Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q1 2019 Earnings Call. At this time, all participants are in a listen-only mode listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to turn the conference call over to our host, Head of Investor Relations, Ms. Rosie Perez. Please go ahead.

Thank you, Alan. Good morning. Appreciate all of you joining us for today’s call. The discussion today contains certain forward-looking statements about the company’s future financial performance and business prospects, which are based on management’s current expectations and are subject to risk and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements are set forth within today’s presentation slides and in the company’s reports on file with the SEC. The discussion today also contains certain non-GAAP financial measures. Information relating to comparable GAAP financial measures may be found in the second quarter 2019 earnings release and presentation slides, as well as the earnings material for prior periods that may be discussed, all of which are posted on our website at ir.americanexpress.com. We encourage you to review that information in conjunction with today’s discussion. Today’s discussion will begin with Steve Squeri, Chairman and CEO, who will start the call 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 second quarter financial performance. Once Jeff completes his remark, we’ll move to a Q&A session on the financial results, with both Steve and Jeff. With that, let me turn it over to Steve.

Thanks, Rosie. Good morning, everyone. And thanks for joining us. As our second quarter results showed, we continue to build on the broad based momentum we entered the year with. FX adjusted revenue growth in the quarter accelerated to 10% and earnings per share of $2.07 was 13% higher than last year. I feel good about these results, as well as the breadth and consistency of our performance. This is the eighth straight quarter we posted FX adjusted revenue growth of 8% [ph] or better. And our growth continues to be driven by a well balanced mix of spending, fees and loans spread across geographies and customer segments. We continue to see solid trends in Card Member spending led by consumers. This spending is occurring as the backdrop of an economy that is growing at a steady, with more modest pace relative to 2018. FX adjusted proprietary billings grew 8% on a consolidated basis and loan growth remained strong with over 60% of that growth coming from existing customers. Credit continued to perform at industry leading levels, driven by the premium nature of our customer base, our strong risk management capabilities and the opportunity we have to increase our share of our customers lending wallets. The consistent growth we're seeing speaks to the strength of our differentiated business model and the success of our focus on our four strategic imperatives. It’s been a busy first half of the year and I thought it would be good to take a step back and reflect on some of the progress we’re making in each of our priority areas. In the Consumer space, we’re continuing our disciplined approach globally to upgrade our premium card products, enhancing our unique value propositions and pricing for the additional value that we’re delivering to our card members.…

Well, thanks Steve. And good morning, everyone. And yes we are having our call in the morning instead of our historical evening timeslot after trying it in the morning last quarter due to the holiday calendar, we felt the timing worked a bit better for us from a process standpoint, and from feedback from many of you, it sounds like many of you prefer a morning call as well. With that, it’s good to be here today. Let’s talk about another solid quarter in 2019 and about another quarterly example of the consistent performance we have been delivering for some time now. Let’s get right into our summary financials on Slide 3. Second quarter revenues of $10.8 billion grew 10% on an FX adjusted basis. As Steve mentioned, I think it bears repeating this is the eighth straight quarter of having FX adjusted revenue growth of 8% or better. And importantly for the future, this growth continues to be driven by a well balanced mix of growth and spend lend and fee revenues, across geographies and across customer segments. I would point out that we continue to see a stronger US dollar relative to last year against most of the major currencies in which we operate. So you again see a spread between our reported revenue growth of 8% and our FX adjusted revenue growth of 10%. As you recall, the year-over-year strengthening of the US dollar against the major currencies in which we operate began in the third quarter of last year. So assuming the dollar stays roughly where it is today, you should see reported and FX adjusted revenue growth levels more similar to each other in the second half of 2019. Our strong topline performance drove net income of $1.8 million, up 9% from a year ago…

Thank you, Jeff. Before we open up the lines for Q&A, I’ll ask those in the queue to please limit yourself to just one question. Thank you for your cooperation. And with that the operator will now open up the line for questions. Operator?

[Operator Instructions] Our first question will come from the line of Sanjay Sakhrani with KBW. Go ahead.

Thanks. Good morning. I guess, I’ll start off with where you ended Jeff on the guidance. You mentioned the middle part of the range and thinking through the $200 million and the favorable provision, it would seem to me like the provision given the credit trajectory has been trending better roughly in the $200 million. Perhaps you can just reconcile that for me? And then as far as the CECL numbers you gave in terms of the quantification, I was just doing the back of the envelope on the percentage you mentioned. And if we were to assume a sort of similar environment to this year, it would seem like the provision might go up low single digits percentage wise. I know there is a lot of assumptions. Can you just help us think through that? Thanks.

So two good questions Sanjay. Thank you for them. First, on the guidance. I’d really say there is three things going on all of which I talked about in my remarks. You’re correct, U.K. added $200 million of costs this year due to the tremendous new long-term agreement we have with Delta. It’s a great thing for shareholders long-term. Offsetting that provision is clearly much better than we had expected. And I’d say you're right that benefit is probably a little bit bigger than the $200 million. But I think the third thing to recall is if you go back Sanjay to the January call when we first talked about guidance, I said at the time that in the world where 2019 turns out to look kind of like 2018 in terms of the economy, you should expect us to be in the middle or upper part of the range. You know, in fact, while the economy is stable, it is clearly growing at a more modest level than it was in 2019 - 2018 when we put our plan together based on the more robust growth you saw in 2018. So, it's a little bit of softness in volume relative to our expectation. And so that’s really the missing third piece. All that said, eight straight quarters of revenue growth above 8%, 10% revenue growth this quarter we feel tremendous about the momentum. On the CECL side, boy, predicting the ongoing P&L impact of CECL Sanjay has so many moving parts right now, I am reluctant to give you a number. All I was trying to do on the call at this point is begin to focus people a little bit on the fact that for us the one time increase in reserves given the strength of our balance sheet and ROE, it doesn’t have any material impact I think in our capital returns. But the ongoing provision costs depending on the environment is something that you will probably hear us continue to talk about and I think your back of the envelope is as good as any. I just cautioned that there could be lots of different factors that affect it going forward. So thanks for the question Sanjay.

And for our next question we’ll go to the line of Don Fandetti with Wells Fargo. Go ahead.

Hi, good morning. Jeff I think most financial institutions have put out a buyback discussion. I know you provided some general background. Is there any reason why you're not talking specifically about that? And then secondarily, what is your general thought on operating leverage or lack thereof? Obviously, your OpEx expense is growing at a more rapid pace. But if you sort of layer in engagement cost, are your expenses going to grow faster than your revenues?

Yes. So, two things. First, on capital, Don, we said for a while now that the governor of how we manage our share repurchase is that we intend to keep that CET1 ratio in the 10% to 11% range and that is actually more important than where we are with the Fed. And so depending on our earnings, depending on our levels of organic growth, that’s how you should expect us to move the share repurchase up and down. Now, all that said, that means share repurchase have leveled very similar to what you’ve seen since we’ve rebuilt the balance sheet post the Tax Act charge. But that’s really the way I encourage everyone to think about our capital return not – that we are no longer in this world where the CCAR outcomes are governing what we’re doing on capital and so we’re going to return exactly that amount of capital. On leverage, boy, I think we’re just executing Don on the financial and business model that we’ve been talking about ever since Steve became CEO last February, which is, we’re generating industry’s leading levels of revenue growth. We think that’s the best way to create value for our shareholders long term. Customer engagement cost has been and, I expect, will continue to grow a little faster than our revenues and so that creates a little bit of margin compression. That’s mitigated by the fact that we expect operating expenses to grow less than revenue, they have for a decade, we’re highly confident that they will continue to. And then you add a little bit of share repurchase to all that and you get a double-digit EPS growth. Now, that does mean that PTI, in any given period may grow a little faster or a little slower than revenue. But we think this is the right strategy, focused on share, scale and relevance for creating the most value for our shareholders in the long term.

For our next question, we’ll go to the line of Mark DeVries with Barclays. Go ahead.

Yeah. Thank you. It seemed like the US consumer might have been the biggest source of strength in the quarter. I think you guys – you had proprietary billables and it's actually declined modestly Q-over-Q, but your discount revenue growth accelerated. Was that due to the acceleration in the US consumer where presumably you have higher discount rate revenue? And then also, just higher level, what are you seeing from the US consumer? Are they being more resilient for some of the uncertainties we’re seeing around things like the China trade issues that they may be having maybe a bigger impact on the corporate side?

Well, maybe I’ll start Mark on the math and, Steve, you might add a little bit of color. Look, I think, when you look sequentially, sure as you’ve heard from many people, the consumer is strong and you did see in the US Consumer business a little bit of a modest uptick in billings sequentially. You know, all that said, I think, we see overall stability, but at more modest levels than last year. Commercial spending is still at a good level, but I exercise - I noted a little bit of caution. We just have our eye on that a little bit more than the consumer. So I don’t know, Steve, maybe you want to add a little bit of color.

Yeah. I mean, look, I think that international is still strong as well. I mean, you had 17% international SME growth, you have 15% international consumer growth. But just a comment in US SME. I think when we dig into the numbers in US SME, what I always look at is, how are we bringing on new booked business. So that’s from new signings and that’s been stable for a long time. How are we looking at the attrition and that’s also been very stable. What you see and I think this is to Jeff's point, what you see is maybe a little less confidence that the consumer from an SME perspective where there is been organic decline from what we would say, pretty much all time highs from what we’re growing over, but it’s still positive. So that's US SME. And I think large corporate, you know, we’re pretty comfortable with large corporate, especially when we had such a breakout year, I think, last year from large and global corporate accounts. So I think the commercial side of the business is being slightly more cautious than the consumer side. And I think you’ve heard that as you listen to other earnings calls this week as well. So - but still strong, I mean, still strong growth.

And our next question will be from the line of Jason Kupferberg with Bank of America. Go ahead please.

Hey. Good morning, guys. Maybe just to pick up on those comments with international SME. I know it’s been on a little bit of a decelerating trend here 17% is still a very strong number, but it was - I believe 25% is recently the year ago. So you’ve got some tough comps you’re working through. I guess as those - trying to get easier for the next few quarters is it essentially and obviously you see some reacceleration in international SME? And then if you can just separately make a quick comment on the sustainability of the card fee growth which continues to be very impressive that would be great? Thank you.

Yeah. So I think I got the question with a little bit of the background noise. But look, I mean, if you look at what was going on for international SME for pretty much like six quarters prior to this, you had sort of the long run of 20% growth, but often relatively smaller base. I am pretty happy where we are with 17% international SME growth. We continue to invest not only in the value propositions, but in the sales organizations, and our absolute numbers are actually getting bigger and bigger. So I am not really worried at all about 17% international SME growth. Our performance there has been, I think really outstanding. So we’re going to - and we're going to continue to invest. I mean, that’s one of the reasons why you saw a little bit of an uptick sort of an operating expenses is we’re investing in sales organizations not only international SME, but we’re investing in some sales resources as well as it relates to - international coverage. So you have some extra OpEx as it relates to that. As far as card – as far as card fees go, you know, card fees is all about adding value to the products and we will continue on our quest to continue to add differentiated value on an ongoing basis to all of our products around the globe. We have taken a very deliberate step to make sure that we are constantly looking at and refreshing these products on a very proactive basis. And by doing that, that enables us to continue to add tremendous pace that we’ve been on in terms of card fee acceleration. I mean, you saw 17% card fee growth year-over-year, and you even saw a sequential uptick, and 70% of the cards that we acquired, our fee-based cards and people are paying for those cards because they are getting value out of those cards. And so it is how our model has been for decades, and we will continue to invest in those value propositions so that we can continue to generate card fees.

We’ll go next to the line of James Friedman with Susquehanna. Go ahead.

Hi. Thank you. It's Jamie. Steve, I wanted to ask you about the M&A strategy. You had some activity year-to-date. How would you describe the themes in M&A, because some of it seems consumer oriented, but some of it seems merchant oriented like your last couple – if you could provide some instruction about how you’re thinking about M&A would be helpful?

Yeah. So, look for every business, we have an opportunity to grow sort of three different ways, right? You grow from organic growth, you grow through partnerships, and you grow through acquisitions. I think, if you look at the last sort of five acquisitions or so, and I think you picked up on a really important point with Resy but I'll get to that in a minute. But if you really look at the last five acquisitions, while you can say they are consumer rated, consumer driven what they really are is all about embedding ourselves more in our customers digital lives. And those customers are not only consumers, but they are small business, and they're corporate card customers. So maybe for a business process perspective, we’re not - we haven't done any M&A in that area. But when you think about what we've done, it first started out, and we started with some building blocks. We started out with Mezi which is digital based AI assist and now we’ve roll that out in the UK and we’re testing that in the US with some of our platinum cardholders. And then we went with Cake, which is really sort of middleware to help us sort of manage our restaurant reservation. We went with Pocket Concierge, which Japan is a really important market for us and that gave us access to some of the best restaurants in Japan. And then we went with LoungeBuddy because our focus has been on providing a great experience end-to-end for the travelers. And while I'm not going to be able to build hundreds of lounges, we’ve got 12 right now and will continue to add them selectively as we go along. LoungeBuddy from a mobile perspective will show our customers exactly where other lounges are…

We’ll go now to the line up David Togut with Evercore ISI. Go ahead please.

Thank you. And good morning. You’ve been repositioning American Express in Europe over the last year principally winding down GNS. With the next wave of payment regulation coming PSD2 on September 14th along with strong customer authentication requirements, is there more to do, you signaled on the last call you might introduce a debit card for example. I'd be curious for your updated thoughts?

No. I don't know that we - yeah, well actually yes. Not necessarily a debit card, but access for sort of more real-time payments, but - with PSIP. But I think that we’ll wind down Europe by the end of this year, and so you won't have that grow over. Our value propositions are very strong in Europe. We still - the reason we - just to refresh everybody’s memory, the reason we wound this done is, we wanted to stay as a three party scheme versus a four party scheme, which aspects of our business in Europe were four-party, which enables us to have a better, not only better value proposition, but in fact a higher discount rate as it relates to our transactions there. But I don’t see us introducing a debit card per se, and I think we’ll just continue on our path of increasing our value to our customers both from small business perspective and from a consumer perspective.

And the only thing I’d add, David on your specific question around September 14th deadline on merchants having better than authentication capabilities, we’re working with our merchants. It’s not a big cost for us. It’s really a merchant question. We don’t expect it to cause any significant inflection point. There is some talk about banks deferring a little bit because not all merchants were ready to launch. But I don’t see it as a big issue.

No actually and we’ll leverage our safety technology to do that. But in fact it's really more about conversations and visits with merchants more than just technology and we’ve been really ahead of the curve on that in educating merchants on how to interact. So not a cost issue for us at all.

And we’ll go now to the line of Moshe Orenbuch with Credit Suisse. Go ahead.

Great, thanks. You started to kind of discuss some of the aspects of this. But could you talk a little bit about the - how would you expect the SME business to perform both in terms of kind of growth rate and in terms of credit as the economy looks to be a little more variable? Is it more or less kind of volatile than the consumer side?

Well, we feel really good about the breadth of our small business franchise. As you know Moshe we talk a lot about the fact that we are in the US larger than our next five competitors combined outside the US where we have some of the highest growth rates in the company. Our shares tend to be small and we think we have a very long run way to continue to grow. We are broadly speaking and I am actually going to take your question beyond just small business, one of the things you've heard me talk about in my prepared remarks is we actually have been making some changes in all of our risk management practices steadily across the last year. That’s both a consumer and a small business issue because they are both so important to us. And in fact those changes are part along with a stable economic environment of what’s driving stronger than expected credit performance for us provision actually being up less than loan. So all of those things we think help prepare us to continue to perform strongly in all economic environments. We always spend a lot of time thinking about how we manage the company through all aspects of an economic cycle. We make every economic decision around customers assuming through the cycle view of the economics. So we feel good about where we are in our preparation.

Yeah. The other point that I would make is when you look at international SME, it’s predominantly if not 100% a charged business for us, and which has a lot less - obviously, a lot less volatility. And our small business portfolio is more heavily charge based than our - in fact our consumer portfolio as well.

We’ll go next to the line of Bill Carcache with Nomura Instinet. Go ahead please.

Good morning, Bill.

Thanks. Jeff, I wanted to follow up on some of your comments regarding the rate environment. I understand your point that there is a natural buffer in your business model based on the interplay between a stronger or weaker economy and higher or lower rates. But to the extent that the Fed is turning more accommodative in an effort to extend the cycle and not because economic conditions are deteriorating then wouldn’t that be a scenario where lower rates would benefit you? And Steve if I may, I just wanted to ask a question on the digital investments that you guys are making, specifically on cloud you’ve guys have talked about pursuing a hybrid cloud strategy versus a public cloud strategy that some of your competitors are pursuing. Is there any concern that you may be falling behind your competitors relative to the investments that they are making? Thanks.

So, let me - I'll answer the second one. No, I think look having been CIO of this company and spent 10 years running technology, I am really comfortable with where we are. From an economic perspective, the reason we have a hybrid strategy is we believe that on an ongoing basis, we have better economics by running our own private clouds. Now that may not be the case with everybody else. But when you go to one of the cloud providers, you have a situation where there is obviously just profit built in. So as we focused on our infrastructure and if you look at our technology cost over a long period of time, our run the - our run the company cost are best in class and they have been decreasing over time. So I am really comfortable with where we are from a hybrid strategy perspective. And what you do is you look to put workloads out there that are variable in nature. And so I think having a hybrid strategy really works well for us because it enables us not to have some of the fixed cost investment that you would just need to have on a variable basis. So, I don’t see we’re falling behind at all, and I think we might have been a little bit ahead with the hybrid strategy that we have deployed.

And Bill on rates. Look I’d just started by reminding everyone that 80% of our revenues come from spend and fee revenues. So just the math starts with the fact that relative to any other financial institution, we’re just far less sensitive in terms of our overall economics to where our rates are going. Second, we do manage our funding stack in terms of our fixed floating mix to keep our exposure to changes in rates pretty modest and that’s why in my prepared remarks I pointed out that when you think about a 25 basis point change, it’s $0.01 a quarter. And then assuming quarters third, there is this economic offset, right? I think in response to Sanjay’s first question, I did point out that the economy is growing slowly than it was last year as the rate environment or the rate outlook has come down a little bit, that’s because people are worried about the economy. That provides a little bit of a natural offset to even a modest impact that rates do. So, look, we pay attention to rates. I am just making a general point that when you net it all out for us, I don’t see modest changes in the rate environment up and down as something that’s going to move the needle in our overall earnings. I think operator let’s keep going and probably squeeze in one or two more here.

We’ll go next to the line of John Hecht with Jefferies. Your line is open.

Morning, guys. Thanks for taking my question. Your discount rate has been very stable year-over-year and I know you’ve taken specific guidance regarding the discount rate off the table. But I am wondering if you can tell us is there any trends whether you’re looking by channel, by region, by product or mix shift? Is there any trends underlying that we should think about for the next couple of quarters?

Well, I just remind you, yes, you are correct, we’re focused on driving discount revenue which we feel great about not average discount rate. All of that said, we’re also getting further from some of the things we’ve talked about for a few years, the impact of regulation in Australia and the European Union. The impact about Blue, some big strategic deals we cut. And so those are having an impact on the average discount rate. But the thing that I just want to emphasize is, we feel good about the discount revenue trajectory. That's what we’re focused on driving and the rate will average - discount rate will kind of go where it will. Operator?

We’ll go next to the line of Craig Maurer with Autonomous. Go ahead please.

Yeah. Hi. Thanks. I wanted to ask a question about the Blue Business Cash Card that you put a release out on yesterday. You talked about the invoicing product and that you were launching effectively what seems like a working capital program that will be paid over ACH. Curious is that a new offering? How are you marketing it, how big is it today if it's not a new offering? Thanks.

So actually the working capital product's been out there for a couple of years now, which - maybe you got sort of mixed up in this - in the Blue Cash announcement. But the working capital product has been out there for quite a long time, a couple of years. It is relatively small and it does ride over ACH rails. And what we want do is remember, what we wanted to do with small businesses is to help run their businesses and part - the role that the card plays is part of their overall working capital solution. And so there are suppliers and there are merchants that do not accept credit card payments of any type, not just American Express with Visa and MasterCard. And so to be able to provide, along with providing the card product, to be able to provide a working capital product as well to these customers, helps them manage their business and helps them manage their cash flow. And the reality is these are loans that are anywhere from 30 to 90 days.

How big is it?

It's very tiny.

Okay. With that, we’ll bring the call to an end. Thank you, Steve. Thank you, Jeff. Thank you again for joining today’s call and thank you for your continued interest in American Express. The IR team will be available for any follow-up questions.

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