needs of our customers. These qualities serve our company and our customers well through all business cycles. Following is a more in-depth discussion of our recent results, the core strengths that continue to fuel our growth, and our outlook for the future.

Driving Change, Getting Results

American Express has always been a service company, first and foremost. Two factors, probably more than any others, are responsible for our success over 158 years—the tradition of trust and security we have established, and our ability to evolve with the changing needs of our customers.

In 2007, we determined the time was right to fine-tune our organizational structure so that we could more fully leverage our capabilities to serve customers, share knowledge and expertise across geographies, bring products and services to market more rapidly, and position our company for growth.

Instead of using geographic regions as an organizing principle, we realigned the company according to our two major customer groups:

• Global Consumer, which includes all proprietary consumer cards, our customer service network, small-business services, prepaid products and consumer travel worldwide.

• Global Business-to-Business, which includes our merchant business, network services, commercial card and business travel worldwide.

These two global franchises possess complementary strengths. Our Consumer Group benefits from our affluent global customer base, marketing expertise, broad range of acquisition channels and strong risk management capabilities. In our Business-to-Business Group, key advantages include our many corporate, merchant and network partner relationships, sales and client management expertise, and processing capabilities. Both businesses also share a number of companywide assets including the American Express brand and premium positioning, customer servicing capabilities, and our information management and reward platforms. By applying these capabilities across multiple businesses, we’re able to more effectively use our infrastructure and improve our overall economics.

We chose two of our most experienced and successful leaders to head each business: Al Kelly, named president of American Express Company, for the Global Consumer Group; and Ed Gilligan, named vice chairman of the company, for the Global Business-to-Business Group. Both leaders and their teams of American Express people worldwide continued to build on their strong track records in 2007. They created innovative new products and services, enhanced longtime strengths, attracted and retained millions of high-quality customers, and developed creative ideas for capturing more of their business.

2007 Results: Global Consumer Group

All segments of our consumer business contributed to American Express’ strong performance in 2007.

Spending rose 12 percent on proprietary consumer cards and 15 percent on small-business cards in the United States. International consumer and small-business spending rose 14 percent (or 8 percent adjusted for foreign exchange translation and the 2006 sales of our card-related operations in Brazil, Malaysia and Indonesia to GNS partners). Consumer Travel sales increased 26 percent in the United States and 21 percent in international markets.

Across markets, we focused on developing products and programs that offer exceptional value to consumer and small-business cardmembers, and giving them more reasons to turn to American Express first.

• Benefits and Rewards—In 2007, we continued to enhance our industry-leading rewards programs and the premium benefits that help drive cardmember spending. For example, we upgraded services for Platinum Cardmembers; conferred “insider” status on cardmembers with invitations to experience exclusive events; rolled out the next generation of Membership Rewards with three new, increasingly valuable program tiers; and advanced our online capabilities to further streamline the process of redeeming points for travel rewards.

• Online Cardmember Communities—To tap into the collective knowledge and passions of our cardmembers, we invited them to share their experiences, opinions and advice with each other in online communities. Thousands of cardmembers who engaged in the Members Project proposed ideas for improving the world, and they had a say in how we directed $2 million of philanthropic support. (The winning proposal: a UNICEF-led project to provide safe drinking water for children.) Other online communities we created in 2007 include OPEN Forum, where small-business owners share expertise and find resources to help grow their enterprises, as well as dining and travel networks geared toward two of the favorite pastimes of our cardmembers.

• Innovative, Exclusive Cards—OPEN introduced an industry first with the Plum Card, which helps small-business owners manage cash flow by giving them options to defer payment or receive discounts for early payment. New premium cobrands in Europe—such as Harrods in the United Kingdom and BMW in Austria and Germany—enhanced our portfolio of affinity products linked to the luxury segment. To help accelerate our momentum in the fast-growing prepaid sector, we developed a line of Gift Cards that large companies and small businesses can customize, and we also expanded partnerships to broaden distribution of our products.

• Consumer Travel Experiences—We continued to enhance the American Express Travel Web site, a key driver of travel sales, by adding new offers and resources designed to draw more repeat visitors. For Gold Cardmembers, we introduced Gold Card Destinations, a special package of amenities and travel experiences. In addition, we expanded our representative network of travel offices in 11 U.S. cities.

• Capability Investments—Behind all of our unique products and services is a sophisticated infrastructure. In 2007, we continued to invest in the capabilities that enable us to continually improve our customers’ overall experience with American Express, from online applications to service training to payment functionality.

Improving the customer experience is always a top priority for us, so we were especially gratified to learn during the year that our commitment to providing differentiated service earned us high praise from cardmembers.

American Express ranked highest in customer satisfaction among credit card companies in a study by J.D. Power and Associates, one of the world’s most respected consumer research firms. The study, which compared the 10 largest U.S. credit card issuers, looked at the key drivers of satisfaction: benefits and features, rewards, billing and payment processes, fees and rates, and problem resolution. Recognition of this caliber is a source of pride for American Express people, who feel a deep responsibility for upholding the company’s long-standing service legacy.

2007 Results: Global Business-to-Business

Since most of the advertising and marketing the public sees from American Express relates to our consumer products, our B2B businesses are sometimes less well-known. But they have played a major role in our company’s overall results. They have excellent returns on equity, generating strong growth with less capital than our other businesses. Each of our B2B businesses has relatively low credit risk: Corporate Card is a pay-in-full product; our GNS issuing partners assume the credit risk for the cards they issue on our network; and our merchant risk is limited. As we enter a weaker credit environment, the relatively lower levels of risk in B2B are an important advantage.

Our Global Business-to-Business Group turned in a strong performance across the board in 2007. Worldwide spending on proprietary Commercial Cards rose 14 percent. In Global Network Services, spending on cards issued by our network partners climbed 49 percent to $53 billion, and we added more than 5 million cards during the year, bringing total GNS cards-in-force to 20.3 million. Global Corporate Travel sales rose 11 percent worldwide.

• Commercial Advances—Capturing more of the spending of large and midsize companies helped us grow our commercial card business in countries around the world. With a focus on enhancing expense management solutions for our clients and broadening card usage in new spending categories, we attracted more new customers and deepened relationships within our existing base. We also launched cobranded products with Aeromexico and India’s Kingfisher Airlines, as well as premium corporate card products in the U.K., France, Germany, Spain and the Netherlands.

• Global Network Services—Our fast-growing GNS business marked its 10-year anniversary in 2007 by continuing to gain momentum, announcing nine new or expanded partnerships with card-issuing financial institutions in Argentina, Brazil, China, Japan and other countries. New card products launched include three airline loyalty cobrands in international markets—such as our first in China, the ICBC Hainan Airlines American Express Card—and premier card products for wealthy clients in the U.S. issued by Citibank and Bank of America.

• Global Merchant Services—With the aim of enabling cardmembers to use American Express to pay for all kinds of goods and services, we continued to expand acceptance of our products for everyday spending—particularly in international markets. The ongoing expansion of GNS has been a catalyst for broadening merchant coverage in the 125 markets where we have issuing partners.

In addition, in the United States, new agreements announced recently with First Data, NOV A Information Systems and Heartland Payment Systems should enable us to increase signings among smaller merchants by simplifying their process for accepting credit cards and settling accounts.

• After several years of transforming its business model from transaction processing to value creation, Global Business Travel is now growing profitably. In 2007, we signed or renewed client contracts representing $6.3 billion in business volume. New business signings increased 26 percent from a year ago and our retention rate remained strong. New services like Axis@Work, a Webbased data reporting solution, demonstrate our continued commitment to simplifying the lives of business travelers.

Other Significant Events

Beyond the performance of our core businesses, I want to mention two other noteworthy events that took place in 2007.

Sale of American Express Bank—Last September, we announced an agreement to sell the private and correspondent banking businesses of American Express Bank Ltd. (AEB) to Standard Chartered PLC. The
sale, which closed on February 29, 2008, is a winning proposition for both American Express and AEB.

It will enable American Express to further sharpen our strategic focus on our high-growth, high-potential payments businesses. Meanwhile, AEB becomes part of an institution for which international banking is a primary focus. I would like to thank all the employees of AEB for the important contributions they have made to our company.

Lawsuit Settlement—A little over three years ago, we filed a lawsuit against Visa, MasterCard and certain of their member banks for illegally conspiring to prevent American Express from entering the network business in the United States. In November 2007, we announced that Visa agreed to pay us $2.25 billion to settle the lawsuit.

Per the terms of the agreement, we recognized a $1.13 billion gain in the fourth quarter ($700 million after tax) for the initial payment from Visa. The remainder, payable in installments of up to $70 million per quarter over the next four years, is subject to certain performance criteria that our U.S. network business must meet. We are optimistic about our ability to do so.

MasterCard now remains the sole defendant in this case. Under antitrust law, it is liable for the damages suffered by American Express. We plan to move forward with the litigation to hold MasterCard accountable for the illegal actions that blocked banks from working with us for many years and to seek full compensation for the value that would have been generated for our shareholders. The trial is scheduled to begin in September.

In an openly competitive marketplace, our Global Network Services business has grown rapidly both internationally and in the previously closed U.S. market. It has significantly expanded the reach of our brand around the world and strengthened the financial performance of our company.

Redefining Payments

Much of the progress we achieved across the company in 2007 supports one overriding goal: to provide our customers with uncommon service. While this objective is a constant for us, it is particularly notable now as we approach an important milestone.

This October will mark a special occasion for us—the 50th anniversary of the American Express Card. While American Express was not the first charge card in the market, our early entry quickly popularized a new form of payment that would change how people shop, travel and manage their finances.

The history of our card business is really all about transformation. Since issuing our first card in 1958, American Express has set new industry standards through continual innovation and a commitment to our customers. For example, we were the first to introduce premium cards, broad-based reward programs, fraud protection guarantees, consumer privacy principles, card and expense management programs for large and small businesses, and many other features and services. Today, we stand ready to build on this tradition in new ways.

I am confident we will do so for several reasons. Among them are the strength and diversity of our current businesses and the ongoing evolution of American Express as a unique services company built upon a respected brand.

We hold strong positions across a range of businesses and markets, which give us multiple sources of revenue and avenues for growth.

• We are the largest issuer of cards, with a broad array of charge, credit and prepaid products.
• We have relationships with millions of high-spending consumers, small businesses, midsize companies and large corporations around the world.
• We have a global network that processes hundreds of billions of dollars in transactions each year and gives us detailed insights into the spending preferences of our cardmembers.
• We have two premier travel organizations that complement our consumer and commercial card businesses.

These characteristics set us apart in the world of payments. Today, however, we view payments not as a destination but as a starting point. It gives us the foundation for offering a range of services that provide economic value and lifestyle benefits for our customers.

American Express is in the payments business, but we are much more than a payments company. We are a rewards company that possesses the industry’s most sophisticated and wide-ranging customer loyalty platform. We are a lifestyle services company that develops tailored experiences and offers based on real customer insights. We are a brand-driven marketing services company that helps merchants reach the best customers and prospects, guided by creative thinking grounded in concrete data. We are a network services company that works with other financial institutions to attract high-spending customers that benefit their payments businesses and ours. And we are an expense management company that helps clients control costs for travel, entertainment and other spending categories.

There is a huge difference between processing a transaction and actually helping customers realize their aspirations. We aim to make a relationship with American Express an opportunity to accomplish more. We know this is important to our customers because they tell us so.

In the months leading up to the 50th anniversary of the Card, we’ve been speaking with cardmembers who have been with us since the beginning. They have shared their memories of how the American Express Card and the service we provide have helped them in very personal ways. For example, Elaine Hamilton O’Neal, an artist and charter cardmember whose photograph is featured in the opening pages of this Annual Report, tells of how the Card has made it possible for her to travel the world and experience the different cultures that influenced her life’s work.

Our cardmembers clearly feel a special affinity for the brand. Hearing their stories is exceptionally rewarding for all of us at American Express, and inspires us to do even more for them. That’s what world-class service is all about. And I believe we have only begun to realize the value we can provide through our customer insights, information management and servicing capabilities.

These capabilities position us to benefit from the long-term growth opportunities in the consumer, small-business and large-corporate landscape today. The majority of payments still take place in the form of cash and checks, meaning significant untapped potential remains. Moreover, countries with rapidly growing consumer economies are also among those with the lowest rates of spending on plastic and other noncash forms of payment. Meanwhile, new technologies are giving consumers and business customers additional payment choices for a variety of everyday purchases. All of these trends point to multiple avenues of growth for American Express.

Staying True to Our Values

While we cannot know exactly how these opportunities will unfold, one thing is certain—as we pursue them, we will follow the same set of deeply held values that have always guided our company. These values outline our duties not only to customers and shareholders, but also to the world around us.

Good corporate citizenship has been an American Express objective for as long as our company has existed. In 2007, we offered a detailed account of how we go about it in Recognizing Responsibility, our first global corporate citizenship report. It outlines the vision, principles and programs we have in place to help ensure that we stay true to our values, from long-standing to more recent initiatives. For example, it describes two actions we took last year to strengthen our commitment to conserving natural resources: setting a goal to reduce our carbon footprint and establishing an Office of Environmental Responsibility. If you haven’t already had an opportunity to read the full report, it is available at www.americanexpress.com/csr.

Whether we’re directing our support to communities or to customers, our aim at American Express is to deliver a level of service that is not only gracious but also personalized, sincere, intuitive and valuable—in a word, uncommon.

Our definition of service isn’t limited to our frontline customer care professionals, although the role they play is absolutely essential. It also extends to those who create online experiences and communities for cardmembers. The salespeople who sign up new clients, merchants and other partners to use, accept or distribute our products.

The creative minds throughout our organization that conceive new products and services. The business experts who advise clients. The marketing experts who engage customers and prospects. And so many more who build our capabilities, support our operations and otherwise help shape the overall experience of our customers.

Ultimately, we all feel responsible for delivering on the expectation and promise of the American Express brand. It was true in 1850, when we were in the delivery business and customers entrusted their most valuable goods to us for safekeeping. It was true when we launched the Card in 1958, and then-President Ralph Reed said, “All we have to sell is service.” And it is certainly true today, as we contemplate both exciting new opportunities and sobering challenges.

Our business fundamentals are strong. Clearly, we face challenges in the year ahead, but we feel we have the right strategies in place to manage through a changing environment. We have the benefit of experience. But, most of all, it is the passion and dedication of American Express people that gives me confidence in our future. Fifty years from now, when our successors are marking the Card’s centennial anniversary, I believe the record will reflect a second half that was even more groundbreaking than the first—and that, no matter what the Card has become by then, we will still be talking about our uncommon service.

Sincerely,
Kenneth I. Chenault
Chairman and CEO, American Express Company
March 3, 2008

Download American Express Company, 2007 Annual Report

PDF format, 6.4MB, 118Pages.

As we mark another year of strong growth, we’re also preparing to mark a milestone. Fifty years ago, we introduced the American Express Card—the product that transformed our company and helped shape a new industry.

Our business looks vastly different today, but we’re still guided by the same principles— understanding our customers, treating them well and delivering the true reward of membership: uncommon service, tailored to their individual needs.

Visit American Express Company Website

American Express Company (American Express) is a global payments and travel company. The Company’s principal products and services are charge and credit payment card products, and travel-related services offered to consumers and businesses around the world.

During the year ended December 31, 2007, the Company realigned its reportable operating segments into two: the Global Consumer Group and the Global Business-to-Business Group. Accordingly, U.S. Card Services and International Card Services were aligned within the Global Consumer Group, and Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS) were aligned within the Global Business-to-Business Group.

In February 2008, the Company announced that it has completed the sale of its international banking subsidiary, American Express Bank Ltd. (AEB), to Standard Chartered PLC.  (Google Finance)

American Express (NYSE: AXP), sometimes known as "AmEx" or "Amex", is a diversified global financial services company, headquartered in New York City. The company also has major offices in Fort Lauderdale, FL; Salt Lake City, UT; Greensboro, NC and Phoenix, AZ. The company is best known for its credit card, charge card and traveler's cheque businesses.

The company's common stock trades on the New York Stock Exchange under the ticker symbol "AXP." It is one of the 30 stocks that comprise the Dow Jones Industrial Average and is ranked as the 74th largest company by Fortune. In 2007, BusinessWeek and Interbrand ranked American Express as the 14th most valuable brand in the world, estimating the brand to be worth US$20.87 billion.

The current CEO is Kenneth Chenault, who took over in 2001. (Wikipedia.org)

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