american express company

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American Express Company NYSE:AXPAnalyst/Investor DayWednesday, March 25, 2015 5:30 PM GMT

CALL PARTICIPANTS 2

PRESENTATION 3

QUESTION AND ANSWER 30

AMERICAN EXPRESS COMPANY ANALYST/INVESTOR DAY MAR 25, 2015

WWW.SPCAPITALIQ.COM 2Copyright 2014, S&P Capital IQ, a part of McGraw Hill Financial.

Call Participants....................................................................................................................................................................EXECUTIVES

Anre D. WilliamsPresident of Global MerchantServices

Edward P. GilliganPresident and Head of GlobalConsumer & Small Business CardIssuing, Network & MerchantBusinesses

Jeffrey C. CampbellChief Financial Officer, ExecutiveVice President and Member ofOperating Committee

Jeffrey Campbell

Kenneth I. ChenaultChairman, Chief Executive Officer,Chairman of American ExpressTravel Related Services CompanyInc and Chief Executive Officer ofAmerican Express Travel RelatedServices Company Inc

Laureen E. SeegerExecutive Vice President andGeneral Counsel

Richard PetrinoSenior Vice President of InvestorRelations

Stephen J. SqueriGroup President of GlobalCorporate Services

ANALYSTS

Bill CarcacheNomura Securities Co. Ltd.,Research Division

Cheryl M. PateMorgan Stanley, Research Division

Christopher C. BrendlerStifel, Nicolaus & Company,Incorporated, Research Division

Christopher R. DonatSandler O'Neill + Partners, L.P.,Research Division

Craig J. MaurerAutonomous Research LLP

David HoDeutsche Bank AG, ResearchDivision

Mark C. DeVriesBarclays Capital, Research Division

Robert P. NapoliWilliam Blair & Company L.L.C.,Research Division

Sanjay SakhraniKeefe, Bruyette, & Woods, Inc.,Research Division

Stephen Martin

ATTENDEES

Unknown Attendee



Presentation....................................................................................................................................................................

Kenneth I. ChenaultChairman, Chief Executive Officer, Chairman of American Express Travel Related Services Company Incand Chief Executive Officer of American Express Travel Related Services Company Inc

Good afternoon, and welcome to Investor Day. Let me start by sharing our agenda. I'm going to beginwith my perspective on our growth opportunities and why I'm confident we can compete successfully overthe short, moderate and long term.I'll also discuss the latest on the Department of Justice lawsuit in the co-brand marketplace, along with ourrecent financial performance. Ed Gilligan and Steve Squeri will provide greater detail on their businessesand Steve will also provide an update on our operating expense objectives.Jeff Campbell will then cover our capital position, including our CCAR results and will also discuss ourfinancial outlook. We'll close, as always, with time for Q&A, and because this is a longer day, we'll alsohave a break. As you can see, we're covering a number of important topics. Our objective is to give youa sense of the actions we'll be taking to deal with our short-term headwinds. How, why and where we'reallocating our investments to capitalize on our growth opportunities, the strength of our overall financialposition and the ability to further improve our operating efficiencies. And also why we're confident we canbe in a position to return to EPS growth in 2016 and the targeted EPS growth in 2017.Now I'll admit this is a lot of material to cover. But before we move into the tactics and details, I wantto first take a moment to give you my perspective on the foundation all of this rest upon, our businessmodel. Why it makes us different in the marketplace, why it represents such an important competitiveadvantage and why it puts us in a position to capitalize on the transformation of payments and servicesthat's being accelerated by digital technology.As I've mentioned to you before, we've been very focused on the digital transformation of our company.The opportunities it presents and the challenges as well. As part of this, we meet frequently withcustomers, clients, merchants, partners and tech companies in the U.S. and around the world. When Ispeak with potential new partners, the conversations are not just about what they can do for us, but whatAmerican Express is about and what we can offer them.It's clear from these conversations that at times, we're viewed too narrowly because of the success of ouriconic charge card that sometimes how we are perceived, as a payments company focused on the affluent.But to put our company in perspective, it's important to recognize that we were in business for 108 yearsbefore the launch of the card. And over that extended period, we successfully innovated, we reinventedourselves time and time again, we've generated profitable growth, all objectives we remain focused ontoday.Our modern era of payments began in 1958, but it was built upon a foundation of values and a trackrecord of success that began decades before. As I talk about our company with potential partners, I wantthem to understand the answers to some basic questions. What drives American Express' success? Whatmakes us unique in the industry? How can we partner? And I find that visuals always help. So here's howI start. First is the fact that we have the largest integrated payments platform in the world. We're anissuer, a network and a merchant acquirer. We're an end-to-end provider. Having this breadth providesus with direct relationships with millions of card members and merchants and also provides us with veryrich data from both sides of the commerce equation. This platform is the foundation of our core paymentsbusinesses.In fact, the idea behind the launch of our first card product in 1958 was to build a platform to provideservices to frequent business travelers. This was a time well before apps and even before toll-free phonenumbers. Travelers were out there on their own, carrying around cash for hotel bills and their meals onthe road. It was envisioned at the time that our charge card and the infrastructure built around it couldbe used by airlines, hotels and restaurants to connect business people as they travel, providing themwith services to make their trips easier. From that start, our card business evolved and the paymentindustry evolved into the model we have today with issuers, networks and merchant acquirers, linking thepayments between customers and merchants.Today, key competitors play in specific areas of this model, for example, Citi is a card issuer, Visa andMasterCard as networks, First Data as a merchant acquirer, but the breadth and depth of an integratedpayments model at significant scale is ours alone.



Now, Discover, of course, maintains a model similar to ours as an issuer, network and acquirer, buttheir scale and geographic footprint are significantly smaller. Evolving our model over 50-plus years andexpanding it substantially over that time has allowed us to develop and leverage many resources that incombination, are unique to us. This slide to me is the core of what makes us different, and it's foundationof our growth potential. Because of our integrated payments model, we've built a wide range of resourcesover time, assets, capabilities and relationships, that we've used to expand and grow. For example,operating an integrated model has made it easier for us to expand into new geographies. It's helped usmove from charge to lending to merchant financing products, and now into alternative payments.Our model provided advantages as we opened our network to bank issuers. It's helped us develop newproducts for untapped customer needs. First, into segments such as small businesses and corporationsand now into underserved consumers. Our model continues to provide advantages today as we moveahead with our digital transformation.All of the assets, capabilities and relationships that we currently have become even more valuable as theoffline and online marketplaces converge. Take for example, our brand. Our brand is globally recognized.It's viewed as aspirational. As the online and offline marketplaces converge, consumers and businessescan be overwhelmed with a flood of choices. And in the midst of this flood, our brand stands out as clearlyand as strongly as ever because it's trusted, because it stands for service, integrity and security andbecause it represents consistency.Our goal has been to ensure that our brand is able to evolve and remain relevant to new segments. Andwe've been successful to date in making it more welcoming and inclusive for several reasons. First, weunderstand our brand's core values and we're very careful not to compromise them. We operate on theprinciple that everything we do as a business should enhance the brand.Second, as we're seeing with Serve or Amex EveryDay or Apple Pay, our brand is even more relevant in adigital and social world. Trust, security and service are tremendous assets in an economy that increasinglyrevolves around protecting financial data and personal information.Third, when we put our brand into new segments, it evolves and updates. Its values and history arerefreshed and strengthened as we become more relevant to more people. Our brand is an importantasset among many assets and capabilities such as customer servicing, rewards and risk managementand relationships with cardmembers and clients, merchants and partners, all provide us with significantcompetitive advantages.All of these resources power our existing core businesses today and I believe they'll continue to do so.They also provide the foundation for our newer adjacent opportunities such as loyalty coalition or Serve,which leverage many of the resources shown here, making these businesses more efficient from the start.In combination, these assets, our brand, our closed-loop end-to-end data, our millions of relationshipswith card members, merchants and partners and our integrated payments model provide us with a robustplatform that we've evolved over time.We've used these assets to connect our card members and merchants across the commerce cycle, andwe're bringing them to bear against the range of existing and new growth opportunities. Driving profitablescale through the use of platforms isn't new to us. It's an approach we've taken across many aspectsof our businesses. For example, we've used our rewards and offer platforms to enable merchants toincentivize buyer spending or as white label infrastructure for our key partners. Our reloadable prepaidproducts use our Serve platform, which enables us to create and provide alternative to banking services,to help meet the needs of a broad group of customers, including the financially underserved.Our loyalty coalition rewards business is a platform that combines data from consumers and merchantpartners to help make the marketing spend of our partners more effective. This platform will run ournewly announced Plenti program in the U.S., and it powers our coalition reward programs in 5 othercountries.We believe that by using the accelerating capabilities of technology and big data, we can evolve ourintegrated platform even further. By expanding its scope to a wider range of new and existing partners, webelieve we can open up even more opportunities for growth.Now one advantage of our platform is the breadth and depth of the information we have on our customersand merchants. Not just the basics on who they are, but also the billions of transactions that representswhat, when and how they spend.We know, for example, the category of goods or services they buy. Where they buy, the time of daythey buy it, whether they bought it online or off. Analyzing the data from our unique platform allows



us to make connections, not just between buyers and sellers, but also between any partner companyand the customers or prospects they want to reach. Now given our history of connecting buyers andsellers, applying new technologies and evolving our platform further is a natural step for us. Using ourproprietary assets to benefit partners all with extensive controls to ensure appropriate levels of privacyand security can enhance their business and at the same time, increase our own scale and help diversifyour growth opportunities. Consistently driving growth over the short, moderate and long term is key todriving shareholder value.By effectively leveraging our assets, capabilities and relationships within our integrated payments model,I believe we can drive growth in our existing businesses as well as open up new options for profitablegrowth.Now business growth is just one element of generating EPS. Along with business growth, we also have 2other levers: the leverage we generate from our operating expense base and the strength of our capitalposition, which allows us to return significant capital back to our shareholders.We use all 3 levers to generate our EPS performance and profitable EPS growth over the moderate to longterm is our key goal. Within each of these categories, our position is quite strong and you'll hear abouteach of them in detail over the course of our presentations.Let me start with an overview of the growth opportunities that continue to exist across our core and newerbusinesses. Whether it's plastic penetration opportunities in key customer segments and countries orour continued penetration of a wide range of merchants and consumers, we believe our core businessescontinue to offer many opportunities for profitable growth. Through innovation such as OptBlue withinMerchant Services, or new products such as Amex EveryDay or through expanded digital engagement withnew and existing customers, we're continuing to grow our core businesses across a range of axes.As you'll hear from Ed and Steve, we're successfully using multiple channels to grow our businesses,acquiring new customers, including within new segments of prospects. Increasing our engagement ofexisting customers by focusing on opportunities to increase our share of their spending and borrowing.Offering differentiated value propositions within our premium base of Gold, Platinum and Centurion aswell as across mass affluent segments. And leveraging partners to help us across a range of activitiesfrom merchant acquisition to digital engagement. At the same time that we're making substantial growthinvestments across our core businesses, we're continuing to develop select newer businesses such asloyalty coalition and Serve.Since we have such a full agenda today, Enterprise Growth is not separately presenting, so let me quicklycover some of the progress we're making across of these businesses.We're continuing to see solid and growing momentum in Enterprise Growth and with our Serve softwareplatform, albeit, off of a small base. Along with Walmart, we're working with partners such as Target,Intuit and Barclays Center to develop products and services that leverage our platform. For our alternativeto banking products, Bluebird and Serve, load volume from 2012 to 2014 increased over 300%, reachingover $7 billion in aggregate to date. 40% of these funds came from customers directly depositing theirpaychecks on these products. At the same time that our load volumes have climbed, we've also seenmerchant spend increase from 2012 to 2014 by more than 300%.Now most of the merchant spend we're seeing is EveryDay spend, with customers using Bluebird andServe to shop at retailers, buy gas and pay bills. Again, this growth is off a small base, but directionally,we're headed the right way. These products also continue to attract new customers to our franchise. 90%of Serve and Bluebird customers are either new to the company or returning card members, 44% areunder the age of 35 and 53% are female, helping to further diversify our customer base.The majority of our customers use Bluebird and Serve to do everything from pay their bills, set asidemoney for future purchases, withdraw money from ATMs and spend both offline and on.As we've talked about before, there is $25 trillion spending outside of credit and charge cards. So it'sencouraging to see that our customers are living their financial lives on the Serve platform. And that ourproducts, not only appeal to the underserved, but also more broadly, to consumers who are using Bluebirdand Serve as an alternative to banking.The high levels of engagement we're seeing give us a clear advantage as we aggressively pursue thisopportunity. Now the material I've covered and the insights you'll gain from Ed, Steve and Jeff, allreinforce my belief in our moderate to long-term growth potential. Our core payments businesses remainsstrong with significant growth opportunities in the U.S. and globally, across multiple customer segments,consumers, small businesses and corporations. Our digital transformation has opened up new avenues



for growth, whether it's seamlessly connecting merchant offers to card members, meeting the needs ofunderserved consumers, building sales and loyalty for merchants through the digital infrastructure ofour loyalty coalition business or leveraging our big data and analytic capabilities to benefit our partnersand our own company, while maintaining our strong commitments to privacy and data security. Andimportantly, we have the capabilities, people and leadership to successfully execute against theseopportunities.Clearly, we face some challenges over the next 2 years, but I'm confident in our ability to deliver againstthe objectives we've set. So let me take a few minutes to revisit 2 significant developments that happenedlast month.Let me start with the Department of Justice lawsuit. Since the announcement last month of the judge'sruling in favor of the DOJ, the legal process has continued. As required by the court, we filed potentialremedies on Monday as did the DOJ. Once the remedy is determined by the judge, we'll begin the appealprocess. As part of the appeal process, we'll ask for a stay so that our current merchant processes andcustomer experience stay in effect, pending the outcome of the appeal.Regardless of who won at this stage of the trial, it was highly likely that the outcome would be appealedand we were always expecting a lengthy process. Fighting this suit was the right call in 2010 andcontinuing to fight is the right call now.Agreeing to the same settlement terms as Visa and MasterCard 4.5 years ago would have beentantamount to a loss. We continue to believe the ruling last month was incorrect. We believe it will harmcompetition by strengthening the 2 dominant networks. We believe consumers will not benefit and webelieve we should ultimately prevail.Now let me turn to the co-brand marketplace, a topic that's also of interest to many of you. Last year, weproactively chose to open renegotiations with a number of our existing Co-brand Partners well before theend of our contracts. We took this action for several reasons. First was the competitive the state of playin the co-brand space, which certainly wasn't going to become more benign in 15 to 18 months, the timeperiod when most of our contracts would have been renegotiated.And second, we wanted clear visibility into our investment options over the moderate term. Renewingearly meant that we'd have lower economics in the short term, but we trade that off against moreconsistent and sustainable growth in the out years. We considered all of this and concluded we wantedclarity and commitment on our partnerships sooner rather than later. We wanted to be clear on our shortand moderate term economics. So we could plan accordingly, so that we could make appropriate growthchoices with a clear line of sight into the moderate term. We were able to come to terms with Delta,Starwood, Cathay Pacific, British Airways and Iberia. But with Costco, the numbers didn't add up. Wecouldn't accept their financial terms nor their contract terms, some of which would have meant taking onmore risk than we were comfortable with. And a renewal under the retired -- under the required termswould have meant committing funds to lower investment returns at the expense of higher return optionson other products.Now we did a great job for Costco during our 16-year partnership. We developed this business with them,essentially from the ground, up. We built an innovative partnership and we consistently generated goodresults for both companies. Our strength has always been to drive value by using our unique assets toinnovate and develop differentiated products and services, and we did so successfully. Costco's needsevolve over time, and their current priority is to provide a credit utility for their customers. Because weeach had different objectives for the partnership and because we are a disciplined buyer with a focus onthe moderate to long term, we could not come to terms that were satisfactory to both of us.I believe going forward, with early negotiations with Costco and now knowing the outcome, gives us abenefit over the moderate to long term. We'll now be able to reallocate investment dollars into higherexpected return options to help drive our growth over the next several years. And while we don't expect toreplace Costco's volume in total over the short term, our priority will be on replacing the profitability fromthis partnership.In the short term, first and foremost, we'll work hard to continue a relationship with these customers tocapture their future spend and lend. These are not just Costco customers, they are American Expresscustomers with a great affinity for our brand, products and services.Ed will discuss in this effort during his remarks. But I will mention now for competitive reasons, we won'tbe going into detail on our tactics. As you'll see, our intent is to provide these customers with high-value



proprietary products that meet their spending needs while providing them with high levels of benefits andservice they expect of us.In this regard, we've learned a lot from our colleagues in Canada, who are going through a similartransition with Costco with a 12-month head start. The end of our Costco relationship in Canada has ledto innovative product and marketing ideas and while very preliminary, we're encouraged so far about thespending we're retaining in the franchise.Now given the circumstances related to Costco, we could have chosen to reduce our overall growthinvestments in 2015 to sustain our bottom line. But given our focus on the moderate to long-term, we'veopted to accelerate our investment spending across a range of growth opportunities within our U.S. andinternational payment businesses as well as other growth areas. We believe this is the best option when itcomes to building momentum over the moderate term.This was one of the drivers behind the lower EPS outlook we gave as part of our February investor call,and which Jeff will discuss later on. As you know, we take our on average and over time EPS targets veryseriously. And while we always have to make trade-offs as we prioritize, our objective is to take actionsthat are consistent with the long-term interest of our company and our shareholders.Despite ending our Co-brand Partnerships with Costco and JetBlue, I continue to be very positive aboutco-brand opportunities and our ability to compete. We continue to believe that profitable growth can begenerated from the right partnerships when there are aligned objectives. Our renewals of Delta, Starwood,BA and Cathay are all evidence of the strength of our value proposition within the context of partnershipsthat seek to focus on widespread customer value. And our new co-brand relationship with Charles Schwab,which we announced last week, is also a good example of a partnership that can provide value to ourpartner, to American Express and to our joint customers.Now a number of significant co-brands in the airline, hotel and retail industries will be coming up forrenewal over the next 18 months. And our intent is to pursue those that meet our criteria. The end of ourCostco partnership also gives us the opportunity to expand our relationships with a number of other retailpartners. We've shown that we can compete and win in this space and will continue to do so.So that's the context on Costco. It's a challenge. It will have a short-term impact on our growth trajectory,but I believe it's a challenge that we can transform into an opportunity.As I've told you before, I continue to have a great deal of confidence in our ability to grow and to generateEPS growth that leads to long-term value for our shareholders. 2014 was a good example of how weovercame some headwinds and still achieved EPS growth within our targeted range.So let me start with our metrics. In 2014, we continue to see generally strong results across our corebusiness metrics. FX adjusted billed business grew by 9%, card member loans grew by 5%, up fromour pace in 2013 and ahead of many large card issuers, as you'll hear later on. And our write-off ratesimproved again to 1.5%, the best across large U.S. issuers.Now as I've mentioned before, our objective is not to always have the lowest write-off rate in the industry.Our objective is to manage our risk appropriately as we take advantage of the many growth opportunitieswe have across lending, both in the U.S. and across international.Our goal is to prudently grow our profitability not to minimize our risk. And as you'll hear from Ed, we'vegot a number of strong opportunities across the lending space. These business metrics led to goodfinancial performance in 2014. Our adjusted revenue growth was 5%, our adjusted EPS growth was 12%and our return on average equity was 29%.Now given the continued slow growth in the global economy, our revenue growth was below our onaverage and over time target of 8%, but we were still able to achieve our EPS growth and ROE targets.This performance is consistent with the potential growth scenarios I laid out for you at one of our earliermeetings.Some of you may recall this slide from 2 years ago. I took you through several hypothetical scenarios ofhow we could potentially achieve EPS growth within our on average and over time targeted range of 12%to 15%, even with revenue growth below our 8% objective. Depending on the results we achieved in theareas of OpEx, provision, M&P and rewards, along with share buybacks we made, we showed that therewere several scenarios that had us achieving our EPS growth targets even with revenue growth below 8%.While, these were hypothetical scenarios at the time, our actual performance has ended up very muchin line. From 2012 to 2014, our compounded annual adjusted revenue growth has been 4%. We pickedup 700 basis points from operating expense control and 400 basis points from share buybacks. Otherexpenses, including taxes, provision and rewards outgrew revenues, which depressed EPS growth by 300



basis points. This performance, achieving 12% compounded annual adjusted EPS growth with only 4%revenue growth shows the flexibility we have within our business model. This flexibility continued evenwhen looking over a longer period, over 4 years. From 2010 to 2014, you can see that our performancecontinued to be strong even though we were also challenged by the loss of our settlement payments fromVisa and MasterCard.During this period, 6% adjusted revenue, generated EPS growth of 14%. This time, with favorableperformance from provision and M&P. Against the backdrop of a slow growth economic environment andits negative impact on our billings and revenue growth, we've shown we can still generate strong EPSgrowth.And another important point here, we've done so while continuing to invest substantially in growthopportunities across both our core and newer businesses. In fact, helped by the additional investmentsmade possible by the gains from our business travel joint venture and the sale of Concur in 2014, we hada very high level of investment spending, which was allocated among opportunities with short, moderateand long-term time frames.Our performance over the last 4 years reinforces the importance of the 3 growth drivers I mentionedearlier. While we've clearly faced challenges over this time, the flexibility of our model allowed us to offsetour headwinds and still generate strong EPS growth. We'll continue to use this flexibility over the nextseveral years, but we'll have other factors impacting our reported EPS growth, which Jeff will discuss.We've also done well over this time frame on a relative basis. Our 6% revenue growth put us at the topof our issuing peers, along with Discover and Capital One while many large issuers saw revenue declinesover this period. If we were to look at this comparison from the network side of the business, we'd seethat Visa and MasterCard's revenue growth rate has, in aggregate, outpaced us. Though their aggregategrowth did slow as did ours in 2014.In terms of core earnings growth, we were at the top of the pack. Growth in our pre-provisioned PTI,which excludes the impact of credit and reserve terms was 9% in the global basis and 7% for our U.S.businesses. Except for Discover, all other large issuers were flat to substantially down. Contributing tothis performance since 2010 has been the gains we made in both billing volumes and loan business. Withgeneral purpose charge and credit volumes, we saw share gain of 60 basis points from 2010 to 2014,reflecting the increasing relevance of our card products and the growth of our merchant base.Now as you know, we have a spend-base model rather than the lend-base model of most issuers. We dogenerate balances, but they're an outcome of our spend-base approach. While lending is not the primarydriver of our economics, it is an important element of our growth and our investments here are drivinggood results.Our share of U.S. revolving credit grew from 6.1% to 7% at a time when a number of large issuers sawcontractions in balances, a key driver of the revenue declines I showed you earlier. The overall strength ofour performance from 2010 through 2014 can also be seen in a number of key profitability metrics.Our return on equity improved from 27.5% in 2010 to over 29% last year. Our net income-to-revenueratio improved from 14.7% to 17.2%, while our PTI-to-billings ratio increased from 84 basis points to88 basis points. Now it's noteworthy that we've driven this consistent upward trend even against thebackdrop of relatively modest economic growth, both in the U.S. and around the world.And we've also achieved this performance in the midst of an aggressive competitive environment. Whetherit's new products issued by traditional competitors or potential new entrants into payments such as Bitcoinor MCX, the marketplace has seen rapid significant change. Over the last 4 years, we've advanced anumber of these changes ourselves through innovations such as Amex EveryDay digital offers, Bluebirdand the use of pay-with-points at offline points of sale such as in New York City taxis or at McDonald's.The competitive space has intensified, but our focus investment spending and thought leadership haveallowed us to continue to impact the marketplace, while also generating strong financial results. Becauseof the overall flexibility of our business model, I continue to believe we're well positioned to deal with arange of economic conditions.As all of you know, I take a long-term view when it comes to leading this company. I think it comeswith the territory when you're heading up a company that's 165 years old. I do, of course, focus on ourquarterly and annual performance, but the trade-offs I make are done to strengthen our position for a 3-,5- or 10-year plus horizon.As you know, our company objectives are to generate on average and over time, revenue growth of 8% ormore, EPS growth of 12% to 15% and ROE of at least 25%.



Now as I mentioned earlier, the most important priority is our EPS target. We also remain committedto our 8% revenue growth target for the long term. While we won't be in this range in the short term, Ibelieve this objective is still appropriate and will drive hard to position ourselves to generate this level ofgrowth. I believe these targets remain appropriate for our business model and appropriate for generatingsustainable value for our shareholders. As you'll hear, our intent is to generate performance that returnsus to EPS growth next year while also positioning us for the longer term by remaining focused on thetransformation of our company.So I've covered a lot and you'll be getting much more over the rest of this afternoon. At the end of theday, I hope you take several points away with you.First, that I feel good about the strength of our current position and the growth potential we have, thatour integrated payments platform is a competitive advantage. It's broad, deep and flexible. It drives thegrowth of our current businesses. It's the foundation for our newer businesses. And by further leveragingour assets, capabilities and relationships with new technologies, it can open up new opportunities forgrowth.And that while we're dealing with a number of headwinds, we haven't lost our focus. We remain onoffense, as you've seen over the last month with the announcement of Plenti and its roster of first-rate partners, the signing of a Charles Schwab co-brand, the signing of British Airways and Iberia andgenerating exceptionally strong CCAR results.We're focused on winning in the marketplace. And by effectively executing against our growthopportunities, I believe that is exactly what we can to.As I've said, driving growth is key. So to get a better sense of many of the growth opportunities and ourconsumer, small business and merchant businesses, I'd now like to turn the stage over to Ed.Edward P. GilliganPresident and Head of Global Consumer & Small Business Card Issuing, Network & Merchant Businesses

Good job. Good afternoon. Thank you, Ken. I'm delighted to be here today to discuss the growthperformance and potential of the core businesses of American Express.As Ken said, we are the largest integrated payments platform in the world, processing over $1 trillion in e-commerce by connecting card members and merchants globally. We have a differentiated business modelthat sets us apart, and one of the most admired brands in the world. We've had strong growth in revenueand profits and our investments continue.Our growth themes have remained consistent and our strategies are evolving. We're competing effectivelyfor premium U.S. consumers, and that customer base offers continued growth potential.Small-business momentum is real and its opportunity is expanding for us. Small merchant acceptance isaccelerating as is our progress in international markets. Our announcement of a loyalty coalition in theU.S. is a tangible example of us taking some of our core capabilities and applying them in an importantadjacency and creating new revenue for the company. And our digital transformation is engaging our mostsavvy, younger customers, while offering our merchants new ways of working with us.I'll quickly review each business and touch on our growth potential. All of our businesses have furtherroom to grow profitably, and it's for this reason that we decided to stop pursuing the renewal of the Costcoco-branded card. Renewing would have resulted in much lower returns and a very restrictive contract over10-plus years. And renewal would have required more time, money and technology in a co-brand that hada much lower returns than each of the growth opportunities I'm about to review.The opportunity cost, therefore, of retaining Costco was too high and the continued growth of our corebusinesses is a much better way to create sustainable shareholder value over the moderate to longerterm.So over the next 30 minutes or so, I'll talk to you about our core business performance, our globalgrowth strategies and how we're transforming each of our businesses. I'll start by talking about how ourbusinesses have been performing. Just to remind you, we operate across multiple established businesseslike U.S. consumer, U.S. small business, also known as OPEN, international, which includes our proprietaryconsumer and small-business issuing businesses and global network services, global merchant servicesand global commercial services, which Steve will talk about later today.And we're developing some new businesses that include Enterprise Growth and loyalty coalitions. Letme first show you the size of the opportunity in the consumer and small business segments globally. Asyou can see on the chart, there is a large amount of volume that remains on cash and checks, about $20trillion.



The entire pie has been growing coming out of the financial crisis and there are factors that are pushingmore of this spending towards plastic.Timing is perfect. It's only a test, people. So I'll keep going.The electronification of the global payment system and significant growth in both e-commerce and mobilecommerce means that more of that volume will move towards plastic and the associated networks, and weshould be able to capture more of that cash and check spending on our network.This evolution -- this continued evolution gives us confidence that as we execute our strategies, we'll havea continued runway for growth around the world in all of our businesses. Now looking now at AmericanExpress. Today, we have a strong position in these segments. We're the #1 issuer in the U.S. based onbilled business. We're also the #1 U.S.-based issuer in international. Our merchant acquiring business is#1 in terms of the global billed business on credit and charge cards, and we're first in global commercialpayments.Each of our businesses plays a different role for the company. For example, Loyalty Partner, our newbusiness, and Global Network Services, deliver customers at scale while our issuing businesses have muchhigher revenue per customer.Looking now at how our reporting segments are performing, you can see that return on average tangiblecapital is very healthy. If you consider this as a metric -- this metric a reasonable proxy for return onequity, all segments are performing well.Now how do our economic stack up against those of our principal competitors? To be sure, there are cardissuers who have more customers than we have. When you look at revenue per customer, among 6 ofthe top issuers, it's clear we're doing well. One of the factors behind our strong performance is that ouraverage spend per card member remains well above that of our competition. Amex card members spend 3to 4x more on average than do consumer spending on Visa or MasterCard.The data here we're showing is based on our competitors' annual reports and other public data. So it'snot a precise comparison of American Express versus the competition. Some of our competitors includenonissuing revenue. So for example, Bank of America's numbers include more than their credit cardrevenue. It includes revenue from personal loans, car loans, aircraft loans. And JPMorgan Chase includesrevenue from their merchant-acquiring business as well. But the comparison should be enough to give youa good insight into the value of our customers and the actual strength of our business.So to sum up, the business segments we operate in, we have very strong growth fundamentals and wehave a strong position in each of them. Our various lines of business bring different sources of value tothe franchise, large numbers of high-spending customers, strong revenue per customer and very goodreturns. These strong fundamentals in each of the businesses present opportunities for growth, and weintend to continue to invest to get that growth.Against that backdrop, I'd now like to go into more detail about how we plan to drive growth in each of ourmain business lines. I'll begin with a look at the environment and how our particular assets are deployedagainst these challenges. There are headwinds, we all know that. The macroeconomic environment isstill uncertain with the strong U.S. dollar and a potential increase in interest rates later this year. Thereis increased regulatory activity in many parts of the world. There certainly is intense competition, andtechnology is changing, is evolving, and as is consumer behavior. These challenges are real, but ourdifferentiated assets give us confidence we can continue to drive growth. Each one of these assets isimportant on its own. But together, we believe they form an advantage that sets us apart from ourcompetition and helps us grow despite the challenging environment. And of course, if the economy doesgrow faster, so will our growth prospects.Our strategy is simple, and it's one that we execute across each of our businesses. Our investmentslargely focus on 3 goals: first, to attract more new customers into the franchise; then get a greater shareof all our customers' wallets when they spend; and also to get a greater share of their lending when theyborrow. The foundation for these strategies is our global network of partners and our ongoing digitaltransformation initiatives.Each of these global strategies has a different investment profile. Our new customer acquisition strategyhas higher upfront investment costs, but it creates long-term relationships with very strong returns.Increasing share of spend among current customers carries lower marketing investments than acquiringnew customers, and we have proven marketing techniques that have very high returns.With our share of lend strategy, we incur higher capital requirements when we grow loans, but again, weget good returns. And this strategy complements our spend-centric model. It also helps us diversify our



revenue streams and deepen relationships with customers by meeting more of their borrowing needs. Ourinvestments in acquiring new customers is certainly paying off.On the left, you can see that our global investment in attracting new customers over the past year hasgrown by 12%. This was a key focus of our investments last year, and it's working. These new customersare expected to produce 16% growth in billed business, which is the measurement of that amount ofspending on an account in the first 12 months of membership.Acquisition of new customers is the single biggest investment the company makes and returns arevery good. The lifetime value to us of a card member acquired in 2014 is expected to be 4x the cost ofacquiring them, thus, the average 400% return on investment. Of course, this is an average and doesn'treflect the return on every dollar, but I think you get the point.Now let's shift to a view of the credit card issuing industry in the U.S. Here are the top 6 issuers. In termsof purchase volume, while Chase is growing faster at the moment, we continue to grow at a very goodrate and we remain the clear leader. And our revenue growth from lending shown on the chart on the rightis also performing well.As a result of these trends, we're growing revenue faster than the other 5 big issuers. We're very pleasedwith our performance, which reflects the strength of our spend-centric model in an uneven economicenvironment.I just showed you our global acquisition results, now let's focus on U.S. consumers. Let me remindyou that when we evaluate the success of our programs to acquire new customers, the important earlyindicator of profitability is the new billings they bring in during their first year with us. Over the past 2years, the expected billed business generated from newly acquired customers is up an average of 11%each year, and we had a particularly good year in 2014 when we increased our investments.We have multiple channels for acquiring new customers, including traditional ones like direct marketingand newer channels like digital. I can tell you that digital is now the largest channel we have, both in theU.S. and globally. On the left, you can see that first-year expected billings from new customers acquiredthrough all digital channels increased at a compound annual growth rate of 14% since 2012. And on theright, thanks in part to our Closed Loop and data-modeling capabilities, you can see the efficiency ofthis channel is improving as well. This measure looks at the level of spending we're getting for each $1invested in acquiring a new customer. So in 2014, every $1 we invested is expected to yield 24% morefirst-year spending than a $1 was expected to yield in 2012. We feel very good about this channel becauseit's growing and efficiency continues to improve, and we would expect these trends to continue.Clearly, bringing on new card members is critical to accelerating our billings growth. Much of ouracquisition is built on existing products, but we also launched an important new product that is expandingour customer base, the Amex EveryDay Card. This product broke new ground by attracting a new segmentthat didn't think we were very relevant to them. They are busy multi-taskers who like the ability to earnpoints by making everyday purchases and who value a no-fee credit card. It was launched just last Apriland is already a success, bringing in more than 10% of the new accounts in the U.S. last year. Many ofthem are people who like to revolve. They are twice as likely to carry balances versus other card membersin the U.S. And when existing card members added an EveryDay Card to their wallet, we saw an increasein their total spending with us.We're pleased with EveryDay's performance. It shows we can create growth by expanding our base toattract segments that not -- that have not been traditional American Express customers but who meet ourcredit standards. You can expect more of this fine-tuned segmentation in the coming years.And I'd like to take a broader look for a moment at the U.S. premium segment. Here, we're showingour estimated share of the premium spend of our card members and prospects alike relative to all otherissuers. We wanted you to see that despite some well-publicized efforts by some of our competitors togo after these valuable customers, American Express has maintained our leadership in U.S. premiumspending.Now I'll discuss some of the reasons behind our success. Our Platinum and Gold cards are 2 of theimportant products in our premium portfolio, and I'd like to make a couple of points. Over the past 2years, both products had maintained their average shares of customer wallets according to our estimates,and spend attrition has remained stable at a very low level.Our share of wallet with our Platinum Card members is 70%, and with Gold Card members, is at 55%.Spend attrition in both products has held stable over this time frame in the very low single digits. We'recontinuing to invest in these premium products to strengthen our relationship with higher spending card



members. For example, by mid-2015, we will have opened 19 Amex-branded airport lounges aroundworld and we'll be adding new benefits to the Gold Card soon. We believe all our premium customers willcontinue to be a profitable source of revenue for us and that there's plenty of room for growth as well.This chart illustrates what I mean. When we create offers and services for card members who are lessengaged, we can move them up the engagement scale to capture more of their spending.This will be a greater focus of our investments going forward. And we believe we have a very effectiveand well-developed assets that we deploy in encouraging card members to place more of their spendingwith us. Our Closed Loop data and our enhanced stability to analyze and use it has always provided uswith better information that we use to underwrite risk, reduce fraud and segment our customers to betterserve them. Now with the addition of Big Data and faster, better performing models, we have refined ourcustomer segmentation even further.The result is that we can offer relevant products and services at a customer level that have goodprobabilities of increasing spend per customer. These offers include, among numerous other techniques,upgrading to another product or adding supplemental cards for example. And we use the multiplechannels at our disposal to reach our customers to make these offers, from mobile to email, websites tocall centers. Increasing our share of wallet with existing customers is an important source of growth, andwe feel very confident this strategy will play a bigger role for us going forward.Now let's look at lending, another key avenue of growth. We have already started to accelerate growth inour lending business. And as you can see here, our loan book has been growing at an average of 6% since2012, outpacing the industry which grew at 2%. And we're growing faster while maintaining the lowestwrite-off rates in the industry. And we know there's room for growth. On the left, this chart shows that ourU.S. card members are only placing in estimated 1/3 of their credit card borrowing on Amex cards and 2/3of their credit card borrowing on competing cards.We're going after this opportunity by enhancing our lending value proposition with a broadened array oflending products and Lending On Charge features, by developing some innovative new products that willappeal to these premium customers, by doing this all in a way that's consistent with our brand attributesand at a appropriate level of risk, while producing good economic returns for us.Now I'd like to build on what Ken said about Costco for just a few more moments. I'll start with ourCostco co-brand customers. Over 70% of their spending is on the Amex network outside of the Costcowarehouses. And as you may know, this out-of-warehouse spending is much more profitable than thespending inside of Costco.I know many of you have questions about our plans for these customers. And I hope you understand,we're going to go into specific plans that we have to capture a meaningful amount of the non-Costcospending and loans, but I would make a few points. First, we fully intend to offer any customer whowants to remain an Amex customer the opportunity to do so. The fact that we went early to Costco forrenewal discussions has given us a full year now to plan for this transition. Second, our research over theyears has shown that these customers have a very high level of satisfaction with American Express. Andimportantly, many Costco co-brand card members also have another Amex card, so they already have themeans to continue spending in our network. And for those who don't, we want to ensure that we makeproducts available to them so they can keep spending with us.Many of these customers own small businesses, and as we'll discuss in a few minutes, we know how toeffectively serve their needs. And of course, we'll continue to explore new partnerships, co-brand andothers, that are true partnerships, that bring value to the customer and make economic sense for theshareholders at both sides of the equation.You probably also have questions about the sale of the portfolio. This is an important element in thetransition, for sure, but it's far too early to talk about it now. You'll be hearing more from us on thissubject whenever it's appropriate.So let me summarize the headlines on our U.S. consumer business. We have maintained our premiumposition in the U.S. and are growing revenue faster than any other large U.S. issuer. We've done thisby executing our 3 growth strategies I mentioned earlier, attracting new card members, getting moreincremental spend and getting more of their borrowing without compromising our risk standards. Despitea highly competitive environment, our results demonstrate we are performing well and more importantly,we have room for continued growth.Now let's look at OPEN, our business designed to serve small businesses in the U.S. As you can see on thechart, this is an important business for us and has been a very strong performer especially coming out of



the recession. Our billed business has more than doubled since 2005, and now represents nearly 20% ofglobal billings. And we're maintaining our leadership in a very competitive space. This chart gives you anidea of how the proportion of small business card spending in the U.S. that's on American Express smallbusiness products. It's clear, our strategy of tailoring products to the specific needs of small businessesand continuing to innovate has earned us a leading position in spending on these card products among ourcompetitors.Looking forward, we're even more excited about the potential for growth in the small business segment.It's estimated that nearly $5 trillion were spent by small businesses in the U.S. in 2014. And only about10% of that spending is on small business plastic. The rest is mostly on checks and other forms ofpayment.On the right, you can see some of the categories where there's more potential to move small businessspending onto American Express cards. We've had good success with this strategy, and there's more to bedone.Our strategies to accelerate growth in the small business sector are similar to our consumer strategy butwith a B2B focus. This is about attracting more businesses, capturing more of their spend, offering lendingin a selective way, and we are certainly pleased with the results. As you can see, our acquiring engine isperforming well. Over the past 2 years, billed business generated by newly acquired customers grew at acompounded growth rate of 10%. We have invested more in acquisition, and results are good, particularlyin 2014.The key to our success is our differentiated value proposition. On the left, you see that our small businesscard members spend 2.7x more on our small business cards than small business customers of ourcompetitors do on theirs. Much of this higher spending is driven by our value proposition, a key element ofwhich is getting the right merchant signed up to enable B2B spending. Many of those merchants had notpreviously accepted plastic at all. We also provide higher spend capacity via our charge cards and throughour service reps who are dedicated to small businesses, offering relevant rewards, giving them additionalvalue like our Small Business Saturday campaign, also play a role in growing their business and ours.So to recap small business. We're the leader in servicing small businesses in the U.S. Acquisition is drivingstrong growth. We have a proven approach to growing share of wallet by shifting spending from cash andchecks to our products. A new lending product constructs can help us grow this business. The opportunityhere is large and will be a focus for future investment as you might imagine.Next, I'll talk about our Merchant business. Our most important focus in this business this year is to getmore small merchants into the franchise. We talked with you last year about OptBlue, our new initiative toincrease our small merchant network by working through partners. We have signed partnership deals with14 acquirers in the U.S. and 11 of those have already launched. We're very pleased with the success ofthis program so far. In many of our key international markets like the U.K. and Mexico, we're also addingpartnerships with acquirers to expand our merchant network.Signing merchants where our card members want to shop helps drive billed business growth. And whenwe sign well-known mainstream names, it reinforces coverage perception among customers and prospectsalike. Here is just some of the larger merchants we've added in the past few years, Menards, DollarGeneral, In-N-Out Burger in the U.S., OXXO in Mexico, Ryanair in Europe, Tim Hortons in Canada.The number of merchant locations continues to increase, growing an average of 10% annually overthe past 2 years. In the U.S., our OptBlue program is delivering solid growth among the base of smallmerchants. Last year, when Anre Williams introduced the new program to you, he said that we expect toincrease our small merchant acquisition by 50% or more for the next several years starting in 2015. Andwhile it's early, we've signed more than 400,000 new small merchants at the end of last year, so we're offto a good start.We also have a lending strategy for merchants. While there are several players in this space, we offercompetitive products and we believe we can grow profitably over the next few years. Our Closed Loopmodel gives us a competitive advantage because we already have a lot of information on these merchants.This presents a growth opportunity and gives us another way to strengthen our relationship with them.We've seen a measurable difference in satisfaction levels among small merchants who participate in thisprogram versus those who don't. The Net Promoter Scores of those who do participate are significantlyhigher.So here's how it works. We lend qualified merchants working capital based on their historical billions --billings volume with us. Essentially, it's an acceleration of their future American Express transactions.



Since we went into this business, we've seen strong growth, particularly in 2014, where we funded nearly$1 billion in loans and ended the year with more than $500 million in outstandings. This is a new business.It's small, but it is growing. Now for comparison purposes, if you look at our performance versus one otherplayer in this field, OnDeck, which is a public company and they are a leading player in small businesslending, you can see that we ended the year with more outstandings than OnDeck, and they've been inthis business for more years than we have.So to sum up this section. We have a growing global merchant network. OptBlue in the U.S. is acceleratingnetwork growth among small merchants. And we're using similar strategies outside the U.S. We're signingkey merchants around the world, and our new Merchant financing business shows promise.So if you step back and you look at our relationships with small businesses in general, you see we havecomprehensive relationships that cut across OPEN and the merchant-acquiring business. This growingcollection of small businesses is a very valuable asset for this company.Now we'll shift gears to look at our international business, which is another source of continued growth.We've been operating in international markets for a very long time and have a well-established andrespected brand. I'll point out that our international markets are facing some headwinds, a stronger dollarand new EU legislation, that is starting to come into force this year, will present challenges. But we'vedealt with similar factors like these before, and we still feel confident about the prospects to grow ininternational.Here are some of the facts to help give you a picture of our international businesses. Our billings last yearreached almost $335 billion. We have approximately $57 million cards-in-force in 2014 outside of theU.S. We operate in more than 130 countries, and we have partnerships with over 150 card issuers andmerchant acquirers around the world.Our international markets fall into 2 categories, established and growth. Established markets like those onthe left drive most of our revenue and profits in international. We generally offer a full range of productsand service in these markets. The 7 we're showing here are the largest in international in terms ofrevenue.In growth markets like those on the right, we operate largely through network partnerships. These 4markets here will play an increasingly important role in our future growth.So how are we doing in international? Let's look at our billings growth in our priority markets, and you cansee that business is growing in all of them. And when we overlay industry billings in each market, we'regrowing faster than the industry in 8 of the 11 markets. And I'll point out that in Mexico, our growth isbehind the rate of total card billings, but that trend is reversing itself this year.I'll also point out, Canada's numbers only partially reflect the termination of our Costco co-brand. So weexpect a drop in volume in Canada this year.We're particularly pleased with Japan, the U.K., France, Italy, China, where we're growing at leastdouble the rate of card billings growth in those markets. Our global growth strategy is well at work ininternational, and we need to continue to invest in these businesses. We are still relatively small in manyof these markets and we need to achieve greater scale to capitalize on our full potential.In the established markets, our focus is on digital acquisition, enhancing our premium value propositions,driving lending growth and expanding small business products. In the growth markets where we operatepredominantly through franchise partners, we will continue to work to expand our partner network and tocapture a higher share of our partners' card businesses. I'll give you a quick look at how this is playing outin the established market and in the growth market.In the U.K., in established market, our billings growth was more than 3x that of the credit card segmentlast year. Much of that growth has come from digital acquisition, and in the U.K., over 90% of billings weacquire come through digital channels.The U.K. has also successfully launched lending products, and Barclays recently became a new networkpartner. We offer a full range of premium cards and promote small business spending with campaigns likeSmall Business Saturday in the U.K.China, on the other side, is a growth market where we operate through network relationships with 6 of thelargest Chinese banks. We have launched premium cards there to attract the growing number of affluentconsumers and are exploring more relationships.So to close on this section. We're growing faster than the credit card segment in most of our priorityinternational markets. In established markets, we have a full range of products, and our business modelcan be adjusted to respond to local conditions. We believe growth markets present a good long-term



opportunity and offer strong returns on capital. We have an extensive list of partnerships that play a vitalrole for us. We do recognize that Visa and MasterCard, however, have been growing faster than we haveoutside the U.S. But for us, international is an attractive growth opportunity and we plan to continueinvesting in these businesses and in these international markets.One of our newest businesses, loyalty coalition, has continued to grow. Let me remind you how the modeloperates. First, we assemble a group of industry-leading sponsors in the everyday spend categories.Second, we enrolled consumers called collectors, who earn and burn points on purchases at sponsors.And then the coalition captures valuable shopping data which is used to create personalized offers forcollectors. The sponsors in turn get measurable results and gain rich customer insight.American Express runs the platform and also does the marketing for which we get paid a fee for theresults we deliver to sponsors. This is what we call performance marketing. We entered this business in2011 when it operated in Germany, India and Poland through an acquisition then of a company calledLoyalty Partner. Since then, we've launched new loyalty coalitions in Mexico and Italy. And here, you cansee some of the sponsors in each of the programs. This is a whole new way for us to work with merchantswho see this as a great way to get mutual benefit from our loyalty platform.Today, our coalition program is in almost half the households in Germany, and we continue to grow inall these countries. We ended last year with more than 60 million active collectors in these internationalmarkets.Last week, we announced the formation of our latest coalition here in the U.S. called Plenti. On the rightside, you can see the coalition members. We think the time is right for this program in the U.S. We havea critical mass of powerful brands, and there will be more brands to come. With our strong brand andour long experience in rewards programs, we believe we have an excellent recipe for success. By thistime next year, we believe we will have more than 100 million active collectors in our loyalty coalitionsworldwide.Partnerships, as you just saw on loyalty coalition, are another underpinning of our growth strategy. Wehave almost 50 co-brands worldwide in our proprietary network and many more through bank partners.We're particularly proud of our co-brand partnerships with Delta, Starwood, British Air, Iberia and CathayPacific, which as Ken told you, all renewed early with American Express. And just last week, we announcedour newest co-brand in the U.S. with Charles Schwab.There are also over 150 bank partners driving growth in our network. Last year, we achieved some majormilestones with U.S. bank partners when we launched issuing deals with both Wells Fargo and U.S. Bank.And while we're still in the early phase of these partnerships, we're pleased with the progress so far.I just talked about our coalition and merchant-acquiring partners. Now the list of our digital partnerscontinue to grow. We're very proud of this global network of unique partners with American Express. And Ido expect this list to grow as well.Now let's move on to the last part of today's discussion with me, transforming the core. Digitaltransformation is a key element in the foundation of our growth strategy. Digital is proving to be asuccessful way to increase levels of engagement among our card members, particularly the younger,affluent, high-spending consumer. It also gives us new ways of doing marketing with merchants.Digital drives growth in a variety of related ways. Digital offers present new value to card members andnew marketing opportunities for merchants. Digital increases card members' use of Pay with Points andbrings new value to their Membership Reward program. We integrate Amex value into online commerceand into new devices and form factors as they evolve. And our brand attributes of trust and security area critical advantage for us in the digital environment. And what's more, digital servicing is proving tobe an excellent service experience for our card members, and as I noted, digital customer acquisition isexpanding.Let me give you some specific examples. Today, card members have received approximately $140 millionin savings through digital offers, and we have done digital marketing with hundreds of merchants. This hasproven to be a great way to drive more business to merchants and strengthen our relationship with them.New Pay with Point partners like Uber, McDonald's, New York taxis, combined with existing ones we havelike Amazon and in our own app, have extended our brand and provided another engagement channel forour customers, and it gives them more choices to get value from their reward points and we know ourcustomers value having options. Integrating seamlessly into one, looks like Apple Pay makes using ourcard easier and will drive more billings.



Security and service have always been hallmarks of American Express, and they're even more relevant inthe digital world. One of the applications of our Closed Loop data has been early detection and stoppingfraud. As a result, our fraud rates continue to be half that of Visa and MasterCard, and that creates a moresecure environment for consumers and merchants alike to engage in digital and now mobile commerce.As Ken explained, American Express is a platform that enables commerce, connecting buyers and sellers.And as partnerships are a key strength for us, they are also proving to be a very effective way to extendour platform via our proprietary technologies and APIs we have built over the past few years. We haveformed partnerships with companies we have never worked with before but which are part of our cardmembers' lives.We're transforming the core of our business. Our multi-pronged approach is increasing our relevance withdigitally savvy card members, who are, as a result, more engaged with us. This bodes well for growthas these card members will become the core of our franchise in the future. We are the world's largestintegrated payments platform. We processed $1 trillion in volume last year, and we plan to keep extendingthat platform even further through connections with some of the world's largest digital brands.And I'll close now with a few thoughts. Despite the challenges I mentioned earlier, we are confident inour growth plans. Our opportunities and strength far outweigh the challenges we're facing. We havemaintained our leadership position with premium consumers, offering benefits and services best suited totheir needs and preferences. Our U.S. consumer business continues to offer strong growth opportunities.Small businesses have been an important part of our success and will, we believe, play an even larger rolein fueling future growth. Our international businesses are growing faster than total credit card spendingin their respective markets in most cases, and they will continue to be a focus for investment for us. Ourmerchant network is growing, and loyalty coalition businesses are off to a very good start and promises tobe another profitable source of revenue for the company.So I am confident about the future growth potential. Innovation is creating new ways to engage customersand grow revenue. Our enviable portfolio of businesses, our premium customer base, our Closed Loopplatforms, that bring together buyers and sellers, are clearly significant advantages for us.I hope I've demonstrated that we can get good returns from our investments, and we do, and thatwe have flexibility in how and where we invest at a time of rapid change in the industry. And we havea multitude of choices. We optimize our investment decisions based on what will bring sustainableshareholder value over the moderate to long term. Our confidence is founded in our experience, our trackrecord of success, the assets we deploy and the opportunities that we see ahead of us in each of ourbusinesses. And as I look around at our competitors, both traditional and new, I believe we have a greathand to play. So thank you very much.Now I'd like to turn it over to Steve Squeri.Stephen J. SqueriGroup President of Global Corporate Services

Thanks, Ed, and good afternoon, everybody. I'm going to cover 2 topics today. First, I'll talk about thegrowth opportunities in corporate payments, and second, I'll discuss our operating expense objectives forthe company, which as Ken mentioned, continue to significantly add to our EPS growth.Let me start by giving you a little background about our corporate payments business. We invented thecorporate card and began issuing them nearly 50 years ago. Today, we are the industry leader, and GlobalCorporate payments represents 18% of the company's total charge volume. 63% of the Fortune Global500, including many of the biggest names in the business world, are American Express clients. We havenearly 7 million cards-in-force, almost 200,000 clients, and over 1/3 of our spend volume comes frominternational.The average spend per card is the highest of all our card products, with 52% of spend in T&E, which istwice the average of the rest of the American Express card portfolio. This spend helps drive merchantacceptance and demonstrates our value story by delivering higher-spending card members to ourmerchants.We've been quite successful growing our corporate payments business. In fact, billed business has morethan doubled since 2005 by growing at a CAGR of 9%.A big part of our growth story is our demonstrated ability to bring new clients into the franchise. Spendfrom new signings has increased by a CAGR of 14% since 2009. Our charge volume is becomingincreasingly more diversified as well. Our ability to provide more control around spending is why more ofour clients are choosing to put their B2B spending on our products. B2B spending has grown at a CAGR of



19% since 2009. This diversification is important because it represents a great opportunity to significantlyexpand our relationships with clients, which aids in client retention.We believe we are well positioned to sustain growth in this business globally because of our unique assets.We have a global footprint that gives us scale. We issue cards in over 200 countries and territories aroundthe world and have a local on-the-ground presence in many of them to serve clients where they dobusiness. We have a track record of innovation. We have a diverse product set, giving us the ability tomeet a large portion of our clients' total expense management needs, from payment products for businesstravelers and procurement managers, to B2B purchasing solutions to consulting services.American Express' unique Closed Loop provides our clients with actionable insights through our rich data,enabling them to make better decisions.Finally, our award-winning American Express customer service, powered by relationship care, gives ourclients and their employees peace of mind wherever they are in the world.While we already have a strong position in this business, the opportunity for further growth is quite large.According to McKinsey, corporate payments is the fastest-growing card segment in the payments industryglobally. Ed spoke earlier about the success we've had with small businesses. But that's only 1 piece of ouroverall commercial payments business. We are, in fact, the leading issuer across commercial segmentson a global basis. And we can provide solutions to businesses at any point in their life cycle, from theirbeginning as a small business, up to becoming a global enterprise. Middle market is the largest segment ofour corporate business globally, and the potential for future growth is significant.We are leveraging our commercial platform to help mid-sized companies grow. Let's look at our middlemarket growth trends. Since 2011, middle market billed business has grown at a 10% CAGR and revenueshave grown at a 9% CAGR. Not only is this our fastest-growing corporate segment, it is also the mostprofitable. Variable margins in our middle market business are 33% higher than the margins in our largeand global account segments.Growth in our middle-market business has been strong, and given the scale of spending done by thissegment globally, there's a lot more opportunity to go after. Over the past year, we've launched a renewedstrategy to accelerate growth, focusing on leveraging our unique assets to achieve 3 goals: First, toacquire new clients; second, to increase share of spend with current clients; and third, to continue toinnovate to enhance our value propositions for both new and existing clients.The universe of middle-market companies around the world is very large and growing rapidly, so in termsof acquiring new clients, we're targeting our efforts on those geographies that represent the highestpotential for growth, and we're increasing our acquisition efforts in those areas. For example, we'resignificantly increasing our sales resources in the U.K., Germany, Mexico and Japan.Given that we have a global footprint and large scale, there is significant opportunity to further penetrateour client base. To increase share of spend with current clients, we're cross-selling additional products andservices, expanding spend in B2B categories and we're using our close loop capabilities to provide insightsthat help our clients make better management decisions.In the U.S., we have our largest middle-market client base. We're using our big data capabilities to identifythose clients with the highest spend potential and have reallocated resources to increase share of spend.Finally, we are continuing our track record of innovation by investing in the development of new productsand services that are particularly relevant to both existing and new middle-market clients. In Germany,we've introduced the very successful e-invoicing product that can be used as a tax receipt. In Italy,we have launched vPayment, a single-use virtual product that can be used to improve reconciliationand control. And in Japan, where high-speed trains are the predominant form of domestic travel, we'velaunched a co-branded corporate card with Central Japan Railway Company.Our early results in pursuing this strategy are very encouraging. To give you a sense of our progress,in 2014, our middle-market build business grew 12% globally and proprietary markets grew 26% inItaly, 22% in Japan, 21% in the U.K., 18% in Mexico and 11% in the U.S., where we are building off asubstantial base. Moving forward, we'll accelerate this middle-market strategy by focusing on the highestpotential geographies globally.In summary, commercial payments is forecasted to be the fastest-growing segment in the paymentsindustry. We are the leader in corporate payments globally. Middle-market is our most profitable andlargest global growth opportunity. We are increasing investments to further enhance our global corporatepayments platform so we can increase share of spend with our current clients and attract new ones.



That completes our growth strategy discussion, both the businesses that Ed talked about and the businessthat I run. And now what I'd like to do is turn to our plans for sustaining operating expense leverage.Ken spoke earlier about the impact OpEx control has had an EPS growth. In fact, in 2014, 700 basis pointsof our 2-year compounded annual EPS growth rate was driven by OpEx control. I will now review howwe've created this operating expense leverage to help drive EPS growth.Let's look at the operating expenses by first taking a step back to review what we've done over the pastfew years. In February of 2012, we told you that operating expense growth would be less than revenuegrowth for the following 2 to 3 years. At the following years financial community meeting in February of2013, we refined that statement, committing to annual operating expense growth at less than 3% for2013 and for 2014.As you can see, we more than met the targets we set in 2012, 2013 and 2014. While we've held adjustedOpEx flat over the past 2 years, there is more to the story. As not all OpEx is the same, in fact, when wedig deeper, you'll see a fundamental shift in operating expenditures. As you know, we completed the jointventure of our global business travel unit in the second quarter of last year, so before we look closer at theOpEx performance over the past 3 years, let's exclude GBT expenses to establish a baseline going forward.In doing this, it is important to note that the GBT's operating expense performance was better thanAmex's OpEx performance overall.Overall, adjusted operating expenses, excluding GBT, grew at a CAGR of 0.6% since 2011. I'll break outthe operating expense detail, excluding GBT, into the same 4 buckets I showed with you in February 2012and February 2013.I'll start with global services OpEx. This category includes all nondevelopment technology costs as well ascosts associated with customer service, credit and collections, global security and support functions likeprocurement and real estate. Adjusted expenses in global services have gone down by a CAGR of 2.2%and are 6.5% lower than 2011.Adjusted all other OpEx, which consists of staff and support groups as well as business unit OpEx,decreased at a CAGR of 2% and is 6% lower than 2011. Part of the decrease in this category was drivenby the sale of our publishing business in 2013.Together, global services and other OpEx comprise what we call run the business operating expenses.These adjusted expenses accounted for 71% of total adjusted OpEx in 2011, dropping to 66% in 2014.Our reengineering efforts over the past 3 years have enabled us to reduce our run the business cost whileabsorbing higher business volumes and salary increases.Let's now look at 1 of our 2 investment OpEx buckets, technology development, which covers expensesrelated to building and enhancing platforms and developing products and services. Since 2011, ouradjusted technology development spending has grown by a CAGR of 3.1%, as dollars, which may havebeen targeted to traditional marketing and promotion, have moved to technology. Going forward, weexpect to increase our reliance on technology development. However, we expect overall technologydevelopment spending to increase only modestly as our platform focus and delivery transformation effortsto help us become more efficient will enable us to keep cost lower, and I'll speak to these initiatives in abit.Now let's look at adjusted investment OpEx, which has grown by a CAGR of 9.5%. This increase reflectsdeliberate decisions we've made in several areas. We've invested in new business initiatives such asServe and our loyalty coalition business. We've increased investments related to acquiring and retainingour customers, including sales force and client management resources. We have made infrastructureinvestments, including control and compliance, global banking, operational risk and Basel. Together,technology development spending and investment OpEx spending make up total investment OpEx. Theseadjusted expenses accounted for 29% of total adjusted OpEx in 2011, increasing to 34% in 2014.Now that we've categorized our operating expenses into 2 categories, run the business OpEx and totalinvestment OpEx, let's take a look at how these components have behaved since 2011.Since 2011, we have decreased our overall run the business OpEx by 6% while increasing totalinvestment OpEx by 22%. As you can clearly see, we have not taken a one-size-fits-all approach to OpExmanagement. The sustainable leverage we've creative in reducing run the business OpEx has enabled usto increase investment OpEx while still meeting our overall invest -- expense targets.Let's dig a little deeper into the dynamics of total investment OpEx. The first dynamic is the ongoingdigitization of our business, which, as I mentioned earlier, can cause us to shift investment dollars fromtraditional marketing and promotion into technology development. The second dynamic is that investment



OpEx has a life cycle to it. It starts with initial spending and moves to a quick and steep ramp up beforeleveling off. For example, while we've significantly ramped up spending to launch our Serve and loyaltycoalition businesses as well as strengthening control and compliance, global banking, operational risk andBasel, we expect this spending to level off. We can then replace their significant growth rates with newinvestment opportunities that are ready to ramp up.As Ken mentioned earlier, given the business challenges we face, we need to continue our sharp focus oncontaining operating expenses while at the same time, continuing to invest in growing our businesses.With that in mind, today, we're extending our commitment to keep adjusted operating expense growthbelow 3% in 2015, with the intent of continuing to grow investment OpEx while reducing OpEx associatedwith running the business. This target does not take into consideration any restructuring charge we maytake.This leads to 2 key questions. First, can we continue to create sustainable leverage from operatingexpenses to fund investments for growth? And second, at the same time, can we also continue to haveOpEx control drive EPS growth? The answer to both questions is yes. There are 2 ways we can do this.First, given the life cycle investment -- given the life cycle of investment OpEx, we have an opportunity toreposition some of our investment OpEx to new initiatives. Second, we can continue to generate savingsfrom run the business OpEx. Both of these will result in sustainable leverage from operating expenses thatwill enable us to continue to invest in our business and drive EPS growth.To achieve sustainable OpEx leverage while creating platforms for growth across the company, we've takena 5-step[Audio Gap]Becoming more global in nature and enables greater speed to market. And fourth, we've evolved withsuperior service means, both philosophically and by building capabilities to serve our customers where andhow they want to be served. Going forward, we're looking to use our service platform to drive growth. Andfinally, we'll continue to empower our employees with the tools, processes and facilities that make it easierfor them to do their jobs.This 5-step approach has enabled us to reduce costs, absorb incremental business volumes and build newcapabilities while enhancing customer satisfaction. Going forward, we will continue to deploy these tacticsacross the company.Let's start with the internal mindset. To date, we made great progress in identifying and eliminating wastefrom our processes. By waste, we mean expense or effort resulting from unnecessary demand, overcustomization, duplication, rework and the underutilization of resources. Here are just a few examplessince 2010. We've reduced the American Express supplier base by 75%, creating economies of scale aswell as improving our control environment. We've decommission an average of 1,500 servers a year, whilealso reducing average image cost by 29%. And we've taken actions to optimize our use of real estate byincreasing workstation capacity in our facilities by 38%.Across the enterprise, we are taking a more holistic end-to-end view of our business processes fromhow we design and market products to how we service them, in order to better identify opportunities tomake them more efficient and more effective. Let me talk about 2 initiatives underway, which are primeexamples of this end-to-end mindset.The first is reducing unnecessary call volume. We receive millions of calls from customers every year, andwhile we are delighted to speak with each and every individual, we know that in this digital age, manyof our customers would rather answer -- have their questions answered and resolve their issues withouthaving to make a phone call. So in approaching this from an end-to-end perspective, we're looking at thedrivers behind the calls to determine how best to reduce and redirect as many calls as possible.The second companywide end-to-end initiative currently underway is increasing customer enrollment inelectronic statements. Over the last 4 years, the number of customers who receive electronic statementshas increased by 9 percentage points. But we still have a big opportunity to drive adoption higher, whichwould significantly reduce paper and postage cost. Making improvements in these 2 areas would providesignificant operating leverage for the company. In fact, we estimate that for every 10% reduction in paperstatements and calls handled by our customer care professionals, we could save over $70 million.We've created global networks by consolidating organizations, globalizing key processes, optimizing ourfootprint and enhancing capabilities.

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