American Express: Moving on Many Fronts

  Last year proved to be an important turning point for American Express Co. as it continued to develop partnerships with major U.S. bankcard issuers. The company also reported strong results and maintained its so-called "spend-centric" marketing campaign.
  AmEx did not rest on these laurels but announced early in 2005 it would spin off its Financial Advisors unit to focus almost entirely on building its payments and network processing business.
  AmEx had a full year to grow its portfolio of cards issued by MBNA Corp., a relationship that began because of court rulings that freed members of Visa USA and MasterCard International to partner with AmEx and Discover Financial Services.
  MBNA began issuing the cards in November 2003, and AmEx Chairman and Chief Executive Kenneth I. Chenault quickly reported that spending on the cards was 7% higher than early projections. AmEx also announced that Citigroup Inc.'s Citibank would issue its card by the end of this year, while Wilmington, Del.-based Juniper Bank plans to issue AmEx cards through a deal with UBS Wealth Management USA.
  "It's clear to me that, after many years of being a monopoly power, (MasterCard and Visa are) going to have to get used to competing aggressively," Chenault told investors.
  AmEx proved itself a hard competitor in 2004. Total revenues reached $29.11 billion, up nearly 13% from $25.83 billion in 2003, while net income was $3.45 billion, a 15.4% increase from $2.99 billion the previous year.
  Travel Related Services, AmEx's payments division, reported total net revenues of $21.58 billion, up 12.5% from $19.19 billion in 2003. The division reported net income of $2.85 billion, up 17.3% from $2.43 billion in 2003.
  Worldwide managed loans were $47.2 billion, up 4% from $45.3 billion, while the net write-off rate for managed loans fell to 4.3% of receivables from 5.2% in 2003.
  The top revenue generator was the discount rate, the fee AmEx charges merchants for accepting its card, bringing in $10.24 billion, a 16.6% rise from $8.78 billion in 2003.
  In 2004, AmEx's average discount rate was 2.56%, down from 2.59% in 2003, according to its financial filings. AmEx attributed the decline to strong growth in use of its card at such everyday-spend merchants as supermarkets and discounters, segments that may have negotiated a cheaper discount rate.
  The average U.S. AmEx cardholder charged $10,686 in 2004, up 11% from $9,608 in 2003.
  AmEx reported 39.9 million cards in force in the U.S. and another 25.5 million worldwide in the fourth quarter. The 65.4 million total was up 8.1% from 60.5 million at the end of 2003.
  AmEx continued its spend-centric campaign, encouraging cardholders to use their AmEx cards at gas pumps, coffee shops and dry cleaners. The card-marketing budget rose 30% in 2004, to $4.9 billion.
  Spend-centric also is intended as a way to encourage merchants to accept the card. But signing more mainstream merchants means more dealings with ... mainstream merchants. In December, AmEx had a public spat over its discount rate with Walgreen Co., the world's largest drugstore chain.
  Walgreens announced the AmEx rate was too high and it would stop accepting AmEx cards. The two soon came to a private resolution with Walgreens back in the AmEx fold.
  Long term, the most important news for AmEx was its announcement this February that it would sell its Financial Advisors investment division to its shareholders by the third quarter. Terms of the sale, including share price and timing of the rollout, have not been disclosed.
  In 2004, the division generated about $7 billion of AmEx's $29 billion in revenues and posted net income of $700 million, or about 20% of the company's profits.