AXP
#Finishing writing notes, <UNK>, that was a lot of questions.
I want to make sure I get them.
No, all really good questions.
<UNK>w do we define growth.
I guess what I would tell you is that our view of absolute levels of what we believe we can achieve in 2016 has not changed at all since February.
So nothing that we have seen that I just talked about in response to <UNK>'s question are things that we don't think are manageable within all of the levers we have to pull, thinking about 2016.
Second, when you think about Costco, I would remind you that when we first, back on February 12, provided our three-year financial outlook we said we are confident that we can achieve the 2016 outlook we then provided, which was a return to positive growth, regardless of what happened with the Costco portfolio.
So we still don't know what the outcome is going to be around the portfolio.
When we do, we will talk about it publicly quickly.
And when we do, that will allow us, <UNK>, to be more precise, because there's a lot there's quite a range of outcomes around the portfolio and until we know those, it is tough to give you a number.
But what I want to come back to is, the point I'm trying to make is that the underlying performance [is back] to a positive earnings performance in 2015.
Sorry, we just lost our lights, here in the dark.
If you think about what the drivers are next year, just think about our financial framework.
So the co-brand headwinds that we have had all of 2015, 5% was the headwind this quarter, drop away as you get into 2016.
FX, particularly this quarter, is a big headwind.
I suppose the dollar could move another 10% or 20% over the course of the next four quarters, and if it does, that will be a headwind for us.
But if it doesn't, you should have an easier compare next year from an FX perspective.
You brought up costs, you are correct that in fact when you look at some of the actions that are behind the restructuring charge we took at the end of 2014, many of those savings won't really get to full-year run rate until you get to 2016.
I'd also remind you that we said all along that we will be mindful as we think about volume trends and Costco going away, about what further steps we can take to make other improvements in our cost structure.
So all of those things, <UNK> to conclude, combine to say my view of what this Company can generate in 2016, is really the same today as it was in February, when we first provided the guidance.
And my view of 2015, is we really have come in within the envelope that we set for ourselves, leaving ourselves enough flexibility to make the right decisions to run the Company for the long-term.
You might need to help me out, <UNK>.
I'm not sure ---+
This may be one we need to take off-line.
I'm looking around at my colleagues here, and we are not quite sure, but that's get to the bottom of it.
Thanks, <UNK>.
A couple of comments.
We are continually looking at all of the choices we have about where we invest our management and financial resources in order to produce the best outcome for our shareholders.
And we continually learn from things we try, we continually need to react to the evolving competitive and regulatory environment in which we operate.
So one of the things that we have done over the last quarter is made some different decisions about product strategies and resource allocation around a number of the businesses and part of enterprise growth.
As you do that, from a pure accounting perspective, the reality in a Company like ours where you are developing a lot of software, and where you capitalize a fair amount of that software, is you sometimes end up with things on the balance sheet that relate to products that you are deemphasizing or not going to continue with.
One of the examples I did call out in my remarks as we had planned to launch the Serve product in Mexico.
That may still be a good idea at some point, but we decided, looking around at all of our other opportunities, that is not something we want to further invest in right now, and that does drive pulling some assets off the balance sheet.
So all of that leads you to, this is certainly not a recurring event, this is a one-time sort of charge that is reflective of decisions that were made this quarter.
I would just make the observation that I tried to be pretty clear in my remarks that in the current challenging competitive regulatory and economic environment, you will see us continually making changes to the organization, and to where we choose to put resources.
And that may from time to time drive other kinds of one-time charges or contingencies.
That won't stop us from doing things that we think are in the best interests of long-term value creation for our shareholders.
I suppose it depends, <UNK>, on exactly how you want to define one-time item.
I'm just trying to be clear on what the $91 million was.
No, we have always said going back to when we first provided the outlook on February 12, that our comment that we will return to positive EPS growth in 2016 was really agnostic on the question of what happens with Costco, and did not include any particular net gain on the Costco sale.
<UNK>, I try never to complain.
I try to focus on what we can do better, and there's always plenty of things we can do better on.
Look, it is a challenging competitive environment, and we would not dispute that in any way, and I think I started my earlier comments by saying it is a pretty challenging environment.
All that said, our goal at American Express is to take the many fairly unique strengths that we have and find ways to really create great offerings for our Card Members and our merchants, in ways that are not necessarily easily replicable.
The strength of our brand is something I think nobody else can really match.
The breadth of our product line, which allows us to offer very targeted value propositions, because everybody who's listening to this call will have a different range of things that they value most, and we think the breadth of our product line really allows us to hone in on the many different demographic groups and targets that we have who we think we can provide value for.
Our reputation for service, our global reach, the size and scale of our proprietary rewards program, Membership Rewards.
Some of the data and analytics we get from the closed loop, and the way that allows us to be very targeted in our marketing and very targeted in how we work with our merchants, and how we put together offers.
Those are all the kinds of things that we try very hard to leverage so that as we think about what is undoubtedly a very competitive environment, we are not just out there saying, boy, can we offer 10 basis points more on a cash back card than anybody else because that's going to be the whole determinant.
You've heard me say on these calls before, there will always be some portion of Card Members who actually do want to go to a website, pop the math in and say what card is going to produce the best math for me.
And we are going to have a tougher time using some of our differentiated strengths for that segment.
In our experience, that is still a minority of customers.
And we think that the breadth of our product line and the many strengths we have allow us to compete in ways that produce better outcomes for our shareholders.
<UNK>, I'd make a few points.
We see many opportunities to grow our business and to grow our Card Member base across all of our consumer business portfolios around the globe.
One of the reasons we concluded earlier this year that in the long run, we had better opportunities than going forward with what we think it would have taken to maintain our relationship with Costco, we based it on the view that we have many growth opportunities.
And that's what we are pursuing, and we are really pleased that if you just look at the new cards acquired numbers this quarter, comes from every part of our Company.
Certainly one of the avenues for growth is there's some portion of Costco card members who have strong ties to American Express, and we would love to work at capturing the spend and lend to those people subject to, as I have also said many times, the normal provisions you would expect in most of these kinds of contracts, that put a lot of limitations around how you specifically market to the Costco card members.
So we are very diligent about making sure we adhere to the spirit and the letter of that contract, so our marketing efforts are really about how do we just in general market to all the many groups across the US and across the globe that we think are attractive candidates to be Card Members of American Express.
And certainly as we do that, some portion of the Costco card members are liable to see those efforts, and likely to be interested in pursuing a relationship with American Express in another way.
I want to be a little careful about being specific, because when you have the breadth of products we do from consumer to business to corporations to lend products to charge card products, the answer is a little different for every one of those types of products.
As a really general matter though, look, as I said in my remarks, while we are really pleased that we acquired 2.3 million new Card Members this quarter, there's a process of getting them to understand the product they have, beginning to build spend, beginning to build a little bit of loyalty to American Express.
For those who are going to engage in borrowing behavior, that balance then has to build.
As a general matter, I really think of getting to the point where you are having meaningful bottom line contribution from new cards you acquire as being something that happens in the second and third year.
You will see other metrics show up much more quickly, but at the end of the day, we are very focused on what it takes to get people to profitability.
Those are all actually really good questions, <UNK>, with probably answers that are not as precise as any of us would like.
I would make a couple of points.
Our transaction growth has been, to make a general statement, particularly consistent over the last couple years, at around that 7% level.
What is quite striking in recent quarters is way the average transaction size has really ---+ the trend line has really changed.
Certainly some of the things we do about our steady efforts to drive more everyday spend, you would expect over a long period of time at a gradual rate to have an impact here.
But what you really see is white different and is a little bit more tied in timing to gas prices going down, to some of the challenges the airlines have had on the revenue side.
And in fact, we see the average transaction size coming down across other categories like retail, as well.
So I have to tell you at this point, we are still spending a lot of time thinking ourselves about just what it all means.
I think there's probably a little bit of influence from some of the things we're doing internally, but I think there's a lot of influence from a variety of external factors, and just what's going on in the overall very low inflation in so many categories frankly, negative inflation in the economy that we are now doing business in.
That's a good question, <UNK>.
I think you have to keep this in perspective.
If you look overall at American Express, net interest income is, depending on how you want to measure it, 15% to 20% of our P&L.
That's unlike any of our competitors, where the numbers are 50% to 90%.
We have a very spend-centric collection of businesses.
When the Costco loan portfolio goes away in 2016 that's 20% of the loan portfolio that drives that net interest income.
So we have, in our view, a long ways to go with the next few years, just to stay in place, in terms of the current contribution that lend makes to the overall economics of the Company.
That's why we do, in the US consumer business, and probably some of our other businesses, see a little bit of opportunity to continue on the path we have been on for a few years, which is, when you look at our own customers, we under-index on our share, getting our share of their borrowing behavior, versus the share of their spend behavior we get.
That to us is just an opportunity too obvious for us not to continually work at it and seize, and that's really what has allowed us for many quarters now to steadily grow our loan balances above where the industry was growing them in the US.
You hear us, over and over again, say but we are comfortable that we're doing that without materially changing the risk profile of the Company.
So that's really all you see going on here.
As I said, I think we will be quite some time, once the Costco loan portfolio goes away, before we even get back to where we are today, but the exciting thing to us is we should see a long ramp that should allow us to continue to grow loans in the US a little bit faster than the industry, while not changing the risk profile of the Company.
Good question, <UNK>.
We have said for a while that when you look at the EU regulation, which to remind everyone is really targeted at Visa/MasterCard and will cap interchange rates, that will put some downward pressure on our discount rates, and frankly you see that downward pressure, even this year.
Despite that, we're actually pretty pleased with our performance in Europe this year.
And I would point out to you that we have long had, in Europe, in most countries, varies by country, but in most countries, a significant premium to MasterCard and Visa, so that's not a new phenomenon.
What the interchange regulation will do is put downward pressure on us, not go to the point where the interchange is capped, but put pressure on us to move it down, probably to keep the differential more similar.
So I will have to see how this goes.
I will tell you that sitting here today, we're pretty pleased by this year's results, and you already see changes in the competitive environment as a number of issuers have announced pullbacks on the products or rewards they are able to offer.
And like all of these things, our challenge and opportunity is to try to find ways to mitigate the obvious downside, which is it will put some downward pressure on our discount rates in Europe, but try to offset that with saying, but what opportunities does that create to perhaps do some things that others can't.
And at the end of the day I think what's the European regulations are really seeking is a competitive, a more competitive European environment.
Our market shares in most of those countries are quite small, so we'd love to be more competitive and find ways to grow over time, but we will have to see.
So let me thank you all for joining tonight's call, and <UNK>, do you want to make a few last comments.
