Detailed Narrative
CCAR Results and Capital Strength
American Express received a preliminary stress capital buffer requirement of 2.5%, the lowest permissible level, demonstrating the company's resilient business model, strong capital position, and lowest projected credit card loss rates among all banks subject to CCAR. This underscores the company's ability to manage capital effectively and return excess capital to shareholders, with a CET1 ratio of 10.6% within its target range and an ROE of 36%.
Premium Card Strategy and Refreshes
The company is preparing for a refresh of its U.S. Consumer and Business Platinum Cards in the fall, following successful refreshes of Gold, Delta, and Hilton Cards which drove double-digit account growth and over 30% revenue growth, with card fee revenues up at least 60%. This strategy focuses on enriching value propositions with differentiated benefits and world-class partners, aiming to sustain leadership in the growing premium segment, where spend retention remains very high at 98%.
International Growth and Acceptance
International business continued to show strong double-digit growth, up 12% FX-adjusted, driven by focus on key markets and improving acceptance. The company continues to add millions of merchants internationally, seeing significant growth potential in premium products and the nascent small business market outside the U.S. Management noted that international markets often price premium products higher than in the U.S. and offer a large runway for growth.
SMB Segment Performance
While small business billings are not at desired levels due to circumspect spending, revenue, credit metrics, lending book, and fee-based business from this segment remain strong. Management noted that SMBs are likely more cautious than consumers and may need more economic assurance for billings to accelerate. Despite this, the overall performance of the SMB segment is satisfactory.
Digital Currencies and Stablecoins
American Express is actively exploring the role of stablecoins in payment systems, particularly for cross-border transactions for SMBs and large corporations. The recent partnership with Coinbase provides an off-ramp for digital currencies and allows customers to earn digital currency rewards, indicating a strategic interest in the evolving digital asset space. Management believes stablecoins could simplify cross-border business by avoiding currency conversion, but will not replace existing payment rails due to their inherent benefits like rewards and dispute resolution.
Expense Management and Operating Leverage
The company manages its expense base with variable customer engagement (VCE) growing faster than revenue due to premium product mix shift, while driving leverage from marketing and OpEx over time⏳. Operating expenses as a percentage of revenue decreased from 25% in 2023 to 21% in Q2 FY25, demonstrating 4 points of operating leverage. Management expects the VCE ratio to slightly tick up over time⏳ as the portfolio trends more towards premium and fee-paying products.