American Express Annual Report 2000: Our Challenges


		CONSOLIDATED HIGHLIGHTS

		FINANCIAL RESULTS

		BUSINESS RESULTS

		WORKPLACE QUALITY

		BOARD CHANGES

		OUR CHALLENGES FOR 2001

		A FOUNDATION FOR FUTURE GROWTH

		TRIBUTE TO HARVEY GOLUB

		PROXY STATEMENT

OUR CHALLENGES FOR 2001

As we noted earlier, the economic environment going into 2001 is not as favorable as it has been in recent years. AEFA, in particular, will face challenges carrying over from the fourth quarter of 2000 into 2001, due to external and internal factors such as lower equity market levels, the lagging impact of reduced interest rates, higher default rates in the high-yield sector, and greater relative platform-related compensation levels for advisors.

While 2001 may be more challenging for American Express, it will also prove to be more difficult for our competitors. That said, we do not intend to take a defensive posture. We will continue to invest in key business priorities to maintain our momentum.

We have implemented a timely, detailed process to monitor both external business conditions (such as consumer spending, interest rates and movements in the equity markets), as well as internal indicators (such as billings, mutual fund inflows and redemptions, and credit levels).

Based on the facts today and our internal forecasts for the year, we believe we will achieve earnings per share growth at the low end of our targeted range for the full year in spite of what we see as a less benign economic environment. There are a number of reasons for our confidence.

First, our businesses are diverse. Because of our breadth, there are several business levers we can adjust as the year progresses and circumstances change. Investment spending in one business can be reprioritized to counter weakness in another. Our geographic scope allows us to reallocate resources on a timely basis when certain markets slow, or others improve. Our diversity provides flexibility, and flexibility is the single most important attribute for a company as economic cycles change.

American Express renewed its relationship with Tiger Woods during 2000. In addition to appearing in advertisements for the company, he also made appearances for the company at World Golf Championship events, and hosted golf exhibitions with cardmembers. In November 2000, he drew thousands to London's Hyde Park for a demonstration to celebrate a "new green" card campaign from American Express.

Over the years, a number of celebrities have helped raise the visibility of American Express - Karl Malden and Jerry Seinfeld are among the more prominent - but Bob Hope's 1950s advertisement for American Express Travelers Cheques was among the earliest.

Second, we are confident of the strength of our core card businesses. Within the United States and across international markets, we made substantial investments over the last several years. We launched new products, added a significant number of new cardmembers, expanded merchant signings, and further strengthened our corporate and small business card bases. Those investments are delivering tangible economic results, which we believe will continue.

Third, while we have benefited from the economic wind at our back over the last several years, we also know what it's like to struggle against a strong headwind. However, we believe we can manage through a slowing economy better than many of our peers, and we will look at a downturn as an opportunity to accelerate our share gains in key businesses.

Fourth, although we realize that AEFA, in particular, may have a more difficult year during 2001 because of the economic environment, our fundamental business model is sound. It provides us with a number of significant advantages relative to our peers, and we believe it will continue to position us well for future growth in the long term.

Finally, we have experience in reengineering our businesses. We have gone through three distinct rounds of reengineering during the last decade, taking more than $3 billion from our expense base. During 2000, we began to turn up the level of intensity on reengineering, because we recognized that the robust economic environment was not going to continue indefinitely. Additionally, our investment opportunities had expanded and we wanted the flexibility to take full advantage of them. So we reengineered to improve our competitive advantage in terms of both servicing and margins.

With the initiatives of 2000 as a foundation, our plans for 2001 include specific reengineering targets for each part of the company that, in the aggregate, should reduce our expense base significantly by the end of this year. Each business and staff leader understands his or her target and has established specific programs to achieve it.

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