Q2 2021 American Express Co Earnings Call
With the SEC. The discussion today also contains non-GAAP financial measures the comparable GAAP financial measures are included in this quarter's earnings materials as well as the earnings materials for the prior periods we discussed.
All of these are posted on our website at IR Dot American Express Dot Com will begin today with Steve <unk>, Chairman and CEO, who will start with some remarks about the company's progress and results and then Jeff Campbell Chief Financial Officer will provide a more detailed review of our financial performance after that we will.
Move to a Q&A session on the results with both Steve and Jeff with that let me turn it over to Steve.
Thanks, Vivien and Hello, everyone welcome to our second quarter earnings call earlier today, we reported second quarter revenues of $10.2 billion and earnings per share of $2.80.
These results reflect an acceleration of the momentum, we've seen and our core business and a strengthening macro environment on.
Our improving performance is a clear indication that the steps we've taken to manage the company through the pandemic and our investments to rebuild growth momentum are paying off.
And we're particularly pleased with the progress, we're seeing and several key areas, including engaging and retaining our existing customers acquiring new customers continued excellent credit performance and an acceleration.
And spending.
Since the onset of the pandemic, we've been investing and short term value enhancements to several of our premium products, which has helped drive card member engagement and contributed to retention levels that remain higher than the last few years.
We've also ramped up our acquisition engine over the past several quarters and we're really pleased to see that overall acquisitions of proprietary cards, which include our co brands have continued to increase with $2.4 million new cards acquired in the quarter.
In fact demand for our premium fee based products accelerated this quarter with acquisitions of U S consumer and small business platinum and gold cards, well above 2019 levels and exceeding prior quarters contributing to the continued double digit growth and net card fees.
Early spending on these new accounts is strong.
We're also pleased to see that acquisitions are increasing and many of our co brand portfolios. For example, as Ed Bastian mentioned on Delta's earnings call last week Delta Co brand acquisitions reached 90% of 2019 levels in Q2.
Turning to credit and we continued to see excellent credit performance with both delinquency and write off rates, improving further and reaching near historic lows and the quarter.
We're also seeing continued improvements and card member spending spending recovery accelerated in Q2 with overall billed business volumes growing 51% and the quarter on an FX adjusted basis versus last year and exceeding pre pandemic levels and June <unk>.
<unk> and services volumes continued to strengthen increasing 16% globally on an FX adjusted basis versus Q2.2019 travel.
Travel and entertainment spending also accelerated in the quarter, particularly in the U S. We're growing percentage of the population is now fully vaccinated.
In fact, we saw a surge in spending by U S. Consumer card members across all <unk> categories with overall U S consumer teeny spending, reaching 98% of pre pandemic levels and June and continuing to grow into July.
G&A spending outside the U S continues to recover more slowly due to overall due.
Due to lower overall vaccination rates and government imposed restrictions in some geographies and our.
Our consumer business, the largest contributor to the spending growth and goods and services came for millennial and Gen Z customers and they are also leading the recovery and <unk> spending with total spending up over 30% on and FX adjusted basis versus 2019 levels and Q2 for this age cohort.
And our commercial business overall small and mid sized enterprise volumes exceeded pre pandemic levels and Q2, driven by continued strong growth globally, and BW spending on goods and services, which was up 18% on an FX adjusted basis versus 2019, while the TNA recovery also accelerated with the fastest total growth coming from smaller <unk>.
And <unk> businesses in the U S.
We're also seeing solid spending growth and key travel related co brand portfolios volumes on both Delta and Hilton co brand cards increased by double digits versus pre pandemic levels and the quarter driven by the same trends have continued strong growth and goods and services spending and an acceleration and a recovery of <unk> spending.
In addition to investing and retention and acquisition activities as a customer focused company led by innovation a key part of our investment strategy is geared towards delivering a continuous stream of differentiated products services and capabilities that provide additional value to our current customers and attract new ones to the franchise with.
We invest in innovation and a number of ways through internal development acquisitions co brand relationships and partnerships with both digital startups and large well known brands across a range of industries.
A great example of our approach to innovation is our strategy for regularly to refreshing our unique value proposition by leveraging our digital ecosystem and our diverse network of partners.
On July 1 we marked and restarted this strategy with the launch of our new enhanced platinum card for consumers and the U S. The American Express platinum card created the premium card category nearly 40 years ago and has continued to define the category ever since we intend to make sure. It remains a competitive standard for many years to come.
The reason for platinum success over the years I believe is twofold first is our continual focus on knowing our customers and delivering value that meets their evolving needs and preferences and second is our willingness to change our value propositions, even as our products are at the peak of their performance and that's the case with our most recent refresh and despite.
<unk> coming off our best quarter ever for U S. Platinum account acquisitions, we introduced our new U S consumer platinum card featuring a broader set of lifestyle benefits, while doubling down on travel related benefits. The new benefits are enabled by working with an expanded range of partners as well as the continued integration of our growing portfolio of digital assets.
Such as resin and lounge Buddy.
I would note that the last time, we refreshed our U S. Platinum card, we doubled the customer base bring in a larger number of younger card members and our intent with our current refresh is to attract and even broader pool of customers to the franchise.
And developing the new platinum card, we listened to our card members and gleaned insights from their spending behavior to determine what features and benefits would be most relevant for the way they live now.
For example, some of the spending patterns on certain everyday goods and services categories that emerged during the pandemic such as streaming services and personal fitness have continued into the recovery. This led us to add a series of annual annual credits for digital Entertainment services, and Equinox club memberships or digital subscriptions to their on demand app.
Our platinum card members have always cared a lot about travel and entertainment and as our recent quarterly results demonstrate our U S. Based customers are eagerly returning to travel and in person dining.
So we added a series of new travel related benefits as a refresh product on top of those platinum card already offers including a significant expansion of our proprietary Centurion lounge network and a new global dining access program powered by <unk>. Our online reservation platform that provides exclusive access to some of the world's best restaurants and premium dining experiences.
The enhancements we've made to the U S platinum card represent a significant increase in value, which we believe will be very attractive to both current and new customers, even with an increase and its annual fee as we've seen from previous refreshes customers are willing to pay more for what they see as platinum's unique value and we believe it will be no different in this case.
In fact, the very early indications are encouraging applications and acquisitions have outpaced our expectations in the first 2 weeks since the new platinum card became available.
The U S. Platinum refresh is just 1 example of how we're leveraging partnerships and our digital ecosystem to innovate and add differentiated value to our products and services will be refreshing other products and rolling out new digital capabilities for both consumer and commercial customers throughout the remainder of the year and beyond we're really excited about the new U S.
And card and the potential debt that it and other innovations we have and the pipeline represent and there are many other reasons why feel very good about where we are at the halfway point and the year.
Including the progress, we're making to rebuild momentum and our core business is accelerating and better than we expected at the beginning of the year. The improvements we're seeing across many of our key metrics are sign that our strategy for managing through the pandemic and investing and activities to rebuild our growth momentum is working we're particularly pleased with the strength, we're seeing and customer retention.
New account acquisitions credit performance and overall spending volumes with goods and services volume is now well above pre pandemic levels globally, and travel and entertainment spending recovering faster than we expected driven by significant improvement and the United States.
Taking all of these factors together, we are increasingly optimistic that the strength, we've seen and our core business through the first half will continue particularly in the U S. Even as the pace of recovery remains uneven and different regions around the world.
With this in mind, we remain committed to executing our investment strategy for growing our business over the long term and based on current trends. We are confident in our ability to be within the high end of the range of EPS expectations. We had for 2020 in 2022 and to resume our financial growth algorithm beyond 2022 now.
I'll turn it over to Jeff who will discuss our second quarter results in detail and then we'll take your questions. Thank you.
Well, thank you, Steve and good morning, everyone.
Good day beer to day to talk about our second quarter results, which reflect strong momentum and the recovery of our core business and great progress towards our 2022 financial objectives.
Starting with our summary financials on slide 2 second quarter revenues of $10.2 billion were up 31% year over year on and FX adjusted basis, as we lapped the trough of the billings and revenue declines that occurred during the most significant pandemic lockdowns and Q2 of last year.
Our second quarter net income was $2.3 billion and earnings per share was $2.80.
These strong results were of course in part driven by an $866 million credit reserve release, as we saw continued strong credit performance and some improvements and the macroeconomic outlook.
Now as I turn to a more detailed look at our results I will again focus on what we see as the key drivers of our great progress towards our 2022 financial objectives volumes credit trends and the marketing investments, we are making to build growth momentum as.
As we've said all year 2021 itself as a transition year positioning us for 2022 and beyond.
So, let's now get into the first key driver to watch as we measure our progress this year volumes, which you will see several views of on slides 3 through 9.
You will note that we have shown second quarter volume trends on both a year over year basis and relative to 2019 as we find this provides a clearer picture of how spending is recovering on the way to our 2022 financial objectives.
And that clear picture on slide 3 shows and acceleration and the pace of recovery across all of our volumes and the second quarter with total network volumes and billed business volumes up around 50% year over year as we lapped the trough of the billings declines from Q2.2020 <unk>.
Importantly, relative to 2019 total network volumes build business and processed volumes were all down just 2% on and FX adjusted basis and surpassed pre COVID-19 levels for the month of June.
The acceleration and build business is being driven by both spending on goods and services, which was up 16% versus 2019 as you can see on slide 4 and.
And by a notable improvement and spending on travel and entertainment and the second quarter.
Overall, <unk> spending reached nearly 70% of 2019 levels as we exited Q2.
This is a level. We originally expected we would not reach until the fourth quarter of this year.
So to see a recovering more quickly than we had expected and without it coming at the cost of any slowing and the growth and goods and services spending is a positive indicator for us.
Turning to slide 5 you do see that the billed business volume recovery is being led by the U S, which surpassed 2019 levels and was up 3% and the quarter the.
And the recovery and total billed business volumes outside of the U S is weaker.
Interestingly, though you see on the top right of slide 5 that the growth and goods and services spending has been strong in both the U S and outside of the U S.
Overall spend is weaker outside the U S. Because historically, we have more travel related spending and our international regions and international <unk> is recovering more slowly due to lower vaccination rates and continued government restrictions in certain geographies.
Focusing and then on just our consumer business on slide 6 you'll see that overall spending was 4% above 2019 levels and the quarter as growth and goods and services volumes accelerated to 18% versus 2019.
And we continue to see strong online and card not present spend growth demonstrating the lasting effect of the behavioral changes we've seen during the pandemic, even as offline spending recovered to pre pandemic levels.
And our commercial business as you can see on slide 7 global SME spending which represents the bulk of our commercial build business remains the most resilient across all of our customer types.
And up 6% versus 2019 for the quarter.
This performance was supported by continued growth and BW spending on goods and services, which was up 18% versus 2019.
In contrast on slide 8 large and global corporate card spending, which historically has been primarily for travel and entertainment.
<unk> to show fewer signs of recovery.
We have said all along that we expect this will be the last customer tied to see travel recover.
And finally, putting all customer types G&A spending together on slide 9 you do see improvement across the board and the second quarter.
And with total <unk> spending, reaching nearly 70% for 2019 levels and the month of June.
As I said earlier this recovery has been faster than we expected.
Led by a sharp recovery and U S consumer G&A spending.
Which reached 98% of pre pandemic levels and June and has continued to grow and July.
Looking ahead, we now assume that overall <unk> spending globally will have recovered to around 80% of 2019 levels by the fourth quarter of 2021.
We also expect continued steady growth and goods and services spending for the remainder of 2021.
So all in all of our really good story on spending volumes.
Moving to our other volumetric receivable and loan balances on slide 10, you'll see a slightly different set of charts here and in a few other places throughout this presentation.
Where we thought it would be helpful to show comparisons for the first and second quarter relative to bode well for <unk>.
2020, and 2019 to help you better rate of recovery.
Loan balances began to slowly recover and the second quarter.
And we're up 7% sequentially and 4% year over year.
Relative to 2019, though loan balances remained down 11%, 11% more than spending volumes.
We continue to see the liquidity and strength amongst our customer base, leading to higher pay down rates, which is also driving the very strong credit performance and I'll talk about in a moment looking.
Looking forward I would expect the recovery and loan balances to continue to lag the recovery and spending volumes.
This leads then to the second key driver to watch this year credit and provision on slides 11 through 14.
As you flip through the slides there were a few key points I'd like you to takeaway. Most importantly, we continue to see extremely strong credit performance with card member loans and receivables write off and delinquency rates remaining around historical lows.
Although we would expect loss rates to slowly return to more normal levels eventually.
Given how low delinquency rates are today, we don't expect to see a material increase and write off rates anytime this year.
This strong credit performance combined with some improvement and our macroeconomic outlook drove a $606 million provision expense benefit and the second quarter as the low write offs for fully offset by the reserve release as shown on slide 12.
That said the balances enrolled and our financial relief programs are still $1.1 billion higher than they were pre pandemic.
As you can see on slide 13.
We are closely monitoring how the card members exiting our financial relief programs are performing.
And early performance of recent exit is looked quite strong.
But we are mindful that the last of the government stimulus and industry forbearance programs have yet to roll off and there are remaining uncertainties and the medical and macroeconomic environment around the world, including and the U S.
So we continue to hold a significant amount of reserves as you see on slide 14, we ended the second quarter with $4 billion of reserves, representing 5% of loan balances and 0.2%.
Of our card member receivable balances respectively.
Moving on to our third key driver marketing investments to build long term growth momentum on slide 15, we invested $1.3 billion and marketing and the second quarter as we continued to ramp up new card acquisitions, while maintaining some of our value injection efforts.
We acquired $2.4 million, new cards up around 20% sequentially.
More importantly than just the total number of cards, we've seen great demand for our premium fee based products with new accounts acquired on these products up 30% versus the prior quarter and up almost 4 times year over year.
As Steve mentioned and some great examples acquisitions of new U S consumer and small business platinum and gold cards, all reached well above 2019 levels this quarter.
Based on the momentum we've seen and the first half of this year, we wouldn't expect to see around $5 billion and marketing spend this year.
Ultimately, though our marketing levels will be governed by the universe of attractive investment opportunities, we see and the pace at which we finish winding down our value injection efforts and the remainder of the year.
So what does all this mean for revenues on slide 16 total.
Total revenues were up 33% year over year, and the second quarter, and we had double digit growth and almost every 1 of our revenue lines, except for net interest income, which only accounts for 18% of our revenues.
Before I get into more details about our largest revenue drivers and the Nexus next few slides I would note that other fees and commissions and other revenue were both up sharply sharply year over year and the second quarter, primarily driven by the uptick and travel related revenues.
Our largest revenue line discount revenue led to recovery, though as it was up 56% on and FX adjusted basis year over year as shown on slide 17.
This recovery is primarily driven by the strong growth and goods and services spending that we've seen over the past few quarters.
Net card fee revenues grew 10% year over year and the quarter Importantly, these revenues have been our most resilient revenue line throughout the pandemic as you can see on slide 18. They are now $300 million are 30% higher than they were back and the second quarter of 2019 Demmons.
Trading the impact of the continued attractiveness of our premium value propositions to both prospects and existing customers.
For us, though the driver here is the strong liquidity demonstrated by our customers, which is leading to both our historically low credit costs and 2 higher paydown rates that are driving lower net interest yield and a slower recovery and a revolving loan balances.
Ahead, and continue to expect the recovery and net interest income to lag the recovery and loan volumes.
So to sum up on revenues and <unk>.
Minimum of our revenue recovery strengthened in Q2 as you can see on slide 20.
While revenues remain 6% below pre pandemic levels on an FX adjusted basis, they were up 31% year over year.
And looking forward with the momentum and goods and services spend growth, we've seen and the first half of the year and our updated assumption that we now expect overall <unk> to recover to 80% of 2019 levels by the fourth quarter of the year.
Full year revenue growth could be around 12% to 14%.
Assuming current trends continue.
Moving on to expenses, we're continuing to breakout on slide 21, our variable customer engagement expenses, which move with spend volumes and benefits usage and marketing and Opex, which are driven by management decisions.
Variable customer engagement expenses in total were up 85% year over year, driven by higher spending and usage of travel related benefits looking forward. Good way to think about these variable customer engagement expenses that I would expect them to be about 40% of our total revenues for the remainder of the year.
Moving on to operating expenses, you can see that they were down 1% year over year and the second quarter, primarily driven by a few sizable gains and our amex ventures equity investment portfolio and.
And 2021 full year, given the year to date gains, we've seen and our equity investment and portfolio I'd now expect our full year opex to be a bit below the $11.5 billion. We originally expected as we continue to keep tight control over our operating expenses on.
I'll also investing to build growth momentum and our business.
Turning next to capital on Slide 22, our capital position remains tremendously strong our Q2 CET 1 ratio of 14, 2% remains far above our target levels, driven by the shrinkage and our balance sheet over the past year and growth and our capital base from earnings that have exceeded distributions we.
Returned $1.3 billion and total to shareholders this quarter, including common stock repurchases and the $908 million and $346 million and common stock dividends looking.
Looking forward, we remain committed to our long term CET, 1 target ratio of 10% to 11%.
Given the federal reserve's the latest guidance, we plan to increase the pace of share repurchases to migrate towards our CET 1 ratio target over the next few quarters.
So, let's close by talking about what the signs of momentum we saw on the first half of the year it might mean for the future.
And January and again in April I laid out 2 scenarios of potential outcomes for 2021 that will primarily based on what happens for credit reserves.
As a reminder, our scenario on or low scenario assumes a much worse for medical and economic environment share and that we would not release any credit reserves and the subsequent quarters.
Now halfway into the year the macro outlook has improved somewhat and our actual credit performance has remained incredibly strong.
So we've already released $1.9 billion and reserves that still leaves us however, with the reserve ratio that is above pre pandemic levels due to the remaining uncertainties.
For our updated scenario on on slide 23 assumes that this uncertainty persists the medical environment.
Environment and economic outlook worsens and then.
And therefore don't release any additional credit reserves this year.
And economic outcome would likely put some pressure on our current assumption of and 80% overall <unk> recovery by Q4 and likely drive a somewhat weaker revenue recovery the.
The combination of these things could lead to an EPS outcome as low as around $7.50 per share.
Our updated scenario 2 and contrast.
And that we continue to see strong credit performance and a steady improvement and the economic outlook, leading to less uncertainty and in all likelihood a lower level of credit reserves.
This sort of economic outcome would also likely drive us somewhat stronger revenue recovery in line with the 12% to 14% revenue growth assumption I spoke about earlier.
And this scenario, our 2021 EPS could be as high as around $8 and 75.
More important though than these 2021 numbers is our focus on managing the company to further build growth momentum.
Our progress this quarter around our key drivers volume credit performance and marketing was very strong and this gives us confidence that our strategies are working.
Based on all these current trends, we are confident and our ability and 2022 to be within the high end of the range of EPS expectations. We originally had before the pandemic for 2020 of $8.85 to $9 and 25, and we are confident and our.
Ability to resume our financial growth algorithm beyond 2022.
And with that I'll turn the call back over to Vivian.
Thank you Jeff.
We open up the lines for Q&A and I'll ask those in the queue to please limit yourself to just 1 question. Thank you for your cooperation and with that.
Operator, we'll now open the line for questions Kevin.
And ladies and gentlemen, if you wish to ask a question. Please press 1 to zero on your touch on phone and you will hear message, indicating you've been placed in Q.
Remove yourself from Q and anytime.
5 questions and 1 again, if you're using a speakerphone. Please pick up on the handset before pressing and numbers.
1 moment please for the first question.
Our first question will come from the line.
Sanjay stock Ronnie.
K BW. Please go ahead.
Thanks, Good morning, obviously very strong spending growth I guess, when we look inside the billed business growth how much of that strength is coming from pent up demand versus some of the new account growth.
I'm just curious just trying to figure out how long. This can last obviously knowing that TNT volume is still on the common and just a quick clarification, Jeff on the value injections should we assume that as <unk> comes back those value injection slow. Thanks.
Maybe I'll start and Steve just because your last part of your questions quick Sanjay and and you can talk Steve about the broader pent up demand trends on value injection, Sanjay certainly with what we're seeing and the world now we would expect that to continue to go down each quarter and be completely gone.
By the end of the year and so Thats 1 other reasons as you think about 2022.
Our overall marketing line.
It should be down a little bit and 2022 from 2021 because value injection.
And we'll be at zero.
You probably want to talk a little bit about the demand issues, yes. So Sanjay I think it's a really good question and.
If you look at it.
We didn't acquire anywhere near the amount of cards that we normally acquire last year and if you look at this year, we're still ramping up and we're still not at overall overall overall.
Overall levels of acquisition net debt, we'd want to be at and the reason for that is you have got international which is not.
<unk> opened up and so acquisition levels from an international perspective, both from an SME side of it from a consumer side of it is not there you have got corporate card acquisition not a lot of companies are adding a lot of people.
And so you don't have you don't have that so when.
When you when you really start to dig into this a lot of this is really the pent up demand and so.
And just take a look at what we're looking at and we look at Hilton Co brand cards, and we look at Delta Co brand cards, we continue to see them sequentially month over month.
And more volume and what you're now seeing is youre seeing volume being added and <unk>, but you are seeing sustained.
Volume growth and goods and services and so we think we've done a really good job with the value injection and pivoting sort of people how they thought about these cards and so.
Looking back years from now.
We may find that 1 of the set on a bright.
Bright spots of this for us from a spending perspective as people found other ways to use their cards, and we actually improved our goods and services goods and services mix. So.
I think youre seeing that pent up demand coming from existing cardholders and yet we're not back to travel levels in any way shape or form. The other thing if you start to sort of dig into our spending by sort of age group, we mentioned that.
Our millennial spending is up 30% over 2019, well then you can just take that and you go to the boomers and you go to.
Our next our next level of people and that spending is still.
Building up so we believe there is still a lot of spending within our existing base you look at corporate spending which is about half of what it is what it was small business, while doing very well from a goods and services perspective is still challenged from a <unk> perspective and.
So we believe that a lot of the growth that we've had has come from the existing base and I think theres more to come from that existing base and as we get more and more card members on board.
You're going to see more spending there as well so hopefully that gives you a little bit of color.
Next question is from Betsy <unk> Morgan Stanley. Please go ahead.
Good morning, Thanks for taking my question.
I did want to dig in a little bit on the commentary around the marketing spend and the value injection and you just indicated on the slide 15, you go through and indicate the degree of value injection quarter by quarter.
And just wanted to understand how you think about that value injection and how that has.
And impacted the retention as well as the acquisition.
With the with the question as you move into next year do you think that acquisition and retention rate, we will be able to remain at levels that youre seeing this year, even without that value injection. Thanks.
The short answer is yes.
But you probably want a little more color than that so.
[laughter].
And you think about if you think about let's go back to why so why did we do the value injection. So we did the value injection.
To make sure that the value propositions that we're challenged at the time.
Which were predominantly travel base value propositions, we'd know what people would look at it and say I'm not getting value from the card and that was I think that we will look back on that as a very important decision because what it said to our customers is that look we know that you are you bought the product for specific reason you cannot <unk>.
Use that product too and we always talk about experiences and access and you can't get that and so what we did was and.
And I give our our teams and our marketing team has a tremendous amount of credit here is we look for categories that people were going to really double down on and.
Streaming services wireless services more shipping services.
Even dining on some of our co brand cards, and we invested a lot of money and value injection. The other thing that we did is we also at the top and on our platinum and Centurion is put credits in for travel Okay, which is 1 of the reasons are I think our tls bookings are now above 2019.
<unk> levels and in June and we continue that at the beginning of the year because at the beginning of the year, we were still unsure but we changed the value injection and so on platinum card, we went to a paypal.
Net play per hour credit was to get more embedding within that ecosystem. So that you have more cards on file.
Our plan has been and always has been is that the value that we have and our products stands on its own and once once we got to the point where people could take advantage of.
Of the.
Of the existing product and this is predominantly more of a U S phenomenon at this particular point and time.
You didn't need that value injection and so then we get back to okay. What did we learn and and you look at the platinum refresh and if you look at the platinum refresh what is that at what has a wider variety of components to it in terms of streaming it has digital credit, whether it's serious or Peacock or New York times.
Or what have you and on and also has another travel credit within there and so we don't believe we need to rely on value injection at all and so as you look at the high marketing going forward. We believe the value of the products will stand for themselves having said that we're also going to go back on our quest to continue to refresh our product portfolio.
So and you're seeing that you obviously just started with the platinum card and we're not going to stop at the platinum card, but I'll stop at that comment at this point.
And so when you look at the $5 billion and spending when we made the decision. This year is we weren't going to cap that spending so at the beginning of the year Youre seeing a lot of value injection, but we also made a decision at the beginning of the year to go in with <unk>.
More customer acquisition and so we'll continue to do that which will drive us closer to the $2 billion to $5 billion, but.
The bottom line on this is that our products will.
Our resilient through this we prop them up a little bit we learned a lot and what we're seeing with our consumers right now.
Is that they are utilizing these value propositions and utilizing these value propositions with lounges lounge visits with bookings by using the travel credits and all the benefits that come with gold and platinum and we talked a lot about platinum, but the gold card too was another premium product that we have and that has been positioned.
A lot more as a dining product and and that has taken off as restaurants, especially in the United States have come back so.
The short answer I guess is that we don't believe we need value injection anymore, we believe the value and the products.
And we'll continue to sustain the spending.
Our next question is from the line of David Toti.
Evercore. Please go ahead.
Thank you and good morning, what is your expected timeline and trajectory.
The international <unk> billings for recovery and as it related question on international when when will domestic China American express and become material to overall revenue and earnings.
So the first 1.
If anybody on the call can tell me that would be good because I don't I don't know I think you've got.
You've got a situation and.
In Europe look look at Japan with the Olympics right I mean, everybody is expecting spectators to be that Theres no spectators. There you've got Australia, which is still closed you've got the U K, which is battling the delta variant.
And so I don't know whats going to happen with international having said that our billings continue to improve and international.
People much like they were and in the U S are looking for ways to to travel whether that be car trips whether that be more more restaurant and so forth and so I don't really expect international to come back.
This year and hopefully at some point next year, but that's really all going to be driven by vaccination and the efficacy of vaccinations and remember the vaccines that are available and different in other countries are not the same vaccines that are available and the United States and there's different efficacy on all different types of vaccine.
And whether that's astrazeneca, which has like a 67% efficacy or it's <unk>.
<unk>, Pfizer, which is up at 88, and so what youre seeing and the U K now is vaccinating vaccinated people actually.
Get COVID-19, not being hospitalized or dying, but still getting COVID-19. So I don't think were going to see international come back this year, I think and it's not really on our.
If we look at as a tailwind for 2022 and 2023 for us as far as China goes look China is we're really pleased with what's going on and China.
And part of the China story is continuing to build a network.
And continuing on both the card base and we continue month over month to build that network and to build that card base and as we move into other quarters, we will provide more insight into what's going on but I'm not I wouldn't say, you're going to expect China to be a material part of our revenue base for our earnings base in the in the near term future.
<unk> more medium to long term, but I would also like to remind everybody of the model that we havent China. The model that we have in China is a network based model.
And a way to think about and network based model is to think about that model much like visa Mastercard.
Normal model is we're not taking card fees.
We're not getting a discount rate, we're getting network fees and that's the way that's working but we are building China.
We believe it will add more scale not only for us and more presence in China for.
For both our card members that travel there, but it will also add scale for us as people trial as Chinese Chinese card members travel outside of China, and add more scale and add more volume to the overall network. So.
And China will not be material in the near term, Steve I would just emphasize 1 point back on the international.
Spending which is it is important to go back to slide 5 of the deck and realize that outside the U S spending on goods and services.
Actually has recovered just as strongly as it has and the U S and we expect that we will continue the other thing to remember is that as we express our confidence and our ability to get to our 2022 financial objectives, we're really not counting on international tier knee coming back.
Back in any meaningful way next year, we are confident and well at some point and whenever it does that'll be a tailwind, but it's not a key element of our confidence about 'twenty 'twenty 2.
Next question operator.
And that's from the line of Ryan Nash Goldman Sachs. Please go ahead.
Hey, good morning, Steve and good morning, Jeff Hey, Ryan.
So maybe just wanted to flush out the 2022 expectations a little bit further so Jeff you talked about 12% to 14% revenue growth. This year I think that would put you back at 2019 level. So can you maybe what explain for US what's incorporated for the high and in terms of spend and top line are you assuming.
On that.
DNS continue to run elevated or do you are you assuming some sort of a handoff teeny given all of the pent up demand and secondly, Jeff can you maybe just clarify the capital comments get how quickly can you get back to 10% to 11% and it seems like there could be a pretty big buyback over the next few quarters. Thanks.
For maybe maybe we'll work backwards, Steve Cooper and for capital 1 and simpler than the first 1 on capital Ryan you should as I said in my remarks look we're going to increase the pace of our share repurchases and we will get back within our senior and tier 1 targeted range of 10% to 11% over the next few quarters and many ways the governor on that is.
<unk>.
As we increase the size of our share repurchases, we want to be mindful of overall volumes and the market and we're not trying to do anything that is and the near term going to drive the stock price. So.
It will get there and the next few quarters exactly when we'll be a little bit of a function of what kind of volumes and trading we see and the overall market, but we are committed to be in that 10% to 11% range and that means we've got a lot of capital to return to shareholders.
As we think about.
As we think about next year.
And now look we went from comments of.
Our aspiration was to be in the range 2 comments today of our anticipation.
We'll be at the high end.
The range, so what's driving that the first thing I want to.
So to clearly state has.
Given that the recovery is on.
Uneven.
We will continue to invest.
<unk> been investing and I think.
We have pulled back on our international card investment right now because it just doesn't make a lot of sense.
2 to continue to double down on that and so.
We will continue as we move into next year to invest and not only our U S card acquisition, but international card and acquisition, both small business and premium products.
What are the assumptions behind.
Sort of next year is getting to that high and well look we need consumer T&D to fully recover.
In 2022, and it's on a path to do that so that that is I think it's good.
And obviously you'd like a reasonably healthy economy as well and so.
All things being equal things continue the way they are and the U S. We feel really confident.
What's not and those financial objectives is the following on.
A full recovery of net interest income and you can look at our revenue and you see where we are from a net interest income perspective, corporate <unk> is not.
Factored in there, which we don't believe that will come back until 2023 Cross border <unk>. We believe will continue to be to be challenged and the comments that Jeff just made about international while goods and services. We think will continue to continue to grow I think consumer TNA and corporate G&A and international will.
And we will continue to be challenged so if that comes back obviously that provides upside and they will be tailwind for 2022, but we have more be counting on those tailwind for 2023, but again, it's really hard to predict but that's a positive for us.
The 1 thing I will have people keep in mind, though is that we have we've had some big reserve releases.
And as.
As Jeff mentioned, when we talk about sort of 750 day to $75.75, we would anticipate some more releases, which have made even bigger reserve releases and so you have to grow over that and.
Why don't those reserve releases is the extraordinary build that we did last year, but like to point out the other part and those reserve releases is extraordinary job our credit team is doing.
And so that's the other piece of it that we take into account all that being said, we feel really good about how we're tracking for this year and Thats why we feel good about saying the high end of the range for 2022 and I just gave you a bunch of ups.
Good possibilities and I just gave you the grow over possibility as well with the also notion is we're not going to get debt marketing cutting we're not going to cut marketing to get there, we're not going to be a $5 billion, because we will not have value injection there, but we will continue to invest in marketing because I think it is proven for us.
And to be a great source of revenue growth.
Our next question is on the line of Chris Donat.
Piper Sandler. Please go ahead.
Good morning, gentlemen, I had 1 question about net card fees Jeff.
When I look pre pandemic they've been growing and this is slide 18 growing.
Around 20% and then with the pandemic and the lower.
Lower issues going on there.
Growth decelerated for the net card fees as we think about.
For the remainder of 'twenty, 1 'twenty, 2 and what you've got going on with retention and the value of injections and and.
And it sounds like a ton of good things going on on the acquisition side should we expect an acceleration in net card fee growth over coming quarters.
So.
As I said on my remarks, we feel really good about the net net card fee growth and factor I would like to point out that the dollars that we have grown net card fees by more than $300 million per quarter since 2019.
Interestingly kind of offsets the drop in net interest income and we have a lot further to go all of that said as most of you know the accounting for our card fees is a little complicated because we amortize peoples card fee payments over 12 months.
After they pay them and so that causes the trends to move slowly. So ive said through much of this year that I expected card fee growth because we werent acquiring a lot of new card members last year.
To slow quite significantly and the back half of the year and I will tell you now that with the tremendous progress on bringing new.
On a fee paying and card members into the franchise I think you might see a little bit of slowing and the next couple of quarters before Reaccelerate next year, but boy, it's a lot less than we originally anticipated. The other thing I would remind people on it is it's really bringing new fee paying card members into the franchise that drives net card fee grow.
And in fact, when you think Steve about the platinum refresh that you talked about while we raised the fee for existing card members that fee actually doesn't hit and.
Until there.
Anniversary date next year, and then once it hits will amortize it over 12 months. So it's a lovely long tailwind, but it's not going to be the driver over the next couple of quarters and.
The only other point I'd make is if you look at that net card fees. The absolute dollars continue to continue to grow.
And so and that's a direct result and retention efforts.
Our next question is for them and lineup Moshe Orenbuch Credit Suisse. Please go ahead.
Thanks and.
Wanted to talk a little bit about the 40% to variable customer engagement costs and how to think about that.
In the coming years, 1 other things that you've obviously had tremendous success.
Alluded to them and they won't.
Paired remarks in terms of the spending on the co brand cards.
Some of those contracts.
Kind of.
Volume levels and accelerators.
Recall that delta.
Co brand was supposed to accelerate into 2023 and Cherokee.
Can you talk a little bit about your views on that 40%.
Well a couple of comments Moshe first.
Because of the effects of the pandemic be variable customer engagement costs sort of have been flowing with revenues, but if you go back a year you had our card members suddenly not redeeming travel related benefits not traveling around and that caused some unusual day.
Clients.
For the good news now is there back traveling and that recovery means that now we're back incurring some of those costs and that makes the year over year. When you look at it just for the quarter look a little unusual and Thats why for simplicity purposes. We've said look we're running at about 40% of total revenues.
I would expect that to be the case for the next few quarters.
And next year, we'll have to see how all parts of the business are performing I guess, if I step back from all of the math, though I would just say so.
Very good thing to see our members back engaged with our travel related benefits, we feel really good about the value propositions, we have and the marketplace given the kind of acquisition and retention numbers you talked about and.
And it's those card member engagement costs to drive that.
That tremendous attachment for our existing customers and the ability to attract new customers. So.
And I think the 40% for good number for the next few quarters and we'll have to see where it ends up next year, we will give you an update.
Our next question is from the line of Lisa.
Moffett Nathan Please go ahead hi.
Thanks, and I had a question about retention and you've been highlighting the strength and retention throughout the pandemic and interest.
Taking a peek at the supplemental and so it looks like Youre up $2.1 million in cards and force on $2.4 million and current acquired so that is in fact very good retention can you just talk a bit about what's been driving that and whether or not you think it will persist after the pandemic and so can we expect sustained growth and car.
And for us going forward. Thank you.
Well.
Look I think.
As I said I think some of the.
Some of the decisions that we made around value injection some of the decisions we've made around providing relief.
But I will tell you I think the largest thing that drove retention.
At the beginning of this pandemic.
<unk>.
Not a lot of companies were answering the phone.
And.
Our our customer satisfaction scores from a servicing perspective.
And really went went through the roof for us during the pandemic, we pivoted people to home very very quickly.
We had equipment at the ready for them and they felt safe.
They felt secure and they were able to take care of our customers and so.
Sure.
At that time people called American Express, we were there to help them and if you think about the help that we provided to people. It was I'm not take I can't take my trip on canceled I had tickets for this I had whenever it might have been and we were able to help and.
And when you help somebody 1 time, that's a lifetime savior.
Because they will always remember it.
And and the reality is I think it was the combination of outstanding customer service because more people needed customer service during this pandemic than they ever did before.
Especially with cancellations of events and I think we stood out I think we stood out among everybody else once again, and I think the value injection and a financial relief programs and we have.
Continually look to engage with our customers throughout the pandemic and meet their needs. So.
Our our hope is and we're seeing it persist right now.
Is that will continue to retain retain these customers and build their loyalty, but I wouldn't I would not downplay customer services role.
In this in this retention I can't tell you how many E mails and letters I got that people were calling out to say look I was on hold with somebody for 5 hours and.
I went to you and you guys were able to handle it you answered the call and for 5 minutes. So.
I think that really helped a lot Lisa I really do.
Our next question is from the line of Rick Shane of J P. Morgan. Please go ahead.
Hey, Thanks for taking my questions. This morning.
I'm curious when you think about the 80% recovery of <unk> in the fourth quarter, how important corporate travel is to that recovery and the reason I raised that is I think there is an important distinction between leisure travel, which has a long planning cycle and business travel, which.
<unk> tends to have a much shorter planning cycle and I am assuming the debt short planning cycle creates volatility in terms of your expectations and I'm curious how much upside downside there is associated with that corporate travel.
And I would say very little downside, because we're assuming we're not assuming very much and we're just using ourselves as an example, there are a lot of companies that are still not even back yet right and.
It's hard to travel when Youre not back.
And it's hard to travel when there's nobody to travel to.
I think and New York is a little bit different phenomenon and financial services here, but the reality is we're not assuming very much from a corporate travel perspective minimal improvement from from really where we are so.
Downside volatility I think is negligible.
On the upside is pretty positive, but again, we're not anticipating a lot of travel having said that.
Corporate travel will come back.
Anybody to believes that zoom webex or Google made for Microsoft.
Teams or what have you is going to take the place of face to face. It's crazy, it's not I think it's a great supplement.
But ultimately people will get back but people are still and see about getting out there but.
But not so much for consumer travel, they're pretty well pretty willing to get out for consumer travel, but they are a little bit.
Again, I think for corporate travel, it's a different thing, but reality is it will come back and I think there is nothing like face.
Face to face interaction and business and doing business that way and.
And so but I see it more as upside risk and not not a volatile downside now having said that if it does come back and and goes down and Thats, where the volatility comes in but I think behavior. Once it once it shifts back to to corporate travel I believe will stay there and.
Eric the only numbers I'd add to that is yes, we expect Q4 to be at about 80% overall led by consumer though to Steve's point, and so I'd expect global consumer to be at 95% probably for 2019 levels. The U S consumer at or above 2019 levels and of course, the other thing Steve.
Is this interesting as small businesses, even now are traveling more than the large businesses for large businesses, where you really don't see any signs of life right now and we're not counting on any.
Our next question is from the line of Mark Devries Barclays. Please go ahead.
Yes. Thanks for just a quick clarification and then a bigger picture question on the higher and guidance for 2020..1 does that contemplate reserve releases that gets you down and.
Around kind of the seasonal day, 1 level and then kind of a big picture for.
For Steve.
And as you experienced and historically on the impact of wealth effects on spend because obviously if you look at since the beginning of last year. There have been some pretty significant wealth effects for a lot of your cardholders and.
What implications that may have for kind of.
We're spend levels can can recover 2 ones for.
And once your customers don't have this and restrictions on their activities.
Yes, so wealth.
I've said this many times consumers like to consume.
And so giving opportunities to consume they will start consuming and.
I've been here, a long time and I remember after 911.
People sort of didn't travel.
And sort of.
<unk> is a little bit and and all of a sudden it exploded and if you look back historically you saw tremendous growth for us.
After after 911, and it wasn't and travel and people started to spend on their homes spend on other lifestyle choices and things like that and then eventually travel came back and so I think the wealth.
If you look at the savings that has accumulated within.
Within the United States and the wealth that has accumulated from stock appreciation and what have you I think that only bodes well for us for for people, who continue to spend and.
And so I would anticipate and again, we saw this right. After 911 and we saw this after the financial crisis as well. It's been just tells you have been around for a long time and.
And I think that will actually happen, but we've never seen I havent seen wealth accumulation like this across the continuum. When you look at the overall savings rate and then just look at where the stock market is obviously at an all time high so I think that really bodes that bodes well for us.
As we think about spending going forward and Thats why were bullish on on 'twenty 2 and beyond.
And on the credit reserves, Mark and I pointed out on slide 14 in dollar terms.
We are actually already below the dollar reserves that we had day 1 of seasonal $4 billion now versus for 3 what's still above however day..1 is the percent of the actual loans outstanding that the reserves represent if you think about that 8.
Dollars and 75 scenarios certainly I would anticipate that that includes some reserve releases.
Bring that percentage below the day, 1 and <unk> percentage.
The unknowable question at this point is how far.
Below but when you think about the credit metrics right now and.
It would suggest that your reserve levels once all of the various kinds of uncertainty work themselves through.
It suggests that your reserves as a percentage of loans outstanding should be significantly lower.
And next question is from the line of Bill called car T V.
Research. Please go ahead.
Thanks, Good morning, Steve and Jeff.
Hey, Bill.
Net centric competitors have been very focused on elevated payment rates is is that makes it all focused on stepping in to capture greater share balance growth as payment rates normalize I know capturing your fair share of balances that amex customers carry with competitors. There was a big focus pre pandemic, but would appreciate any color on weather.
This was an opportunity that you are.
We're actively looking to pursue now.
Well.
I think obviously during the pandemic debt that obviously slowed down, but we're back at it and on <unk>.
Reality is.
We can be back at it for hip there if they're not going to revolve balances it really doesn't it doesn't matter, but we have.
We have opened up again, obviously.
We tightened up just to remind everybody, we tightened up our credit controls.
Pre pandemic.
And that allowed us to go in pretty quickly and I think do a lot of really good things for our customers and for ourselves.
But we've opened it up this year and.
And so we're out there looking to acquire balances were not going to do crazy stuff, but where.
We're looking at acquiring balances, where it where it makes sense and I don't I mean, acquiring balances I'm not talking about FIFA zero interest rate things like that what I'm talking about is engaging with our customers to see what their revolve needs are and to see if we can we can meet those needs whether it be through a paid planet planet or whether it be.
Through a consumer personal loan or whether it just be through a normal card revolve.
Revolve product so.
That's how we're thinking about it.
And our next question is from the line of Don and Dirty.
Wells Fargo. Please go ahead.
Steve could you provide and update on the Amazon small business co brand partnership and.
And also whether it would make sense to look at the consumer co brand if that were to come to market students like a deal you don't necessarily need, but maybe it makes sense and some areas.
Well.
Look here's what I would say.
We're really happy with our overall <unk>.
Amazon relationship and that is a multifaceted relationship.
Not only do we buy Amazon.
Services from them, but.
Small business has been I think has been a good thing for both of US. So I think it's been good for our customers I think we've been able offer some great value a lot of our customers use it as a companion.
Product and so that's worked I think our pay with points efforts with Amazon has has really worked and what I would say about co brand opportunities look we look at them all.
That makes sense and.
We look at.
And it predominantly we've had a lot of travel co brands obviously.
We've also had.
Other co brands and people will remember the Costco co brand, but we also have a loans co brand for small business. Obviously, we have the Amazon co brand.
And for small business as well and not just in the United States and a.
Couple of other markets and we look at we look at the opportunities and what we do is we look at those opportunities and can we provide.
Our value proposition that makes sense to our customers and what can we do that and economical way.
And an economical way may not just be the economics of the co brand deal itself. It may also.
B the economics of what a co brand could do to the overall portfolio, both positively and negatively and so theres a lot of things you look at when you evaluate co brands. So.
And we will do what's right for our customers and our shareholders.
And our next question is from the line of Bob Napoli William.
We on Blair. Please go ahead.
Good morning, Steve and Jeff.
A question on the related I guess, the SMB market itself.
The competitive environment, you've seen new players coming into that market, whether it's somebody like square.
Or there are a number of fin techs that are doing charge cards with.
Spend management attached to it.
Just some thoughts on the importance and the growth of SMB, what youre doing and how you view that any change and the competitive environment and what new value injection that maybe not and that term, but products or services.
We're looking to add and maybe U S and international.
Yes, well I think let.
Let me just I'll just mentioned international.
International right now certainly different competitive environment internationally than in the United States, You're you know theres not 1 competitor.
Competitors by market, but I would say at the moment.
Not a hotbed of activity.
Small businesses.
The the viability of a number of small businesses and.
International market is not a lot of people have line of sight into those right now.
And we're not growing anywhere near like we used to grow if you remember small business international.
High double digits.
High double digit teens for 2 to 3 years in a row and so and we think we can get back to that we just don't we don't see that happening this year and.
And we're not counting on it for next year, but.
And internationally you are competing with.
Local banks and so forth and.
And again, we've done we've done Amazon deals and multiple countries and I think that has helped and we continue to look for partnerships with and makes sense and <unk>.
I'd states.
We continue to grow and fact.
June was 1 of our best acquisition months in the history of our small business card.
And the United States. So we're really.
We're really pleased with that there is a lot of competition.
There's a lot of fintech.
And there are banks out there.
Capital one's aggressive use banks aggressive J P and everybody's aggressive and this space and.
Ultimately it comes down and value and we continue to grow.
And again here from a small business perspective, I think we did a nice job with value injection.
I think you will see us continue our strategy of product refreshes.
Over the coming year.
But I think 1 of the big things that we've done obviously is the cabbage acquisition and.
Just last month, we launched the cabbage checking account the working capital cash flow analysis, and so forth and what Youll see ultimately is that cabbage platform being the landing point for our small businesses and the way. The way you want to think about this is is fintech with scale and so when you think about when you.
About cabbage, which is a pure play fintech and the small business space and you think about American express and small businesses and you combine that together you have a fintech and scale not a fintech growing at scale, a fintech growing from scale.
From scale with the balance sheet and.
So that has always been the vision of cabbage, we've made.
As you bring cabbage into the bank holding company structure, you have to do some other things too.
Future proof and if you will and that's what we've been doing but thats. What you will see ultimately what you will see is a fintech.
And with <unk>.
Traditional bank scale.
And a and a very strong balance sheet and we'll continue to add products as we move along on to that platform and that was the vision right. I mean, we see a lot of other people out there doing those kinds of things, but to be able to do that at scale from the get go I think is a big win for us. So that's the that's the longer term.
And the vision and the medium term here for cabbage, and we just launched at platform.
From an amex perspective, just last month with those other with those other products on it.
Okay.
And our final question will come from the line of credit more Autonomous research. Please go ahead.
Yes, hi, Thanks for taking my question and squeezing me in and I really wanted to ask about the competitive environment and.
Hi, and U S consumer considering we just saw city shutdown their platinum competitor going forward and as the U S premium consumer race really just boil down now to 2 competitors Amex and chase. Thanks, Yes.
So I don't know.
And as the best the best way to answer it look.
I don't know what cities strategy is I don't know if its a its just to pull back for now for 2 of reentry. That's a possibility I know Welles is looking to get stronger and this space and so what we really focused and on Craig is we focus in on is developing the best product possible and.
To make sure we could take on all comers.
And.
And some may say and the middle of the pandemic you re launching your platinum card and you raised and the fee.
Yeah, we are why because that was part of the strategy.
And a lot during the pandemic as well we were able to enhance the product.
When you look at it we added $4500 worth of additional value for $140 worth of additional cost.
And is a great example of leveraging our partnerships leveraging our knowhow leveraging the digital assets that we have whether that be <unk> lounge body or what have you within that overall collection and so.
Yes, maybe it might look like right now, it's chase and American Express and Chase is a very formidable competitor with very smart people, who are working really hard to to beat us and we're working really hard to beat them. So.
But I am not assuming it's going to be just us and chase for long.
Thank you will see other people I think try and getting this game and.
Platinum our platinum refreshes another shot across the bow and anybody that really wants to come in and play with us and play in this game, we are ready and we will continue to up our game and and up our service and and provide even more and more value to our card members and.
Look as I said in my remarks, the platinum refresh last time worked and that was in the face of J P. Morgan Chase entering and strong product and we believe it's going to work. This time and early results and obviously, we're only and for 3 weeks here, but if you just do to value calculation. It is a it is a really strong product and we're really proud of of what we.
Put out and the marketplace.
With that we will bring to call for UN and thank you again for joining today's call and for your continued interest and American Express the IR team will be available for any follow up questions Kevin back to you.
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