Ladies and gentlemen, thank you for standing by and welcome to the American Express, Q3 2020 Earnings Call. At this time all participants are in a 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 over to our host, Head of Investor Relations, Ms. Vivian Zhou. Please go ahead.

Thank you, Linda, and thank you all for joining today’s call. As a reminder, before we begin, today’s discussion contains forward-looking statements about the company’s future business and financial performance. These are based on management’s current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today’s presentation slides and in our reports on file 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 earnings materials for the prior periods we discussed. All of these are posted on our website at ir.americanexpress.com. We will begin today with Steve Squeri, 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 third quarter 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, Vivian. Good morning and thank you for joining us today. I hope you and your families are all healthy and safe. As you saw this morning, we announced third quarter earnings of $1.30 per share on $8.8 billion in revenues. While our results continue to be significantly affected by the impacts of the pandemic, we are increasingly confident that our strategy for managing through the current environment is the right one. Overall, I feel very good about the progress we've made in the quarter in a number of key areas. We've seen a steady recovery in our overall spending volumes since the lows of mid April. In fact, non-T&E spending in the quarter, which has long accounted for the large majority of our volumes was up slightly year-over-year. Online consumer retail spending was particularly strong, up 32% over last year. And within our commercial business, AP automation volumes continued their rapid growth, although from a small base, doubling since last year's third quarter, as more businesses adopt digital payment solutions. Our credit metrics continue to be excellent with delinquencies and net write-offs at the lowest levels we've seen in a few years. Nevertheless, we continue to be cautious about the direction that the pandemic impacts on the economy, and this is reflected in our reserve levels, which Jeff will cover in more detail. Voluntary attrition rates on our proprietary products remain lower than last year, demonstrating that our customers continue to see value in our products and services. We continue to invest in our business by launching our largest-ever Shop Small initiative supporting small merchants in 18 markets around the world. Also, the enhancements we made to the value propositions on many of our card products have produced strong results, both in terms of increased spending and customer retention.…

Well, thank you, Steve and good morning everyone. As I have over the last two quarters, I'm going to talk you through a different little more detailed set of slides from what we've used historically in order to help you understand how our business is performing in this unprecedented environment. The key drivers of our financial performance in this environment remain volume and credit trends along with this quarter see early days of some spending on what Steve just called phase two, our efforts to rebuild growth momentum. So I'll spend most of my time in these areas. Let's get right into our summary financials on Slide 3. As you can see, our results this quarter are better than Q2, spending rose sequentially, our credit provision was much lower and we used these improved results to begin to fund more efforts to rebuild growth momentum. That said, our results obviously continue to be significantly impacted by the global pandemic and the resulting containment measures that governments are taking around the world. Third quarter revenues of $8.8 billion were down 20% year-over-year on an FX adjusted basis driven by declines in spend lend and other travel related revenues while card fee revenues continued to grow. Net income was $1.1 billion and earnings per share was a $1.30 in the third quarter, down 38% from a year ago. To get into the details of our performance, let's start with volumes. As we have all year, we will continue to show you our billed business performance with a bit more granularity on monthly trends. Looking at the first few weeks of October, I would point out that we have not seen any material changes thus far in October compared to the monthly and quarterly data for Q3 that we will focus on this…

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

[Operator Instructions] Our first question comes from the line of Don Fandetti with Wells Fargo. Please go ahead.

Hi, good morning. So, Jeff, October you said hasn't changed much, but if you look at September, I mean, in the U.S. most of the states are sort of ramping up in terms of their year-over-year. Has that ramp up continued or has that stalled?

Yes, good question, and we chose not to add the first half of October this time because the trends all continue . So, what that means is, you do continue to see modest, but steady improvement in the U.S. and you do continue to see a little bit more caution in Europe and markets like Australia and Japan. So, I think if you look at those July, August, September trends, it gives you a pretty good sense of what we're seeing right up through today.

Next, we will go to the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Hi, good morning.

Hi Betsy.

Hi, thanks for the time this morning. A question on the phased, entry into phase two in the marketing. I heard you're moving into the phase two here, I wanted to understand what you saw in your customer set that said this is the right time to do this now, and how that feeds into, not only the marketing piece, but the other investments you're making, should we take from that that year-on-year is now going to be more normal than down? And then the other piece of that question is, if this more negative scenario that you outlined very cleanly, and clearly in your deck on the negative environment, if that were to happen do you flex back to the phase one environment? Thanks.

So let me -- I'll take that, Betsy. And let me provide a little bit of context overall on how we think about this. When I first took over, I was asked the question, how I would navigate in a credit situation. Nobody ever asked me the question how I'd navigate the pandemic, but I was asked that question. I was also asked that question when we had our investor call this year. And what I said was, we would invest for the long-term through a crisis, and that's what we're doing. So why start now? And, look, we entered phase two basically towards the latter stages of the third quarter as far as I'm concerned. What we saw is exactly what Jeff just talked to Don about. We saw a steady improvement in billings. We have a real understanding of what's going on from a credit perspective, and for us it makes sense to invest in the business. And let's look at sort of how I think and how the executive team thinks about this. When we look at this particular quarter, if you dive into these numbers, what you will see is that our marketing expenditure in this quarter was up 23% year-over-year, not sequentially, but year-over-year. And I don't know how many people had that either in their calculus or sort of in their models. But you know, during times like this, probably to go to move is to reduce marketing. But we don't believe that that's true. What we believe in a situation like this is the most important thing that we can do is solidify our foundation. And our foundation is built on two things. It is built on our card members, our merchants, card members and merchants and our brand. And what you saw…

Next we will go to the line of David Togut with Evercore ISI.

I think we lost him.

One moment here, let me see if I can get him back.

We got the first half of a word.

Yes.

David, can you press one, zero again? David, are you there?

Yes, I am. Can you hear me now?

Okay, yes.

Yes, great.

Thanks so much. Steve, you called out maintaining virtual parity coverage in the U.S. with Visa and MasterCard and you articulated some initiatives there. I'm wondering if you could talk a bit more about your thoughts around the MDR and how that could evolve going forward? And then international expansion, you also highlighted, you pulled back in Europe and Australia with GNS being effectively shut down. How are you thinking about expanding in some of these international areas in this environment? Is it more with the proprietary card going forward?

Well, let me just answer the second question first and I'll come back to the first one. But yes, look, I think in Europe and in Australia, the way sort of regulations work, our economic model doesn't really work in a GNS environment. And so to remind people, we do have a premium discount rate within Europe and within Australia. And within Europe if in fact, we had gone to a four party model, which we had a four party model and we had a three party model, it would have regulated our interchange, and therefore reduced our margin significantly. So we're effectively out of GNS as it relates to Europe and as it relates to Australia. But if you look at our business, the two fastest growing pieces of our business pre-pandemic, was our international SME business and our international consumer business. And, what the advantage that we do have is, we are able to really target card members who are looking for tremendous value within the products. And so you see, a preponderance of fee based products in international with a lot of value from a card member and driving significant spends into those markets. So we continue to invest in Europe in card acquisition, but more importantly, right now we're investing in merchant coverage. And what we've done is we've looked at sort of our international markets and we've talked about strategic markets and sort of the top markets that we invest in, but we also look at the cities where our card members live and where they travel to. Now obviously, card members are traveling anywhere right now, but we do look at the top cities across the world and we have focused our coverage efforts in really, to get a lot more targeted coverage and…

Next we'll go the line of Bill Carcache with Wolf Research.

Thank you. Good morning, Steve and Jeff. If we look ahead 12 months from now, hopefully we're in an environment where travel and spending have more fully normalized, but retaining existing customers until we get to that point seems like a critical element of your strategy. Can you frame for us, you think about the dynamics around the cost of retaining an existing customer today, versus the cost of losing that customer and having to reacquire them later?

Well I think the dynamics is very simple. It has traditionally and over time, and will always be a lot cheaper to retain a customer than it is to acquire a new customer. And so it is an investment that we are making and we'll continue to make. I mean, just think about what it takes to sort of mine to go get new customers and then to bring them along from a spending perspective. We have sort of work with our customers here to target their spending and what we're seeing is, obviously some of our customers are spending in areas now they hadn't spent before. And if you look at sort of some of the things that we've done with streaming credits and even with wireless credits, and even shipping credits, we have actually engaged our card members to spend in areas that they hadn't spent in before. And it's always amazing to me, that the dynamic of how people compartmentalize their spending. And you would just think that, everybody who is, using the product would use it consistently across these things. But some of these programs that we've had to retain customers have actually helped to open up new categories and so where they're spending with us. And so what happens here is, as we open up those new categories, that will continue and be consistent over time as they then get back to their travel spending. So I think some of the investment and some of the spending that we're seeing now is going to benefit us going forward. So bottom-line, much, much cheaper, and I can't give you the exact numbers, the ROI’s and so forth, but much cheaper to retain an existing customer than it is to mine for a new one.

And Steve, I might just also point back to your earlier comments about our attrition rates being down versus pre pandemic. The foundation of our business are very long term customer relationships. And when you look at our best customers, the attrition rates are remarkably low. Customers stay with us for a very long time. And so that's what we build the company on Bill, and that's what we're focused on maintaining through the pandemic.

Next we’ll go to the line of Rick Shane with JP Morgan. Please go ahead.

Thanks for taking my questions and really appreciate the additional disclosure, it's very helpful in understanding a lot of these trends. Just looking at Slide 20, I am curious if the financial relief programs that you're offering are disproportionately being offered to the SME borrowers and if that's an area that we should be watching in terms of emerging credit.

So that's actually a really good question, Rick and since you flipped to page 20, I'll encourage everyone to flip, because the really interesting thing is that if you go back to April, so the peak moment really in hindsight of uncertainty. In April, there were a disproportionate number of our SME customers who signed up for our very short-term to one month as you recall, Customer Pandemic Relief Program. The really interesting thing though, as the months have gone by, is when you go to today into the numbers on the far right of page 20 in fact, the SME customers are no longer a disproportionate share. And so it appears to us that the small and midsized enterprise customers, I think, prudently said well heck, not sure what the future holds. If there's programs out there, I'm going to sign up for it back in April. But most of them have pulled out of it have not signed up in disproportionate numbers for the FRP programs and so we feel good about small business. And in fact, I think it's probably worth reminding everyone that our small business card members are predominantly people like contractors and architects and lawyers, who for the most part are thriving in the current environment and only a very small percentage of our small business card members are in some of the hardest hit sectors like restaurants or online retail or excuse me offline retail.

Next, we'll go the line of Bob Napoli with William Blair.

Thank you and good morning. Steve, the B2B payments market is an area that you've done, American Express has done a lot of investing in. And I know it's off to small base, but you bought at acompay, you're partnering with Bill.com, with MineralTree, with Coupa and with others, what is the long term vision for that business? When does it become not operable at a small base and is this something that could be 10% or a real material portion of the American Express business over the long term?

Yes, well look, I think that, you call out a number of the partnerships that we have, whether it's with Coupa, whether it's with SAP, whether it's with a Ariba. Obviously, the acompay our own product, that's only a component of it. I would argue that a lot of the B2B is built into the SME piece of it right now, because look, 80% of our SME volume is non-T&E. And, if you are a small business, if you're a lawyer or you are a contractor, you're buying your supplies to run your company that way. So, I think what you're really talking about Bob is the automation piece of that, right? And, and even if you look at our corporate card business, our corporate card business, obviously there's nobody, I mean, hardly anybody that is sort of traveling at this point. And, the T&E component of our corporate card business is really, really down. And the reality is, is that component of our business is only 6% of our overall business. And yet our corporate card business is not down nearly as much as the corporate card T&E piece, because of some of the inroads we've made with B2B from a corporate perspective. And so, I think what we probably need to do is figure out how to frame this a little bit better. But the reality is, is that so much of our SME and corporate spending is actually B2B today. What we're really talking about is how do you automate it and that's what we're working on and I think over time that will become bigger. But I would argue a lot of that spending is a large percentage of our growth right now in SME, and I think when you get into large corporate, there is a big opportunity to do that. And that's, when you look at the partnership with bill.com, obviously that is not targeted at a large corporation. That is targeted at an SME and our acompay is the same thing. So, more to come on that, but I think it is a growing piece. And what you're seeing with the doubling of acompay automation is the actual automation versus the normal card usage that you would normally see.

Next we’ll go to the line of Jamie Friedman with Susquehanna.

Thank you for the additional disclosures Steve, Jeff. I just wanted to ask the GNS actually declined less than proprietary. I was just -- maybe a minor detail, but I was just wondering, is that because of easier comps or is that less well, T&E in GNS? Thank you.

You know Jamie, if you think about the fact that because as Steve talked about earlier, we have had to pull out of the GNS business in Europe and Australia, what's left is not necessarily a group of business that is representative of what's happening around the globe. And in fact, a handful of company -- countries account for a large percentage of the volume and those countries happen to be places like South Korea and Japan and Brazil and Israel. So particularly with South Korea is the largest single country and if you think about how they have done with their particular approach to the control of the virus and the economy, it kind of made sense that it would be a little bit stronger. But it's not really, those numbers aren't reflective of kind of an average across the whole rest of the world is what I would say.

Next we’ll go to the line of Mark DeVries with Barclays.

Yes, thanks. Jeff, as you alluded to earlier, you maintain that 10% to 11% economic capital requirement and prior to the pandemic, you had manage down to it quite effectively. But it's obviously expanded, again with the roll off of balances here and the suspension of the buybacks. Can you just help us think through, when you'll be able to return to buybacks? Is that just going to be set driven based on the results of your new stress test or is it going to be also self determined based on what you see? And when you feel comfortable buying back shares at what pace should we think about you kind of drawing that down back to your longer term economic capital requirements?

Yes, all good questions, Mark. So a couple things. I mean, clearly, we do need to wait until the Fed allows share repurchases again, but as I say that I'd remind everyone that for us the Fed requirements on capital are well below our 10% to 11% target. So they're not really a constraint on being at that level. They're only a constraint because right now, they've just blanketly said to everyone, you can't do share repurchase. So once they give the green light. The other thing is we do want to make sure we have visibility into the future direction of the economy. As we sit here today we've talked a couple times, both Steve and I, about the fact that while our baseline as things continue to get a little bit better, we have to be ready for the fact that they may not, we'll have to see. So we need a little bit of economic clarity and then we'll go and we'll start working towards our 10% to 11% target. I wouldn't expect Mark, to see to have us do an accelerated share repurchase and get there in one quarter. But you'll see us go back to the kind of pace we were doing before, which will get us there over the course of a relatively small number of quarters.

Next we’ll go to the line of Meng Jiao with Deutsche Bank.

Hi, thanks for taking my call. Steve, I just wanted to check in with you, in your conversations with some of your larger partners, I wanted to get a sense on how they're doing and what's continuing to be worrisome to them in this climate and going forward? Thanks.

Well, I mean, if you look, we've got we've got lots of partners, right? I mean, I had a conversation with Dan Schulman, he didn't have a lot of worries then and they're doing great and we're doing great partnership with them between, pay with points and being embedded within the PayPal ecosystem and that's a great partnership for us. And when I talked to Ed Bastian, I think Delta is doing a great job navigating the crisis, but they're at the mercy of how people feel. And but when you look at our cards with Delta, that spending is at or better than the spending that we have all our other products. And the same thing, when, if I talked to Chris [ph] Mascetta [ph] in [indiscernible] that at Marriott [indiscernible] at Hilton, perspective is, it's a slow recovery here. And when you think about sort of the hotel industry, conventions is a big part of it and that's not going to probably come back anytime soon. But they're starting to see an uptick in more localized days, where people can drive to a hotel and not travel, and even Delta is starting to see a little bit of a pickup as well. But I think, consistent with what I've said, I think you're looking to see a tick up in consumer behavior from a travel perspective, sort of towards the end of the year first quarter next year, but I think we're all consistent in terms of how we feel about business travel, which is probably not going to be until late 2021 or early 2022. But what I would say is that, whether it's Hilton, BA, Marriott or Delta, we are really pleased with the partnerships that we have from a co-brand perspective, and those cards in the markets they're in are performing at or better than our overall portfolio. And it's because as I've said many times, people are invested in their products for the longer term, they're invested in their miles, they are invested in their experiences. And when you put great brands like that together and create great experiences, people will hold on, and that's what's happening and this will pass. When it's going to pass? I can't tell you, but it will pass and as a society, as a world, we will figure out how to navigate this over time.

Next we’ll go to the line of Craig Maurer with Autonomous Research.

Yes, good morning, Jeff and Steve.

Hi Greg.

Hi Greg.

So, two questions for you. First, on the merchant discount rate, more specifically when typical seasonality would suggest that the implied rate or the calculated rate would fall in fourth quarter? Curious if your expectation is that T&E will recover enough in the fourth quarter to offset that typical decline? And secondly, professional fees were materially higher than what we had expected and I was curious if that was driven by support for things like the Small Business campaign?

Well, the answer to the first one is easy and quick. I do expect that the steady improvement we're seeing in T&E will more than offset any of the normal seasonality. The discount rate, I would remind you that even though T&E is down a lot more than non-T&E, if you actually look at the rate of improvement from the second quarter to the third quarter Craig, T&E is improving faster, because it fell so much and so we expect that in general to continue. And then the professional fees, remember, we're constantly moving back and forth between particularly on the technology side, work we do in house versus work we do through a variety of different firms we work with around the globe. So you really need to focus overall on OpEx, which we feel good about being down a couple hundred million again this quarter versus the prior year and of course, being down much more than that versus our original plan.

And our final question will come from the line of Sanjay Sakhrani.

Thanks. Good morning. So I wanted to follow up on the improvements going forward through the back part of this year. Are you guys concerned maybe the cooler weather might affect people eating out? You might have more closures, lack of stimulus, the Small Business initiatives that you have kind of sunset? Can you just talk about your confidence in the acceleration of the growth? And then, these new accounts that you're bringing on, when do you expect to get traction on the top line from those customers?

Well, look I think, just to the first piece of this, as I said in my remarks, I mean, there's just so much uncertainty on everything that you just mentioned, which is why I think it's so important to keep that flexibility. I mean, everything that you said, could come to pass. Whether it does or not, I do not know and that's why we need to keep flexibility. And that's why also we did our investment in sort of Small Business when we did it. We will still do our Small Business Saturday on a global basis. We're committed to doing that and we will continue to invest in those brand building activities. But I think Sanjay look, I mean, I think when you look at the Northeast, you don't know what's going to happen in terms of restaurants, you don't know if you're going to be at 25%, you're going to be at complete closure, it's going to be pretty hard to eat outside in the snow and things like that. But then if you go to Florida, you have 100% openings right now. So you have inconsistency across the United States, you have inconsistency across the globe. And so we're going to have to just continue to watch that and we're also going to continue to make sure that we are taking into account from an investment perspective, how the two of those things meet up. But what I would also tell you is, look we've got salespeople out right now doing face-to-face calls. Obviously, social distancing, masks, and so forth and the reality is they want to get out and people want to see them. So you've got a very different environment, depending upon where you are, in the United States. As far as sort of top line growth for new cards acquired, I think it's going to be hard to see the top line growth, because you've got this compression that's happened due to this travel. So, we'll be looking at, obviously, we're adding on more card members, they're adding on spend. But even as they add on spend, it's -- you're not going to be at a seat because they're not going to have the travel component within early on. And so I think, we'll look at it, but as far as from the outside perspective, you're still going to have this pushed down on revenue year-over-year up until the first quarter of sort of next year probably just because of what has happened to the economy. And so I think it's more second, third and fourth quarter of next year, where additional card members that we add, you'll have a grow over 2020. But when I think about this, and the team thinks about this, we anchor everything off 2019. I mean, we want to get back to that normal state and to get to that grow over from 2019. So, that to us is truly a return to normal.

With that, we will 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 your continued interest in American Express. The IR team will be available for any followup questions. Operator, back to you.

Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call. You can also access a digital replay of the call at (866)-207-1041 or (402) 970-0847. The access code is 7808699 after 12 PM Eastern on October 23 through midnight November 1. That will conclude our conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.