American Express Co at Sanford C Bernstein Strategic Decisions Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brian Foran - Autonomous Research - Analyst : So you've had great success growing the top line, 25% revenue growth in '22 guidance for 15% to 17% in '23 and an aspiration of in excess of 10% in '24 and beyond. Maybe to start, when you look at the strategies you have in place, the business segments you're investing in, what are the top 2 or 3 growth areas you're most excited about right now?

Question: Brian Foran - Autonomous Research - Analyst : Maybe I could dig in a little bit. I had it later on my list, but this younger customer idea, I think the numbers as of 1Q were [US Consumer] (added by company after the call) Millennial and Gen Z up 28% year-on-year on spend. Gen X plus 14% and Baby Boomers plus 8%. When you think through what's changed, what you're getting right, what is the difference? How is Amex resonating with younger customers in a way that it didn't maybe historically?

Question: Brian Foran - Autonomous Research - Analyst : And maybe sticking with that, and I think you referred to it a few times, is the flywheel for growth. People will pay $695 if they can get $1,000 of value or whatever the exact number is?

Question: Brian Foran - Autonomous Research - Analyst : $1,400, sorry. As you think about the success it's had, it's spread some imitation in the market. So how do you think about continuing to drive that strategy forward? What's the next iteration to keep that flywheel a step ahead of the company?

Question: Brian Foran - Autonomous Research - Analyst : So we talked about the opportunities, the growth, we're kind of in a weird point in the cycle where things are going pretty well, but we're all kind of scared of our shadow with the risk. The ever-present risk of recession, reregulation of the banks, competition in cards, fintech and disruption risk. When I talk to investors, there's no shortage of boogeyman to worry about around the corner. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 01, 2023 / 3:00PM, AXP.N - American Express Co at Sanford C Bernstein Strategic Decisions Conference

Question: Brian Foran - Autonomous Research - Analyst : Just end it now. What actually is on your list of risks, what are you watching most closely and how are you managing that?

Question: Brian Foran - Autonomous Research - Analyst : So maybe digging in a little bit more on this idea of the high-end consumer, white-collar layoff cycle, T&E is going to peak out, they'll pull back. And there's been mixed data points, right? I mean a lot of people have looked at some data BofA has put out on their customer base, showing that, but then -- it doesn't seem like it's happening in some of the other books. American Airlines was just here yesterday, it's the best Memorial Day weekend ever. Maybe talk about the cross currents you're seeing and what you're watching for? Will this white-collar layoff, high-end consumer pullback emerge? Or are you more optimistic they're resilient?

Question: Brian Foran - Autonomous Research - Analyst : And maybe not to jump the gun to the credit discussion, but I do get a lot of investor angst about Small Business loan growth in particular. It's a spot that's been tricky, historically, for some of your competitors. Small Business is arguably a little bit more sensitive to a recession. When you look through your book, what gives you confidence that the growth you're producing is good growth, resilient through a downturn?

Question: Brian Foran - Autonomous Research - Analyst : So it's easy to kind of have it be a U.S. exclusive discussion because that is the biggest part of your business. But you mentioned International on your top list of things you're excited about. I think it's about 1/5 of the business now. It's growing almost 30% year-over-year, so much faster than the total. What are the drivers and strategies of that growth right now? And how do you think about a sustainable growth rate over the medium term?

Question: Brian Foran - Autonomous Research - Analyst : So maybe let's touch on rewards, always a topic of interest. What are you seeing in terms of competition? Where does it feel controlled and rational, anywhere where rewards is getting over its skis?

Question: Brian Foran - Autonomous Research - Analyst : Well, as you know, you did effectively weed out gamers because I was blocked out of the Delta Amex for 7 years. I just got reapproved for the first time, since 2015.

Question: Brian Foran - Autonomous Research - Analyst : For multiple reasons.

Question: Brian Foran - Autonomous Research - Analyst : So on OpEx, a lot of economies of scale in your business model over time, but OpEx did come in a little higher than expected in 1Q for a lot of investors. You reiterated the full year outlook. So I guess in the near term, maybe talk to your confidence in the guide for the rest of the year, which implies a decel in the growth rate. And then further out, how do you think about the ultimate potential for OpEx leverage in the business?

Question: Brian Foran - Autonomous Research - Analyst : Maybe turning to lending. You touched on Small Business lending, why you're comfortable there. On the Consumer side, I think, its about 21% year-over-year right now. But a common investor question is, are you and some of your peers who are late cycle. We got this mythical recession REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 01, 2023 / 3:00PM, AXP.N - American Express Co at Sanford C Bernstein Strategic Decisions Conference around the corner. Is it too much loan growth and levering up the consumer too much too late in the cycle. So maybe just talk through the puts and takes there and what we would say in response?

Question: Brian Foran - Autonomous Research - Analyst : Maybe sticking with credit, and I should have mentioned at the outset, we have this pigeon hole system. So please feel free to submit a question, it will pop up on the little screen here.

Question: Brian Foran - Autonomous Research - Analyst : I don't know much about it either, but hopefully, it works. 3 people have submitted a question, and they have, in fact, popped up here, up four. There we go, in real-time marketing. So, I guess, one question on credit is there's a debate in the industry right now. Are we just normalizing back to 2019 levels? Or do we go higher? Chase recently put out the guidance that they see '25 being, I don't know, 40, 50 bps higher than 2019. How do you think about that? I should say at the outset, I think it's often underappreciated. Your delinquencies are still about 20% below 2019. The industry as a whole is back to 2019 already. So you've outperformed so far. But when you look a little further out, set aside recession risk, is the new normal for card something like it was in the 5 years pre-pandemic? Or is it something higher than that because that was post GFC deleveraging unusual period?

Question: Brian Foran - Autonomous Research - Analyst : Maybe another one on credit here. Any significant differences in the mix of your loans and receivables portfolio relative to your billed business, things like Millennial and Gen Z, Small Business, anywhere you would highlight a significant difference on the loan book?

Question: Brian Foran - Autonomous Research - Analyst : Maybe just rounding out the credit discussion, always your favorite topic, reserves. The CECL Methodology. Where's Jeff, raise your hand, get him a mic. No. I do get some pushback this year specifically, not that this year is really strategic as the conference is named. But on the $11 to $11.40 EPS range this year, the risk that you and others will have to build reserves, the focus on day 1 CECL versus current reserves and maybe being lower on that ratio than peers. How do you think about that reserve building risk? I think on the call, you deemed it modest builds through the course of this year. But for people, who are worried about reserve builds, derailing the EPS guide this year specifically, what would you say?

Question: Brian Foran - Autonomous Research - Analyst : Maybe turning to capital. you've got a very high capital ratio, almost 11%. You generate a ton of capital given your ROE profile. So it's an enviable position to be in. Against that, we've got the alphabet soup of potential regulatory changes, TLAC, Basel III ops risk, stress testing coming up. How do you think about capital return over the balance of this year? And when you look at that reregulation cycle, anything that stands out is worrisome or things that Amex would need to adapt to.

Question: Brian Foran - Autonomous Research - Analyst : There was a little bit of light in the middle. This is what happen when you get the bank analyst. You should request the payments analyst next year...

Question: Brian Foran - Autonomous Research - Analyst : Okay. I was going to ask on funding, but you already touched on it. I just -- since I've written these questions, you've raised my deposit rate twice...

Question: Brian Foran - Autonomous Research - Analyst : I'd like to -- you let me in the deposit side...

Question: Brian Foran - Autonomous Research - Analyst : We've probably got time for 2 or 3 more here. One I wanted to touch on -- you've touched on the flywheel, rewards, Card Member services expense all separately. But if you kind of roll them together this concept, you've started presenting the variable customer engagement expense as a whole and as a percentage of revenue, I think it was about 37% pre-pandemic, 41% this year, on track to be 43%. I'll say at the outset, it's a good problem to have. It's customer engagement expenses. It's showing the flywheel is working. But how do you think about that 43% over time? Does it just go up as long as it's working? Is there any natural limit. How should we think about 5 years out?

Question: Brian Foran - Autonomous Research - Analyst : Maybe touch a little bit back to card fees. It's been a great growth story for you, 20% year-over-year. Obviously, you'd mentioned $1,400 of value for $695 on the Platinum card. There's always been this question of what is the kind of profit margin associated with the card fee growth. Can that improve over time? Any thoughts on how we should think about that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 01, 2023 / 3:00PM, AXP.N - American Express Co at Sanford C Bernstein Strategic Decisions Conference

Question: Brian Foran - Autonomous Research - Analyst : So from the audience, what are you seeing in fraud trends, the whole concept of friendly fraud, is that becoming a meaningful issue?

Question: Brian Foran - Autonomous Research - Analyst : So maybe one last one here. How do you think about the pros and cons of being in the lending business. The market is putting an all-time spread between the higher value on your network peers versus the lower PE value on your issuing peers.

Question: Brian Foran - Autonomous Research - Analyst : Reserve builds don't count.

Question: Brian Foran - Autonomous Research - Analyst : That's great. Well, I think we're just on time here. So I want to thank you for joining and thank everyone in the audience.