Exploring A Renewed Strategy For 2010 and Beyond: Proudly Presents

GSB Consulting Group
proudly presents:
Exploring a Renewed Strategy

for 2010 and Beyond
Prepared for
The Board of Directors

Policy and Strategy Review Committee
12/8/2009 GSB Consulting Group 1
GSB Consulting Group
Andrew Whyte
Chad Abougoush
Curtis M. Goodman
Dennis Laird
Jason Campbell
Where (#) exists in presentation, see accompanying Reference Document
12/8/2009 for
relevant
GSB Consultingsources
Group 3
Presentation Index
1. Executive Summary
2. Operating Environment
American Economy
Company Mission, Business Approach
Credit Services Market-Share
Top Global Issuers of Credit Cards
Environmental Conclusions
3. Strategic Position
Competitive Analysis
Closed Loop vs. Multi-Issuer Model
Industry Orientations
Partnerships and Enhanced Business Services
Strategic Alliances
Technological Innovator
4. Financial Position
Metric Performance
Business Risks
Cash Position
Bank-Holding Company
5. Current Issues & Opportunities
Management Changes
Governance Relationships
Industry Practices
Impending Government Regulations
6. Moving Forward
Short Term Strategy Options
Long Term Strategy Options
Final Recommendations

Definitions
Charge card
A card that charges no interest, but that requires you to pay your bill in full each month.
Usually: higher limits, corporate, high net-worth individuals
Example: American Express, Discover
Credit Card
A credit card is a card whose holder has been granted a revolving credit line. The card enables the
holder to make purchases and/or cash advances up to a pre-arranged limit
Continuous balance that is charged interest
Example: Visa, MasterCard
Delinquency:
Nonpayment of a debt when due
Revolver
A profitable client - someone who does not pay off their account balance each month
Deadbeat
The least profitable client someone who always pays off balance in full each month
Interchange Fee
A fee paid by the acquiring bank/merchant bank to the issuing bank. The fee compensates the
issuer for the time after settlement with the acquiring bank/merchant bank and before it recoups
the settlement value from the cardholder.

Definitions
Forward-swaps:
A swap agreement created through the synthesis of two swaps differing in duration
for the purpose of fulfilling the specific time-frame needs of an investor.
Also referred to as a "forward start swap," "delayed start swap," and a "deferred
start swap."
Interest rate swaps:

Is a derivative in which one party exchanges a stream of interest payments for
another party's stream of cash flows.
Used by hedgers to manage their fixed or floating assets and liabilities.
Securitization:
The processthrough which an issuercreates a financial instrument by combining
other financial assetsand then marketing different tiers of the repackaged
instruments to investors. The process can encompass any type of financial asset and
promotes liquidity in the marketplace.
TTM :
Represents trailing twelve months of data

# Findings Implications Implementation Importance Timeline
Current state of American economy is Dramatic cuts to Maintain current American economic Expected to
worrisome. Unemployment at very high government course: growth will not stay in
levels; consumer spending is down over spending trend target high net worth parallel historic recessionar
last year. In addition both public and is required to clients, levels, especially y state for
private debt loads are continuously rein-in public increase cash compared to next year.
growing and reaching unsustainable levels. debt loads and position, developing nations
Current economic decline increases risk of budget deficit. Avoid clients of lower (China, India).
credit defaults, especially among lower Personal socio-economic status Japan is perfect case
1 socio-economic status. Also has a direct spending is to avoid loan defaults. study of similar
negative impact on AMEXs profitability. expected to situation still have
continually not rebounded from
decrease as 1990 levels,
consumers are sustained low-level of
forced to save economic growth
more to lower
household debt
levels.
American Express comprises 20% of credit Profits are AMEX should increase Current business Expansion
service market in the USA. AMEX utilizes a directly global presence to model cannot be should be
spend-centric model, charging 2.56% on correlated to the benefit from new maintained while still continuous
total transaction value. The American health of the market growth expecting continual since
market is oversaturated and mature with American opportunities. growth. benefits will
2
little growth potential. American Express economy (as AMEX should also be
does 70% of its total credit services indicated by maintain current manifested
business in the USA which represents an spending). American market in the long-
over-reliance on one single market. presence and expand term (10
where possible. years)
AMEX utilizes a closed-loop business Although the AMEX should maintain The single-issuer To expand
model. AMEX card members spend 2-4 AMEX business the current single- model allows into multi-
times more per transaction than with model offers issuer, spend-centric complete control in issuer
competitors cards; this suggests that AMEX greater business model for the transaction value model
has great control over who their customers profitability than domestic American chain. should be
are. AMEX target market is high net-worth competitors, the market. Because it done
individuals and corporate accounts. current business allow for more control Countries, like China, incremental
Revenues (49%) are derived from a 2.56% model cannot over business and the require local ly and
charge of total card transaction value. be maintained past positive revenue partnerships as a based on
Under this model profits are directly while still effect. means of gaining local
correlated to the health of the economy expecting Currently AMEX is access to their market
3
and 12/8/2009
amount of consumer spending. continual
GSB Consultingexpanding
Group to markets. Adopting conditions
7
growth. incorporate the multi- the multi-issuer Expansion
Implementatio
# Findings Implication Importance Timeline
n
Partnerships and enhanced business Secures new markets and Actively seek Increases brand Continuall
relationships have been instrumental in access to target clients. new strategic awareness and y seek
securing access across many industries Provides benefits for and exclusive recognition. new
4 that in turn expand AMEXs reach to their business clients thereby partnerships Establishes stable partnershi
target market. improving customer (Like COSTCO) revenue sources ps
relationships
AMEX credit services business-segment If Interest rates begin to AMEX must stop Currently IF rating Immediate
faces serious issues: rise: A doubling of the using interest agencies and
21% decline in fee revenues and a rise in corporate debt rate from rate swaps. downgrade debt continuous
net write-offs, their 4% to 8% could cost Instead to reduce or IF interest rates .
Interest rate risk exposure as a result of $3.6 billion more annually risk exposure rise, then AMEX
floating interest rates on debt. and effectively wipe-out the allow for fixed would be very
$2.6 billion in operating interest rates on impacted
profit generated at current debt rather than negatively and
interest levels. This is floating rates. the companys
realistic due to potential ability to finance
debt downgrades and the operations would
Federal Reserve potentially be in question.
5 raising rates within the next Stopping interest
eight years rate swaps is
If write-offs continue to crucial to stabilize
rise: A 50% rise in write-off future profits of
percentages would create the company
an additional $2 billion loss while reducing
for American Express. overall risk
Based on current write-off exposure.
trends which have doubled
in the last two years, this
potential rise is realistic and
such an outlook is
considered optimistic
In 2008 AMEX was granted Bank-Holding Bank holding status opens Already Strengthens the Now and
Status. This is a major strategic up additional sources of implemented balance sheet by always
advantage and will provide added capital providing access
6 financial security - providing access to Provides enhanced financial to treasury funds
sources of government financing outside security and the ability to
of securitization
12/8/2009 (including TARP and GSB Consulting Group take deposits. 8
TALF).
# Findings Implication Implementation Importance Timeline
AMEX has always been the industry Continue funding Increase funding Retains existing Continuously be
leader in technological innovation. research and for AMEX Labs. customers, and THE industry
Future success in the credit-services development. provides incentive leader;
industry will continue to be based on Being the industry to attract new
differentiation and maintaining a leader gives customers
technological competitive advantage competitive edge Technological
and increased innovation should
7 brand recognition be based on
brand Fraud reduction
Increasing
convenience
Maximizing
profitability
Provides first-
mover advantage
The Presidents departure marks a Loss of strategic No choice, already Difficult to replace Suitable
critical loss of human capital. May human capital to in motion. such a key human replacement must
result in transfer of strategic potential resource and the be found by
knowledge to competitors which will competitors business January 2010.
undermine AMEXs competitive Promote within connections he
advantages. Selection of next company offers
president must be carefully decided Be aware of
8 and should factor in the individuals potential company
objective within the company. security breaches
Government regulations present the Regulations are AMEX should boost American Ongoing, monitor
biggest challenge to the future intended to protect funding for: government progress closely.
profitability of the industry. Changes consumers; Lobby-groups to regulation poses
to usury laws will have an impact on possible influence key single greatest
the bottom line. If government sets restrictions on government threat to
interest ceilings then revenue will be interest rate limit officials profitability and
9 limited, especially as interest rates of cards will result Consumer credit longevity of credit
increase.
12/8/2009 in a lossofGSB
net Consulting
awareness
Group services industry 9
income campaign
Executive Strategic Issues & Moving
Summary Position Opportunitie Forward
Overview of the American

s
Economy
Population 304,059,724
GDP $13,122,000,000,000
Per Capita $43,155
2009 National Debt $12,075,130,000,000
Budget Deficit $1,275,000,000,000
Median Household Income $50,740
Average Credit Card Debt $9,797.38
# of Credit Cards per Eligible
3.04
Person
Unemployment Rate 10%
Small Business Loans in
4.4%
Moderate Delinquency Rate
See Reference #2
s

s

s

American Economy s
Conclusions
Current state of American economy is worrisome. Unemployment at
very high levels; consumer spending is down over last year. In
addition both public and private debt loads are continuously growing
and reaching unsustainable levels. Current economic decline
increases risk of credit defaults, especially among lower socio-
economic status. Also has a direct negative impact on AMEXs
Dramatic cuts to government spending trend is required to rein-in public debt loads and
profitability.
budget deficit.
Personal spending is expected to continually decrease as consumers are forced to save
more to lower household debt levels.
American economic growth will not parallel historic levels, especially compared to
developing nations (China, India). Japan is perfect case study of similar situation still
have not rebounded from 1990 levels, sustained low-level of economic growth.
Implementation:
Maintain current course:
target high net worth clients,
increase cash position,
Avoid clients of lower socio-economic status to avoid loan defaults.
Timeline:
Expected to stay in recessionary state
12/8/2009 for
GSBat least one
Consulting year.
Group 14
AMEX Mission and Business s
Approach
The mission is to be the worlds most
respected service brand.
AMEX is a world leader in global payment

systems network and travel company with a
focus on six main businesses:
1. Charge and Credit Cards
2. Travel Services
3. Financial Planning
4. Investment Products
5. Insurance
6. International Banking
(3 &
12/8/2009 GSB Consulting Group 4)
15
Overview of American s
Express
Publicly traded on the NYSE: AXP
Approx. 1 Year
2008
Growth
Sales $31,920,000,000 1.1%
Net Income $2,699,000,000 (32.7%)
# of Employees 66,000
Primary Target Corporate cards & high net-worth
Market individuals
Main operating United States (approx. 70% of total
region business)
Fortune 500 Rank #74
See Reference #1
JD Power
12/8/2009 & 1 in Overall Customer Satisfaction
st
GSB Consulting Group 16
Credit Services Market-share

s
Credit Services Industry is an oligopoly where Visa and MasterCard dominate

the USA credit services market holding 75% market-share.
(Each company utilizes different card-issuer models, will be discussed further

12/8/2009
in Strategic Position) GSB Consulting Group (5
17
Top Global Issuers of Credit s
Cards
American banks dominate global credit services industry.

Top three issuing banks are American and have close to $976 billion in total
credit volume. (4)
Translates to: 23% of global
12/8/2009 industry,
GSB Consulting58%
Group of American market 18
Operating Environment s
Conclusions
Three American banks account for 23% of the global credit services
industry and 58% of total American market. These banks operate
primarily under the banners: Visa and MasterCard. American Express
only comprises 20% of credit service market in the USA.
The American market is oversaturated and mature with little growth
potential. American Express does 70% of its total credit services
business in the USA which represents an over-reliance on one single
market.
Implication:
Credit service industry is an oligopoly
that is saturated which presents difficult
growth conditions further amplified by
current economy.
s
Competitive Analysis
49% of AMEX revenue is derived from a 2.56% charge on total

transaction value;
(12)
average card member spends 2-4 times more per transaction than
on competitors cards
Operating
Executive Issues & Moving
Environme
Summary Opportunitie Forward
nt
s
Closed-looped Model
AMEX mainly utilizes the closed-looped
model
Beneficial because:
allows ownership and control of
the entire value chain
AMEX charges 2.56%
Provides 4-8 times more
merchant fee-based
revenues than
competitors (Visa or
MasterCard)
provides great flexibility:
Issues and services own cards
Control entire pricing and fee
structures
Does not rely on merchant
acquirers or financial institutions
as intermediaries
(3
) Disadvantageous because:
Reduced potential customer
pools
Greater risk exposure
Requires independent merchant
12/8/2009 GSB Consulting Group infrastructure 21
Operating
Environme
nt
s
Multi-issuer Model
Visa and MasterCard utilize the multi-
issuer model.
Beneficial because:
Diversifies risk exposure
Allows for penetration of
foreign markets through local
partnerships and alliances
Disadvantageous because:
Increased exposure results in
dependency on partnerships
and intermediaries
Reduces profit potential
Visa only makes $0.15 per
$100 transaction
(3
)

Operating
Environme
nt
s
Business Model Conclusion
AMEX utilizes a closed-loop business model. AMEX card members
spend 2-4 times more per transaction than with competitors cards;
this suggests that AMEX has great control over who their customers
are. AMEX target market is high net-worth individuals and corporate
accounts. Revenues (49%) are derived from a 2.56% charge of total
card transaction value. Under this model profits are directly
correlated to the health of the economy and amount of consumer
Implication:
spending.
Although the AMEX business model offers greater profitability than competitors, the current business model
cannot be maintained while still expecting continual growth.
Implementation:
AMEX should maintain the current single-issuer, spend-centric business model for the domestic American
market.
Because it allow for more control over business and the past positive revenue effect
Currently AMEX is expanding to incorporate the multi-issuer model to accommodate growth in foreign markets.
This is necessary to gain market-share.
Importance:
The single-issuer model allows complete control in transaction value chain
Countries, like China, require local partnerships as a means of gaining access to their markets. Adopting the
multi-issuer model makes expansion strategies feasible. Adopting the multi-issuer model will provide long-term
future growth-prospects in key developing markets
Timeline:
To expand into multi-issuer model should be done incrementally and based on local market conditions
Expansion should be continuous since benefits
12/8/2009 will
GSB beConsulting
manifested Group
in the long-term (10 years) 23
Operating
Environme
nt
Industry Orientations & s
Partnerships
AMEX seeks to create strategic business
alliances across numerous industries, with
a key focus on:
TYPE # of Relationships or Example
Business-2-Business 925,000 +
E-commerce and Mail-Order Revolution Money
Government California
Healthcare
Major Retailers COSTCO
Restaurants McDonalds
Travel Delta Airlines
Entertainment TicketMaster
(8
)
Operating
Environme
nt
s
Enhanced Business Services
AMEX offers numerous solutions for different industries:
1. Assistance to improve business efficiency
Industry trend analysis
Best practices approach comparison with other competitors
2. Online merchant services
Cash flow management
Expense management
Faster dispute resolution
3. Revenue enhancement opportunities
Placement on specialized feature websites which provides extended network reach
Special offerings for businesses
Statement-based coupons
Targeted advertisements
4. Reward and recognition programs for employees
Improves productivity and retention
5. Recently added consulting division
Will analyze spending trends from 127countries, 90 million cards
AMEX provides a variety of benefits for the business
consumers in which they serve these are intended to
increase efficiencies and profitability (9
12/8/2009 GSB Consulting Group )25
Operating
Environme
Partnerships & Alliances
nt
s
Conclusion
Partnerships and enhanced business relationships have been
instrumental in securing access across many industries that in turn
expand AMEXs reach to their target market.
Secures new markets and access to target clients.
Provides benefits for business clients thereby improving customer relationships
Implementation:
Actively seek new strategic and exclusive partnerships
Like COSTCO
Importance:
Increases brand awareness and recognition.
Establishes stable revenue sources
Timeline:
Continually seek new partnerships

Operating
Environme
nt
Innovator in Technology
s
Originally the credit service industry was entirely paper-based

Paper-trail limited industry profitability
Reduced speed of transactions
Technological advances were required to meet need of:

Credit card fraud
Identity theft
Fast and convenient account management
Data collection to analyze customer spending and risk
AMEX was the industry leader, technological advances enhanced consumer experience
while improving the overall profitability. AMEX was the first to introduce:
Plastic card
Superphone authorization process
Magnetic strip on card
Premium card
Buyers Assurance and rewards programs
Express-Net - online management tools to track spending
Embedded Chip and PIN
Photograph on card
Technology in credit services industry are strongly and positively correlated to profitability
and risk reduction

Operating
Environme
Continuous Technological
nt
s
Advancement
1. American Express Labs
Mobile-phone applications merges loyalty programs with your account
Widget development virtual travel agents
Integration with social networking sites
Leverages geographic information from your social network to provide travel information and deals
2. Efficiency and Service
Card holder can set personal alerts
American Express will notify customer with email or text message alerts if there has
been suspected fraudulent activity
3. Fraud Protection
American Express was first issuer of the Smart Card in 1999
Smart card provides enhanced online security, loyalty applications, and secure point-of-sale payments for
their customers
The smart card also offers no annual fee, a low fixed interest rate, and a fee free rewards program
Receive input that is processed on embedded integrated circuits, which in turn the card provides an
output
4. Customers Tracking
AMEX to use RFID readers called "consumer trackers" designed to closely watch peoples
movement in stores. Potential problems associated with collecting and transmitting time
and location information regarding the path traversed by consumer within the merchant's
facility. (29,
30)
Operating
Environme
Techno-domination nt
s
Conclusions
AMEX has always been the industry leader in technological
innovation. Future success in the credit-services industry will
continue to be based on differentiation and maintaining a
technological competitive advantage. Therefore, should increase
funding for AMEX Labs.
Implication:
Continue funding research and development.
Being the industry leader gives competitive edge and increased
brand recognition brand
Importance:
Retains existing customers, and provides incentive to attract new
customers
Technological innovation should be based on
Fraud reduction
Increasing convenience
Maximizing profitability
Timeline:
Continuously be THE industry leader; provides first-mover
advantage
Operating
Environme
nt
s
Metric Performance
% Increase
3Q09 3Q08 FX Adj.
(Dec)
Billed Business ($B) $156.6 175.5 (11%) (9%)
Total Cards in Force
88.4 92.1 (4%)
(MM)
Avg. Basic Card member
$2,898 $3049 (5%) (3%)
Spending
Card member Loans
($B)
- Owned $31.5 $45.7 (31%) (30%)
- Managed $60.7 $75.5 (20%) (19%)
All metric indicators suggest a depression in the credit services business
WW Travel Sales ($B) $4.4 $6.2 (29%) (27%)
segment of American Express. This is most likely due to overall
economic recession.
(18
)
Operating
Environme
nt
s
Business Risks
Recently, net write-offs have more than doubled. This requires higher loss
reserves and hurts the overall financial position of the company
In 2007 write-offs were 4%, now up to 9% in Q309
Loans are written off after 180-days of delinquency
AMEX Response: early this year AMEX provide $400 to high risk clients to close
accounts
Average spending on cards has been declining

Between 2008 and Q309 there has been a 21% decrease in fee revenues
Return on assets steadily declining through 2009

Q308 ROA = 2.8%
Q309 ROA = 1.4%
As ROA decreases AMEX becomes less appealing to potential investors who seek consistent growth from
the company
Return on equity (TTM) is 10.7%

Compared to five year average of 26%
ROE can be very high, but is subject to significant volatility due to leverage nature of the company
Overall financials of the company is trending towards being negative

with higher net write-offs, declining revenue, and lowered return on
assets and equity. (19, 20,
12/8/2009 GSB Consulting Group
21)31
Operating
Environme
nt
s
Cash Risks Potential cash outflow as
a result of securitization is
$10 billion
Derivatives have switched
long-term debt from fixed
to floating interest rates
Has been beneficial in the
past but in today's
economic environment
could be a massive liability
$54 billion in long term
debt coming to maturity
over the next 8 years
In current environment
with higher interest rate
potential this could
significantly increase the
(25, 26) cost of capital and interest
expense incurred by the
company

Operating
Environme
nt
s
Derivatives risks
AMEX has various foreign exchange derivatives to hedge
currency exposure for near term (around one year)
Could require additional cash to maintain positions but most are
forward-swaps so no outlay required till maturity
Interest rate swaps:

Allowed hedging of short term cash flows, approximately $2.4
billion, from floating to fixed rate debt
Interest rate swaps have also allowed AMEX to convert over $15.1
billion in long term debt from fixed to floating rates. AMEX
continues to use these swaps as debts get rolled over:
Has allowed AMEX to historically have 20% lower interest expense on debt
Floating rate increases risk associated with interest rate exposure and
financial risk to the company if interest rates begin to rise significantly
These contracts do not create any potentially immediate large

demand for cash, however the interest rate swaps do create
future risk exposure due to significant interest rate fluctuations.
(24)
Operating
Environme
nt
s
Debt-related risks
Credit Short-term Long-term
Entity rated Outlook
Agency ratings ratings
DBRS All rated entities R-1 (middle) A(high) Negative
Fitch All rated entities F1 A+ Negative
Moodys TRS & other
Prime-1 A2 Stable
subsidiaries
Prime-2 A3 Negative
AMEX
S&P All rated entities A-2 BBB+ Negative
Downgrades to the companies debt or its main subsidiaries
could result in higher interest rates on unsecured debt and
asset securitization also higher fees related to borrowing and
reduce the borrowing capacity of the firm.
Most rating agencys outlook suggests a downgrade is likely.
AMEX relies heavily on both debt and securitization to maintain its

business. If rating agencies downgrade AMEX it would be very
negative to the companies ability to finance operations. (27)
Operating
Environme
nt
s
Risky Business Conclusions
AMEX credit services business-segment faces serious issues:
21% decline in fee revenues and a rise in net write-offs,
Interest rate risk exposure as a result of floating interest rates on
debt.
These issues must be addressed immediately AMEX must stop using
interest rate swaps. Instead to reduce risk exposure allow for fixed
interest rates on debt rather than floating rates.
Implications:
If Interest rates begin to rise:
A doubling of the corporate debt rate from their 4% to 8% could cost $3.6 billion more annually and
effectively wipe-out the $2.6 billion in operating profit generated at current interest levels
This is realistic due to potential debt downgrades and the Federal Reserve potentially raising rates
within the next eight years
If write-offs continue to rise:
A 50% rise in write-off percentages would create an additional $2 billion loss for American Express
Based on current write-off trends which have doubled in the last two years, this potential rise is
realistic and such an outlook is considered optimistic
Importance:
Currently IF rating agencies downgrade debt or IF interest rates rise, then AMEX would be
very impacted negatively and the companys ability to finance operations would be in
question.
Stopping interest rate swaps is crucial to stabilize future profits of the company while
reducing overall risk exposure.
Timing:
Immediate and continuous.
Operating
Environme
nt
s
Cash Position
October 09 billed business = $58 billion
Since 2007, the cash position has increased
approximately 131% to $20.5 billion in 3Q2008.
Raised $6 billion in Certified Deposit Program and $7 billion
in FDIC insured savings programs
Strategically necessary to help withstand the financial crisis
in 2008
As of September 30, 2009 AMEX has US$18.65 billion in
cash and equivalents up from $15.9 billion a year prior.
Cash decrease due to buy-back of $3.39 billion in
government preferred shares in summer 2009
Bank-holding company status is largely responsible for
improvements in overall cash position.
(22 & 23)

Operating
Environme
nt
s
Bank-Holding Company
In 2008 AMEX was granted Bank-Holding Status. This is a major
strategic advantage and will provide added financial security -
providing access to sources of government financing outside of
securitization (including TARP and TALF).
Implications:
Bank holding status opens up additional sources of
capital
Provides enhanced financial security
Importance:
Strengthens the balance sheet by providing access to
treasury funds and the ability to take deposits
Timing:
Now and always
Operating
Executive Strategic Moving
Environme
Summary Position Forward
nt
Management Changes
Alfred Kelly Jr. is leaving the
company in the beginning of
2010.
His departure is a result of the

inability to move up the
corporate ladder into the
position of CEO.
Loss of the top president

represents a significant loss of
Since 1987 he has led key business
strategic human capital.
groups including:
Consumer Card Services In the past, AMEX senior
Group
OPEN from American management have been
Express
Consumer Travel
carefully selective of high
Global Travelers Cheques performing individuals.
Prepaid Services
Establishment Services,
Traditionally they have been
North America promoted from within the (16
Global Risk Management
company to maintain take )full
12/8/2009 U.S. Customer Service, GSB Consulting Group 38
Operating
Environme
nt
Governance Relationships

(16
Operating
Environme
Human Resources nt
Conclusions
The Presidents departure marks a critical loss of human capital.
May result in transfer of strategic knowledge to competitors which
will undermine AMEXs competitive advantages. Selection of next
president must be carefully decided and should factor in the
individuals objective within the company.
Implication:
Loss of strategic human capital to potential competitors
Promote within company
Be aware of potential company security breaches
Importance:
Difficult to replace such a key human resource and the
business connections he offers
Timeline:
Suitable replacement must
12/8/2009 be found
GSB Consulting Group by January 2010. 40
Operating
Environme
nt
Industry Practices
Certain industry practices exist through legal
loopholes has increased profitability, however these
are under threat from pending government regulation.
Contractual agreement can change with 15 days notice
Usury Laws:
Creates maximum interest rate that is allowed to be charged, however, varies by
State.
In Marquette vs. First Omaha Service Corp., the Supreme Court ruled that a national
bank could charge the highest interest rate allowed in their home state to
customers living anywhere in the United States, including states with restrictive
interest caps.
Usury friendly states like Delaware have become credit services havens where .
Universal Default:
Most credit agreements state if you are late for a payment on any credit card or
credit line, with any other company, you will be treated as delinquent for other
cards.
Includes mortgage, car loan, bouncing a cheque, going over credit limit or even
inquiring about another card or loan.
(8)
Operating
Environme
nt
American Regulation
H.R. 627: Credit Card Accountability
Responsibility and Disclosure Act of 2009.
Requires 45 day notice for rates increases to allow consumers
to shop for better deals
Cannot apply payments automatically to lower interest debt
Elimination of fee Harvesting cards and fees cannot be
charged to credit card
S.235: Credit Card Holders Bill of Right Act

Companies cannot increase rates due to behaviours unrelated
to company credit lines (threatens universal default clause)
Eliminate fees for paying off balance
Cannot Issue cards to anyone under 21 unless can show how
they can pay it off or passed financial literacy test.
(9)
Operating
Environme
Impending Government
nt
Regulation
Government regulations present the biggest challenge to the future
profitability of the industry. Changes to usury laws will have an
impact on the bottom line. If government sets interest ceilings then
revenue will be limited, especially as interest rates increase.
Implications:
Regulations are intended to protect consumers; possible restrictions
on interest rate limit of cards will result in a loss of net income
AMEX should boost funding for:
Lobby-groups to influence key government officials
Consumer credit awareness campaign
Importance:
American government regulation poses single greatest threat to
profitability and longevity of credit services industry
Timeline:
Ongoing, monitor progress closely
Operating
Executive Strategic Financial Issues &
Environme
Summary Position Position Opportunitie
nt
s
Short Term Strategy Options

Operating
Environme
nt
s
Long Term Strategy Options

Operating
Environme
nt
Summary of Findings s
Current state of American economy is worrisome. Unemployment at

very high levels; consumer spending is down over last year. In
addition both public and private debt loads are continuously growing
and reaching unsustainable levels. Current economic decline
increases risk of credit defaults, especially among lower socio-
economic status. Also has a direct negative impact on AMEXs
Three American banks account for 23% of the global credit services
profitability.
industry and 58% of total American market. These banks operate
primarily under the banners: Visa and MasterCard. American Express
only comprises 20% of credit service market in the USA.
The American market is oversaturated and mature with little growth
potential. American Express does 70% of its total credit services
business in the USA which represents an over-reliance on one single
market.
AMEX utilizes a closed-loop business model. AMEX card members
spend 2-4 times more per transaction than with competitors cards;
this suggests that AMEX has great control over who their customers
are. AMEX target market is high net-worth individuals and corporate
accounts. Revenues (49%) are derived from a 2.56% charge of total
card transaction value. Under this model profits are directly
correlated to the health of the
12/8/2009 GSBeconomy and amount of consumer 46
Consulting Group
Operating
Environme
nt
s
Summary of Findings
Partnerships and enhanced business relationships have been
instrumental in securing access across many industries that in turn
expand AMEXs reach to their target market.
AMEX has always been the industry leader in technological
innovation. Future success in the credit-services industry will
continue to be based on differentiation and maintaining a
technological competitive advantage. Therefore, should increase
funding for AMEX Labs.
AMEX credit services business-segment faces serious issues:
21% decline in fee revenues and a rise in net write-offs,
Interest rate risk exposure as a result of floating interest rates on
debt.
These issues must be addressed immediately AMEX must stop using
interest rate swaps. Instead to reduce risk exposure allow for fixed
interest rates on debt rather than floating rates.
In 2008 AMEX was granted Bank-Holding Status. This is a major
strategic advantage and will provide added financial security -
providing access to sources of government financing outside of
securitization (including TARP
12/8/2009 and
GSB TALF).
Consulting Group 47
Operating
Environme
nt
s
Summary of Findings
The Presidents departure marks a critical loss of human capital.
May result in transfer of strategic knowledge to competitors which
will undermine AMEXs competitive advantages. Selection of next
president must be carefully decided and should factor in the
individuals objective within the company.
Government regulations present the biggest challenge to the future
profitability of the industry. Changes to usury laws will have an
impact on the bottom line. If government sets interest ceilings then
revenue will be limited, especially as interest rates increase.
Short Term Strategy Options:

Anticipate government regulations,
Financial restructuring of debt,
Technological innovation.
Long Term Strategy Options:

Revitalize key market focus,
Seek mergers and acquisitions,
Enhance bank-holding status.
Questions or Comments?

Exploring A Renewed Strategy For 2010 and Beyond: Proudly Presents

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GSB Consulting Group

Exploring a Renewed Strategy

The Board of Directors

12/8/2009 GSB Consulting Group 4

12/8/2009 GSB Consulting Group 5

Interest rate swaps:

12/8/2009 GSB Consulting Group 6

Overview of the American

12/8/2009 GSB Consulting Group 11

12/8/2009 GSB Consulting Group 12

12/8/2009 GSB Consulting Group 13

AMEX is a world leader in global payment

Credit Services Market-share

Credit Services Industry is an oligopoly where Visa and MasterCard dominate

(Each company utilizes different card-issuer models, will be discussed further

American banks dominate global credit services industry.

49% of AMEX revenue is derived from a 2.56% charge on total

12/8/2009 GSB Consulting Group 22

12/8/2009 GSB Consulting Group 26

Originally the credit service industry was entirely paper-based

Technological advances were required to meet need of:

12/8/2009 GSB Consulting Group 27

Average spending on cards has been declining

Return on assets steadily declining through 2009

Return on equity (TTM) is 10.7%

Overall financials of the company is trending towards being negative

12/8/2009 GSB Consulting Group 32

Interest rate swaps:

These contracts do not create any potentially immediate large

AMEX relies heavily on both debt and securitization to maintain its

(22 & 23)

His departure is a result of the

Loss of the top president

12/8/2009 GSB Consulting Group 39

S.235: Credit Card Holders Bill of Right Act

12/8/2009 GSB Consulting Group 44

12/8/2009 GSB Consulting Group 45

Current state of American economy is worrisome. Unemployment at

Short Term Strategy Options:

Long Term Strategy Options:

12/8/2009 GSB Consulting Group 49

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