AMERICAN EXPRESS.   Term Paper ID:30085 Click to get this paper

Essay Subject: Examines the company's performance and future outlook.... More...

8 Pages / 1800 Words 14 sources, 14 Citations, APA Format $32.00 Return to List of Papers

Paper Abstract: Examines the company's performance and future outlook. History of the business. Shifts in focus from communications to financial services. Entry into financial services market. Credit Card environment. Overview of the credit card industry. American Express' management. Changes in strategy & refocusing of operations. Revenues. Financial analysis (1995-1999). 3 Charts. Paper Introduction: American Express Company, 200 Vesey Street, New York, New York, 10285, 212-640-2000. Internet address: www.americanexpress.com. NYSE: AXP. Introduction One of America's oldest corporations, American Express has changed its mission, vision and corporate strategy many times over its 150 year history. Formed originally as a freight forwarder by Wells and Fargo (along with other partners), the company has since become notable for its participation in the "stored value" marketplace. Examples of this are traveler's checks, which the consumer pays for at the time of purchase and which "store" the value of purchase until they are used. American Express is now recognized as a charge card company as well as a travel services company. During the 1980s and 1990s the c Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Examples of this aretraveler's checks, which the consumer pays for at the time of purchase andwhich "store" the value of purchase until they are used. TravelRelated Services (TRS), as the two came to be known, were the core businessof the company. In the mid-199 s, Visa and MasterCard wereaccepted at more than nine million locations throughout the world andcardholders could obtain cash at more than 347, member bank branches andmore than 6 , cash machines. 16). The result was that the more profitable TRS was supporting theless profitable banking and financial services. At the time that Golub made the announcement, heindicated that he did so in order to eliminate speculation about succession(something which can plague other companies, such as Disney), and to giveChenault time to increase his span of responsibility within theorganization ("Succession Planning," 1999, p. American Express, by contrast, wasaccepted at approximately three million locations, and cash withdrawalscould be made at only a total of 41,5 locations (including cash machines)(Morgenson, 1991, p. (1999, April 26). Golub is not shy about expressing his desire tocompete more directly against MasterCard and Visa, and has noted thatoutside the United States, 43 banks work directly with American Express, asignificant achievement (within the United States, banks are prohibitedfrom entering into such agreements with American Express due to MasterCardand Visa bylaws) ("Change in Mastercard," 1999, p. Signingup new merchants represents a distinctly new strategy for the organization,but a strategy which has had considerable influence on the company'srevenue structure. Maxx have all been targeted aspossible candidates for accepting the cards, and the latter two, clothingdiscounters, have already been signed up. The company has lowered its discount rate (which is therate that it charges merchants) from an average of 3.22 percent in 199 to2.74 percent in 1998. 38-39. 1). Marshalls and T.J. During this period, the company spentmore than 3.5 billion dollars on new businesses, much of it financedthrough issuing additional shares of American Express stock (Teitelman,1992, p. TheLehman Brother brokerage house was purchased in 1984 and E.F. Internet address: http://ir.americanexpress.com/ireye/ir_site.zhtml?ticker=AXP&script=2 &layout=7. As a result of the negotiations, both retailers chose to continueaccepting American Express (as well as Visa and MasterCard). Also, unlike bank credit cards,there was no pre-set spending limit on the card, and it was marketed as an"exclusive" card which was difficult to obtain. Power shift. Netincome has increased by at least 22 percent in each of the past five years,with an increase of 25.3 percent from 1998 to 1999 (1999 Annual Report,2 , p. 1). Amex chief: MasterCard, Visa playing losing hand. New York: American ExpressCorporation. In addition, the company's stock price hasappreciated considerably in the past five years, providing investors withan excellent return which offsets the loss in income (relatively speaking)from the company's dividend policy, and which provided the company withincentive to issue a stock split in Spring 2 . (1997, December 1). Howard Clark became chairman of American Express in 1961, havingworked for the company since 1948. K-Mart, Wal-Mart, Sears, Marshalls and T.J. Greenwald, J. Until 1965, American Express was operated as a joint-stockassociation in which shareholders were directly responsible for losses.The company was not immune to scandal under Clark's tenure: it sufferedthrough a salad oil swindle involving a warehousing subsidiary in 1963, butClark was able to show an operating earnings increase through hisretirement in 1977. Inaddition, the company has taken a leadership role with regard to e-commercetransactions and its own Web site, where customers can participate in anumber of different business transactions. NYSE: AXP. (February 1992). Both retailers entered intonegotiations with American Express after both retailers tested notaccepting the card at several of their locations with mixed results. Two retailers in feud with amex overhigher discount rates. Forbes, pp. Morgenson, G. 1, 47. In addition to Golub and Chenault,the OCE includes three other vice chairman (Corporate Services, AmericanExpress Relationship Services and the Chief Financial Officer).Collectively, the OCE provides the company with its corporate leadershipand determines the strategic direction for the organization. Stock quote. Today, American Express is seeking additional merchants, includingthose it would not have considered during the 197 s and early 198 s. New York: American Express Corporation. (1997, February 27). Unlike the American Express card,consumers do not have to pay the balance in full at the end of each month.The Optima card offsets some of these challenges, but is only accepted at alimited number of outlets. The following chart shows the company's revenue and income performancefrom 1995 through 1999: [pic] Net revenues increased by 13 percent from 1998 to 1999, the highestincrease in the five year period. (August 24, 1992). 61). According to company surveys, consumers wereable to use the cards 92 percent of the time that they wanted to in 1998(compared to 72 percent in 1993). In addition to the federal lawsuit, major retailers have filed alawsuit against Visa and MasterCard challenging debit card acceptancepolicies. 1, 7. This still lagged behind Visa, with6 million cardholders and acceptance at more than 14 million merchants,but represented a significant increase over the pre-Golub years. Shearson generated a six percent return on equity duringits peak years, while the credit card unit was returning more than 27percent. The entry into the financial services market proved costly forAmerican Express. 36-47. Management Under Golub, the company increased the number of cardholders to morethan 42.3 million in 1998, and American Express was accepted at more thanfive million merchants at that time. References 1999 American Express Annual Report. In 1983, American Expresspurchased the Trade Development Bank (TDB) for 525 million dollars. While this is a significant drop for the company, itstill remained significantly above the discount rate associated with Visa,which hovered at approximately two percent in 1998 (Greenwald, 1998, p.61). Teitelman, R. 39). This represents strong performance on the part of thecompany, particularly considering the amount of promotion in which thecompany has been engaged. Aside from Golub and Chenault, the company depends on its OCE forguidance at the senior executive level. American Expressis now recognized as a charge card company as well as a travel servicescompany. 61). Image vs. Donaton, S. 64-65. Amex heads downscale.Advertising Age, pp. 52-53. During the 198 s and 199 s the company went through a series ofchanges in strategy which were eventually completely undone, and thecompany is now refocusing its operations on its core business units. Hutton in1987; these were added to the Shearson brokerage house acquired in a 915million dollar stock swap in 1982. (2 , April 28). The financial advising unitcontinues to provide a significant source of revenue to the organization,and the company has demonstrated that it is able to continue to expand itsreach among card holders and merchants. The company now sought to makeitself into a "financial supermarket" that would provide different types offinancial services. Internet address: http://home3.americanexpress.com/corp/latestnews/kchenault.asp. Discount Store News, pp. 16. New York: AmericanExpress Corporation. Internet address:http://home3.americanexpress.com/corp/latestnews/succession.asp. New York: AmericanExpress Corporation. (2 ). A quiet coup atAmerican Express. 3 -31. 42). Maxx proved achallenge to American Express, which had to fend off a move by theretailers to stop accepting the card in 1991. and Levin, G. This includesreviewing and approving business unit strategies, monitoring the progressof these strategies, and resolving issues that involve more than onestrategic business unit ("Kenneth I. However, although Golubhas had one of the shorter periods of chairman than others in recent years,he has left an indelible impression on the organization and is personallyheld responsible by numerous observers for the company's turnaround inrecent years. Succession planning at American Express. The credit card environment changed during the 198 s, and by the mid-199 s, bank cards routinely offered spending limits as high as 1 , dollars to their best customers. 1 ). Leader, not boss. The first American Express card was issued in 1958. Business Week, pp. and Byrne, J. The cardwas also not widely accepted; the company positioned it to be exclusiveamong retailers as well as consumers (Donaton and Levin, 1992, p. Spiro, L. The following chart illustrates key financial data for the companyover the past five years: [pic] The company's EPS have outpaced increases in the company's book valueover the past five years, indicating that the company is able to realizeprofits efficiently. 31). Formed originally as a freight forwarder by Wells and Fargo(along with other partners), the company has since become notable for itsparticipation in the "stored value" marketplace. As a result, the companypurchased IDS, the Boston Company, several regional brokerage firms and thereal estate brokerage Balcor Company in 1982. Chenault appointed president and chief operating officer ofAmerican Express Company. Halverson, R. Time, pp. Debit cards are used by customers in place of credit cards, andresult in funds being deducted directly from customers' checking accountsrather than being charged to a customer's credit card account. At the same time, American Express has not changedits dividend policy in the last five years (leading to a lower yield).However, the company justifies this by noting that it is reinvesting itsprofits into the business. History and Nature of American Express' Business American Express was begun in 185 ; the traveler's check was inventedin 1891. Internet address: www.americanexpress.com. Financial Analysis When considering the annual revenues, it is important to note that thefigures reported above are the "Non-GAAP" figures reported by the company.Golub authorized the company to engage in a series of financial accountingstrategies which are in keeping with generally accepted accountingprinciples (GAAP), but which put the company's performance in asignificantly different light than if these procedures were not used. The company did not chargeinterest on outstanding balances, but did have a high annual fee tocardholders which outpaced the fees of traditional credit cards. JamesRobinson III succeeded Clark in 1977 and it was under Robinson that thecompany went through its most tumultuous years (Spiro and Byrne, 1992,p. (1999, April 13).American Banker, pp. 1). To qualify, retailers must have less than 2 milliondollars in charges annually, and transmit their charges electronically. Institutional Investor, pp. 61). Charge! Inreturn, their rate dropped from 4.5 percent to 3.98 percent. The early 198 s saw American Express shift its focus fromcommunications to financial services. reality at AmericanExpress. An alternate source forthe cash generated by TRS would have been to purchase back some of theoutstanding stock, which by 1992 had reached more than 476 million shares. Thisresearch considers the company's performance and outlook. Chenault," 1997, p. (1991, November 11). At its annual meeting in2 , the company approved a two-for-one stock split (its first in 13years). (1992, December 21e). (1991, May 2 ). [pic] Conclusion American Express has taken a leadership role in the financial servicesindustry with summits and retreats designed to position itself as abusiness partner to the various merchants who accept its cards. Despite the wider use of the cards,American Express was able to maintain higher average charges, as well, withaverage charges of $6, in 1996 compared to $3,2 for Visa. At that time, the company had posted operatingearnings increases each year for 3 years (Teitelman, 1992, p. Robinson saw an opportunity to combine its interest inpayment and spending systems into one entity. Change in Mastercard, Visa policies 'inevitable.' (1999, April 3 ).Australian Banking and Finance, p. In early 1999, Golub announced that he would remain as Chairman untilApril 2 1, at which time Ken Chenault (the company's current president)will become chairman. American Express Company, 2 Vesey Street, New York, New York, 1 285,212-64 -2 . The Industry Harvey Golub has taken a different approach to the company than hispredecessors. 2). Thetraveler's check and the American Express card formed the staple ofAmerican Express business for the period leading up to 198 . Shook, C. (1998, January 12). A poker-faced amex plays a new cardgame. Business Week, pp. (October 12, 1992). This is stillsomewhat higher than either Visa or MasterCard, but represents asignificant gain for the retailers (Halverson, 1991, p. 6 -62. Making an announcementsuch as this a full two years ahead of time also means that Golub may become to be seen as a "lame duck" chairman who is increasingly distancedfrom the internal operations of the organization. The American Express card was not a credit card in thatthe balance had to be paid each month. Outlook and Potential Problems The pursuit of "everyday" merchants by American Express provedsuccessful during the 199 s. Thisremains the case in large part because of American Express' continuedability to position itself as the preferred card of choice for businesstravelers and others who rely on the various cards from American Expressfor large purchases (Greenwald, 1998, p. Under Clark, the company kept a lowprofile and concentrated its efforts in the highly successful TRS businesssegment. 38). Kenneth I. His comments in 1996 regarding the business policies ofMasterCard and Visa helped to launch a lawsuit by the Department of Justiceagainst the two companies which may well change the entire credit andcharge card industry. Following theincident, American Express announced a decrease in the top rate that smallretailers pay. These cardsare sometimes referred to as "electronic check cards." Often, transactionson these cards are guaranteed by the customers' credit card accounts sothat if there are nonsufficient funds in the customer's bank accounts, thetransaction is automatically charged to the corresponding MasterCard orVisa ("Amex Chief," 1999, p. Introduction One of America's oldest corporations, American Express has changed itsmission, vision and corporate strategy many times over its 15 yearhistory. Woolley, S. As the following chart shows, American Express has shownconsiderable price appreciation over the past five years (1999 AnnualReport, 2 , p. 3, 1 . Revenues increased only three percentfrom 1995 to 1996, a period which was particularly difficult for thecompany as Golub's innovations were only beginning to take effect. Forbes, pp. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

Many of our Papers can be Downloaded From This Site!

PLEASE READ THIS, IT IS IMPORTANT!

Office hours are Monday through Friday, from 9 am to 5 pm (PST). You may place orders for custom research over the phone during office hours. E-mail requests can be made to our graduate and undergraduate department any time, and will be reviewed during office hours. You may also contact customer service any time through e-mail, and we will review your message during business hours. A great many papers can be downloaded right from this site, but not all of them. If you would like to know if a particular paper is downloadable, just look in the description for: "Available for Internet Download: Y" or "Available for Internet Download: N" If you wish to purchase a paper which is NOT available for immediate download, you will need to make other shipping arrangements. Also, please be aware that these orders are processed Monday through Friday from 9 am to 5 pm (PST). If you place your order after 4:45pm on Friday, it will not be processed until the following Monday morning. We charge $8 per page for all of our pre-written reports, plus shipping (and tax for California residents). However, the highest cost of any ONE report is $136, or 17 pages. Please, take a moment. Make sure you have chosen the report you want or need BEFORE you complete your order. If you are not sure, allow us to help you. We do not offer refunds or exchanges, so it is important for you to let us answer your questions during office hours. Reports which are e-mailed or downloaded are in Microsoft Word format. We are making more reports available for e-mail delivery faster than we can update our listings. Please call to check on the status of particular reports. There are many other shipping options which are listed on the Checkout page.