Ladies and gentlemen, thank you for standing by, welcome to the American Express fourth quarter 2017 earnings call. At this time, all lines are in a listen-only mode, later we will conduct a question and answer session. If you would like to ask a question during today's conference, you can press star then one on your touch-tone phone. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Toby Srihiran. Please go ahead, sir.
Thanks, Gary. Welcome. We appreciate all of you joining us for today's call. The discussion 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 risks 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 Securities and Exchange Commission. The discussion today also contains certain non-GAAP financial measures. Information relating to comparable GAAP financial measures may be found in the fourth quarter 2017 earnings release and presentation slides, as well as the earnings materials 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 Jeff Campbell, Executive Vice President and Chief Financial Officer, who will review some key points related to the quarter's results through the series of presentation slides. Once Jeff completes his remarks, we will move to a Q&A session. With that, let me turn the discussion over to Jeff.
Well, thanks, Toby, good afternoon, everyone. I'm pleased to be here to recap the strong finish we had to our two-year game plan and to lay out our expectations for 2018. Let me start with 2017. As you can see in this afternoon's earnings release, like all U.S. companies, our fourth quarter and full year 2017 results reflect some one-time impacts stemming from the Tax Cuts and Jobs Act. Adjusted for the impact of the Tax Act, which I will come back to in a minute, we earned $1.58 in the fourth quarter and $5.87 for the full year, in line with the increased guidance we gave at the end of Q3 when we said we expected to earn between $5.80 and $5.90 for the year.
Just as important as these EPS outcomes was the strong momentum we continued to see in the business, with success executing against each of the three priorities we set out in our game plan at the beginning of 2016, accelerating revenue growth, optimizing our investments, and resetting our cost base. In fact, billings and revenue growth reached multiyear highs in Q4 2017. We are particularly pleased with the diversity of the drivers of our growth and the linkage between the many changes and investments we have made over the last couple of years and where we now see growth. We end 2017 with momentum and close out the two-year game plan period having surpassed the financial objectives we laid out in early 2016. We now start a new chapter in 2018, of course, starting in February, we will have a new CEO.
We are all fortunate to have worked with an incredible leader in Ken Chenault, who has done a remarkable job over his 37 years with the company. As we now turn the page to Steve Squeri, I would echo what Ken said in his comments in our earnings release. The company is in very strong hands going forward with our new CEO. As we move ahead in 2018, we will be focused on the four key priorities that Steve laid out on last quarter's call. Strengthening our leadership in the premium consumer segment, extending our leadership in commercial payments, and in particular with small and medium-sized enterprises, playing an even bigger role in the digital lives of our customers, and strengthening our global integrated network to provide unique value.
Of course, beyond these core focus areas of business growth, 2018 will also benefit from a lower corporate tax rate, which I will come back to in discussing our 2018 guidance as we wrap up the call. With that, let me turn to the results starting on slide two, where you see revenues in Q4 of $8.8 billion growing at 9% adjusted for FX, reflecting accelerated growth in billings and continued strong growth in loans fees. Net income and EPS for the quarter were both impacted by the passage of the Tax Act, as I mentioned a moment ago. To provide a bit more detail, we recognized a Tax Act impact in the quarter of $2.6 billion, which is primarily composed of two pieces. First, given the global nature of our business, we recognized approximately $2 billion of taxes on deemed repatriations of certain overseas earnings.
Second, we recognized a roughly $600 million charge related to the remeasurement of our U.S. net deferred tax assets to the lower rate of 21%. This $2.6 billion represents our current estimate, which is slightly higher than the estimate we previously disclosed. We will continue to evaluate the implications of the Tax Act as guidance and interpretations evolve. The $2.6 billion in tax-related charges caused us to report a quarterly loss on a GAAP basis. Excluding this amount, adjusted net income for the quarter was $1.4 billion, and earnings per share for Q4 was $1.58, in line with our expectations. Turning briefly to the full-year results. Revenue of $33.5 billion for the year was up 4%. Adjusted revenue growth accelerated steadily through the year, starting at 7% in Q1 and ending at 9% in Q4.
Our reported growth rate for the full year, of course, includes in the comparison two quarters of revenue related to the Costco relationship in the prior year. As you can see on the right side of slide two, full-year earnings per share adjusted for the tax charges was $5.87. Moving now to our metrics, starting with build business performance trends, which you see several views of on slides three through five. Before we get into the details, I would quickly point out that reported billings growth was 11% in the quarter, our first double-digit billings growth quarter in some time. This is partly due to the dollar weakening year-over-year versus the major currencies we operate in overseas, but also reflects strong underlying growth, which you see on slide three as billings accelerated to 9% in the fourth quarter on an FX adjusted basis.
Looking at the segment view on slide four, it is clear that we have strong momentum across our segments. In the quarter, we saw acceleration in each segment from the Q3 growth rate, which further illustrates the diversity of the drivers of our growth. Digging into this a bit deeper on slide five, you see a view of billings growth that brings together several ways we have talked about our broad-ranging growth opportunities. Our Global Commercial and Global Consumer segments are roughly the same size, representing 40% and 43% of billings respectively. Global Network Services makes up the remaining 17% of billings. Represented by the first three columns of the chart, our Global Commercial segment includes our small and mid-sized enterprise customers, or SMEs, as well as our large and global corporate customers.
As a reminder, SMEs represent one of our highest growth areas, and you see that again this quarter with U.S. SME billings growing at 9% and international SME billings accelerating to 20% on an FX adjusted basis. The large and global customer segment grew 6% on an FX adjusted basis this quarter, up a bit sequentially from last quarter. I would note that we also saw some sequential improvement in the overall T&E billings growth rate this quarter. Moving to U.S. Consumer, which makes up 31% of the company's billings, we see 8% growth in the quarter, and we are pleased by the acceleration in growth from Q3. International proprietary consumer continues to perform particularly strongly with growth of 14% on an FX adjusted basis.
Once again, we see robust proprietary growth in markets such as the U.K., up 19%, Japan and Australia up 16% each, and Mexico up 13% on an FX adjusted basis. Finally, our network business is up 6% on an FX adjusted basis. As we've said before, evolving regulations in Europe and Australia are driving declining network volumes in these geographies. As a result, we expect our proprietary international billings growth to continue to outpace our network partner billings, which you see again in this quarter's results. Overall, we are pleased with the billings growth we see across our business segments and geographies. Turning next to loan performance on slide six. Our growth in total loans was 14%, and adjusted for FX total loans grew at 13% in Q4, as we continue to penetrate the lending opportunity with our existing customers and add new customers.
On the right, you can see that net interest yield began to stabilize sequentially in the fourth quarter at 10.5%, as we have been expecting for some time. Our results in the quarter, however, are still benefiting from the growth in yield over the prior year, which is a result of the ongoing mix shift of revolving loans towards higher rate buckets and pricing actions we have taken. Turning next to credit metrics on slide seven, where we see the write-off rates for our various portfolios. Starting with the lending portfolio on the left, the loss rate for the quarter was 1.8%, in line with the third quarter and up modestly from the prior year.
We've said in the past, we do expect lending write-off rates to continue to increase, in large part due to growth in non-co-brand lending products, which have higher loss rates, as well as seasoning of the portfolio. On the right side, you can see loss rates in our charge portfolio, as well as the global corporate payments loss ratio. With both, we see relatively stable performance, which we believe reflects the quality of our customer base and a stable economic environment. Moving to slide eight. Provision expense for the quarter was $833 million, up 33%. The growth in provision this quarter is in line with what we saw year-to-date through the third quarter and our comments on last quarter's earnings call. We continue to build reserves to account for loan growth seasoning and the mix shift over time away from co-brand products.
We've said before, we see attractive opportunities to continue to grow lending across multiple fronts. Our absolute growth in net interest income well exceeds the growth in provision, and net interest income remains just 20% of our total revenues. Turning now to our revenue performance on slide nine, FX-adjusted revenue accelerated to 9%. You look at the adjusted revenue growth trend over the last several quarters, you can very clearly see our success in capturing the growth opportunities we've highlighted over the last couple of years. While not on the slide, I would also point out that if you look at our segment results, the highest revenue growth is in our U.S. consumer segment at 13% for the quarter. This demonstrates our ability to grow even in the competitive U.S. consumer segment.
Looking to the components of revenue on slide 10, we have healthy growth across all the lines. Discount revenue was up 8%, driven by the strong growth in bill business. Net card fees growth was 8%, driven by strong performance in the Platinum and Delta portfolios and growth in key international markets. Other fees and commissions grew 17% and 12% on an FX-adjusted basis, the weaker dollar had a larger impact on this line. Other revenues declined 13% in the quarter, though primarily driven by prior year revenue from a small business that we sold in Q4 last year. Net interest income was up 23%, driven by the higher net interest yield and loan growth that I spoke about a few minutes ago. Turning now to slide 11, we'll look at discount rate.
The discount rate in the second half of 2017 was 2.41%, down five basis points from the prior year. The ratio of discount revenue to bill business was 1.75%, down four basis points from last year. These changes were in the range of our expectations, which we shared with you at our last Investor Day, and which are shown on the right side of slide 11. As we turn to 2018, you may recall that at our Investor Day in March of last year, we expected a decline in the discount rate in 2018 of two to three basis points. As we look ahead now, we expect a larger year-over-year decline in 2018.
This stems from the stronger growth we are seeing in places around the world with lower discount rates, and also from decisions we have made about how best to grow our overall economics with some of our larger partners. Both of these factors are actually part of what will continue to drive the company's overall revenue growth. Turning now to expenses on slide 12. I will review marketing and promotion, rewards, and card member services expenses as part of our card member engagement discussion on the next page. First, let me cover operating expenses. Total operating expenses were down 2% for the prior year as we continue to see the benefit of our cost-reduction efforts. Let me pause here and make some final comments on our $1 billion cost-reduction exercise.
When we started this program in early 2016, we laid out specific plans to drive cost savings, and I am pleased to report that we have successfully executed on these plans. We have driven savings through headcount reductions, vendor negotiations, process changes, expense policy changes, and many other initiatives. Throughout the year, as our business performance started to outpace our own plans, we took the opportunity to use some of these savings to selectively reinvest in the business, including, in particular, some incremental spending on sales force and technology, which are a part of our operating expenses. I would also point out that in the fourth quarter, we made an incremental contribution to our employee profit-sharing program of a little bit more than $100 million, related in part to our overall tax position in light of the new tax law and also the strong performance of the company.
In general, we feel good about our operating expense control efforts, and we believe we are well positioned to manage operating expense growth going forward. Moving to slide 13 in card member engagement spending. In the fourth quarter, total expense was $3.3 billion, flat versus the prior year. However, it's clear that we have made trade-offs between the components of the spending. M&P was down 28% versus the prior year, partially due to significant investments we made in the second half of 2016, as well as a continued focus on creating more marketing efficiencies. Despite significantly lower spending, we added 2.5 million new proprietary cards globally in the fourth quarter, 100,000 more new cards than a year ago.
Rewards expense growth in the quarter was 12%, just slightly above the 11% growth in proprietary billings as we lapped changes to the U.S. Platinum value propositions at the end. We continue to be pleased with our Platinum product performance in the U.S. and around the globe. In the U.S., we finished 2017 with our highest ever number of Platinum members and record levels of spending. Cost of card member services increased 39%, reflecting higher engagement levels across our premium travel services, including airport lounge access and co-brand benefits such as first bag free on Delta, as well as usage of the new Uber benefit on Platinum. This remains an area where we offer differentiated benefits and where we plan to continue to invest. Let me turn now to capital on slide 14.
Over the last few years, we've steadily returned capital to shareholders through our dividend and share buyback programs, which continued through the fourth quarter as we returned $1.6 billion of capital. For the year, while we returned 190% of the capital we generated, adjusted for the Tax Act impact, our payout ratio would have been about 100%. Due to the Tax Act impact, of course, we ended the quarter with a net loss. The net loss, combined with growth in the balance sheet and continued capital returns in Q4, resulted in a decline in our Common Equity Tier 1 ratio to 9.0%. For perspective, adjusted for the Tax Act impact, our Common Equity Tier 1 ratio would have been approximately 200 basis points higher. Our capital ratios are now below the level we had projected in the 2017 CCAR process.
As a result, we do not plan to use our remaining 2017 CCAR buyback authorization for the first half of 2018. There will be no change to our dividends. The suspension of share buybacks will substantially rebuild our capital levels and ratios and better position us for the 2018 CCAR process. Over the next few months, as we develop our 2018 CCAR submission, our goal will be to get back on a trajectory towards capital ratios consistent with our plans prior to tax reform, while supporting balance sheet growth in the business. Of course, most importantly, for the long term, the new tax law does significantly lower our tax rate going forward, which increases the capital-generating power of the business.
Given the lower tax rate, we expect that over time, we will more than make up for any reductions in the buyback in 2018 and generate more earnings and return more capital than we would have without tax reform. In summary, 2017 was a very strong year for the company. We have come a long way since early 2016, when we set the objective of delivering at least $5.60 of EPS for 2017. We exceeded that EPS goal on an adjusted basis, invested back into the business, and we believe we are set up well to grow as we go forward. Our strong 2017 performance sets the foundation for our 2018 expectations as we introduce a 2018 EPS guidance range of $6.90 to $7.30. The outlook is based on the current economic and regulatory climate.
Let me provide a little perspective on the drivers behind our expectations, which are summarized on slide 15. Starting with revenue growth, we expect continued strong momentum in our billings and loans metrics as we capture the diverse growth opportunities we see across our customer segments. As I mentioned earlier, we do expect the discount rate to decline, but to also see continued momentum in other areas like card fee growth. As we look at all the moving pieces, we expect to deliver revenue growth in the 7%-8% range. Another important driver to consider for 2018 is our expanded agreements with two important co-brand partners, Hilton and Marriott. We are excited about these partnerships and the platform for growth they give us over the next several years.
Looking specifically at 2018, the purchase of the existing Citi Hilton loan portfolio in the first quarter is expected to drive a little less than 100 basis points of revenue growth for the year. Incremental revenue from other new products we will be introducing, however, will phase in more gradually in future years. As you would expect in today's competitive co-brand environment, the margins are lower on these partnerships starting in January. As a result, we expect the overall impact of these renewals to reduce 2018 pre-tax earnings by more than $200 million versus 2017. To be very clear, these agreements generate attractive economics under the new terms, even though the margins are lower than before. Over the long run, we are excited about the opportunity to grow the portfolios and drive ongoing benefits for our customers, our partners, and our shareholders.
Next, let me talk a little about lending, building on the comments I made earlier. We expect the dynamic in 2018 to remain pretty consistent with 2017. Our loan growth is expected to exceed the industry as we continue to focus on increasing our share of lending, particularly with existing customers. Net interest yield has started to stabilize but is expected to still contribute to growth versus the prior year. Lending write-off rates and delinquencies are expected to continue to increase, but we believe we will remain below the industry average. These dynamics together should again drive strong growth in net interest income, as well as growth in provision for loss similar to the growth rate in 2017. As a result, we again expect significant growth in the economics of the loan portfolio.
Finally, as we thought about our overall tax position and the implications of the new tax act, we certainly broadly believe the new tax law is positive for the U.S. economy and in turn for American Express. We have reached a series of conclusions and decisions around this. First, although we are still evaluating recently released interpretations of the new tax law, we expect an effective tax rate for 2018 of approximately 22% before discrete items. Second, as I mentioned, we decided to suspend our share repurchase program for the first two quarters in 2018, we will continue dividend payments. Third, as we thought about our overall tax position and how to manage the impact from the tax act, we focused on three key constituents. First, employees.
Considering our tax situation as well as strong company performance, as I previously stated, we chose to support the long-term well-being of our employees by making an incremental contribution to our employee profit-sharing programs, which in most cases go directly to employees' retirement accounts. Second, customers. Consistent with our long history of balancing short, medium, and long-term objectives, we now plan to invest up to $200 million more in customer-facing growth initiatives in 2018 than we had originally planned prior to the passage of the tax act. Finally, shareholders, as the remaining tax benefit will build capital and support earnings growth in 2018. All of this leads us to an earnings per share range of $6.90 to $7.30. Of course, there remains a lot of work to do in 2018 to deliver in this range, but our focus is to deliver against the plans we have set.
Stepping back, before we move on to your questions, we are starting 2018 from a position of strength. With a tremendous set of customers, strong momentum across our integrated payments model, and opportunities to capture growth in many different parts of our business. At our investor day in early March, we look forward to providing more insight into our growth opportunities. With that, let me turn it back over to Toby.
Thanks, Jeff. Before we open up the lines for Q&A, I'll ask those in the queue to please limit yourself to one question. Thanks for your cooperation. With that, the operator will now open the line for questions. Terry?
Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star then one on your touch-tone phone. If you are using a speakerphone, please pick up the handset before pressing the numbers. Again, star one if you'd like to ask a question. First we go to the line of Donald Fandetti from Wells Fargo. Please go ahead, sir.
Hi, Jeff.
Hi, Don.
On the discount rate, as you look sort of further out, has the kind of base case of down two or three basis points changed to where it's structurally higher? Is 2018 just kind of based on some moves you've made?
Well, good question, Don. I guess I'd make a couple comments. First, I think it's important to remember the end objective here is to drive revenue growth. We feel really good about the acceleration in revenue growth that we've achieved over the last two years and the fourth quarter results of 9%, the highest we've shown in many years. We did that with some significant declines in the discount rate above that historical 2%-3% range. Why did that happen? Well, because we are very consciously making some decisions that we think drive more revenue growth, but also have the impact of bringing that discount rate down.
The decisions we're making around expanding coverage in the U.S. through the OptBlue program and some similar programs around the globe, some decisions we have made about how to best gain overall economics with some of our larger partners have had a positive impact on revenue and a more challenging impact on the discount rate. Of course, regulation in certain places around the globe, such as Australia, are doing some things to drive the discount rate down, but also creating some opportunities for the kind of growth in our proprietary business that I talked about in my prepared remarks in Australia and the U.K., for example, which are both in the high teens. Some of those things will clearly fade over time. The OptBlue program in the U.S. will begin to wind down as we get into 2019, and that pressure will recede.
The impact of regulation In Australia and Europe, which we've been going through for, in the case of Europe, a couple of years now. In the case of Australia, it really just began again into the high of last year. Those will fade a little bit over time. Our objective is going to remain, what can we do to drive the most revenue growth? That will have varied implications over time, I think, for the discount rate. We have line of sight into what we think is going to happen in 2018, both on revenue, and we feel good about the guidance of 7%-8%, and on discount rate. Beyond that, we'll have to see what decisions make sense to drive the best overall economics of the company. Thank you for the question.
Thank you.
Thank you. Now to the line of Kenneth Bruce from Bank of America Merrill Lynch. Please go ahead.
Hi, thank you, and good evening. My question relates to the guidance. I'm hoping you might be willing to unpack the provision growth commentary a little bit, just in terms of what you're expecting, in terms of maybe the absolute rise in losses relative to the reserve building. It's a pretty substantial growth that you're kind of pointing to in the provision. I just want to make sure I understand that.
Yeah. I guess, Ken, I'd make a few comments. We've now been at growing our lending a little bit faster than the industry for quite a number of years. Of course, we have a platform for doing that because we have historically so under-penetrated our own customers' borrowing behaviors. I think we now have a multi-year track record of achieving above-industry growth rates while still getting really good economics. Now, we've pointed out for a while that particularly with the shift that began in the third quarter of 2016 to less lending on co-brand products, more lending on proprietary products. Those products come with a little higher write-off rates and pricing that also is reflective of that risk as well, thereby producing really good economics.
Given that's when we started, we just, as you got into the latter part of 2017, are beginning to hit sort of the key seasoning time period in a lot of the new lending that we have taken on. That's why we have said for almost two years now, we do expect this steady trend upwards in write-off rates and provisions. It's been part of the plan all along. As we look at the great diversity in our lending portfolio, we draw a lot of comfort from the fact that other parts of our portfolio, the co-brand portfolio, some of the lending we do on our charge products or our lending on charge products, you see very little change in the write-off rate.
What you see when you're looking at the average is that mix shift to more proprietary lending and the seasoning effect of the fact that we began in earnest to make that mix shift as you got into 2016. All of that will lead you in 2018 to continued really good, strong growth in net interest income. That will come with the same kind of growth in provision that you saw in 2018, and the combination of those two should continue to produce really good economics for us. I guess I'd like to leave it at that, Ken, as opposed to also trying to provide a write-off metric. We feel good about where we are, and we feel good about the continued growth opportunities ahead of us in this area for many years.
Thank you.
Thanks, Ken.
Thank you. Now to the line of Betsy Graseck from Morgan Stanley. Please go ahead.
Hi. Thanks. Good afternoon.
Hi, Betsy.
Hi. Jeff, I wonder if we could talk a little bit about, be interested in understanding corporate customer-facing initiatives versus consumer, and perhaps you could give us a sense as to whether this is pulling forward what you already have been planning, or is there something plus alpha, something new here that you're considering with this $200 million?
Yeah. All good questions, Betsy. Let me make a few comments. First, one of the luxuries, I suppose, of the diversity of the growth opportunities we have is that our constraint as a company on the levels of customer-facing growth investing we do each year is really not that we run out of opportunities with very attractive long-term economics, but more that we do manage the company for a mixture of short, medium, and longer-term objectives. We believe it's really important as a company and for our shareholders to show steady earnings growth every year. When you look at the opportunities we have to invest for growth, generally in any given year, there are a variety of unfunded initiatives with good economics that we choose not to pursue because doing so in the short run would not allow us to meet our financial objectives.
That's why if you think about the history of our company over many years, why when we have from time to time had some kind of sudden financial windfall upside, better-than-expected performance. We often put a little bit of that into our shareholders' pockets, and we put a little bit to work funding some of these initiatives that we can't necessarily get to in the normal course of business. That's really the context in which you should think about our decision once the Tax Act passed, to go ahead and increase in 2018, our customer-facing growth investing by up to $200 million. If you think about where those next best previously unfunded opportunities are, they're probably where you would expect it.
If you look at our consumer business, I did point out in my remarks that the highest revenue growth segment in 2017 was the U.S. consumer segment. Even in the face of how competitive the U.S. consumer segment is, there are some really good results we're generating and some good opportunities we still have. When you look at the kind of growth we have with small and medium-sized enterprises, particularly outside the U.S., where we had 20% growth in billings in Q4 and you've been in the teens for a number of years now, there are tremendous opportunities to continue to accelerate our growth. Those are the kinds of things that you will see us with the last incremental dollar of investment likely pursue.
I think the broader and important point here is we always tend to have a pool of really good opportunities left unfunded. What we felt was the right balance here was to let the majority of the Tax Act benefits fall through to the bottom line in 2018, to take a portion and put it to work for the longer term.
All right. Thank you. Now to the line of Craig Maurer from Autonomous Research. Please go ahead.
Yeah. Hi, Jeff. Thank you.
Hi, Craig.
I just want to confirm one, that you are guiding toward 36% year-on-year growth in the provision for 2018. Secondly, Platinum Card, the changes you made to Platinum Card obviously spurred some very aggressive growth, and that's good to see. Are you seeing any tail-off in that momentum going into 2018, or should we expect another very strong year for Platinum Card growth? Have you seen any reaction from competitors to the more experiential benefits you've put on that card?
Taking notes, Craig, to make sure I get all your questions.
Sorry.
So-
I have to take advantage.
Right. On provision, look, I'm not trying to be quite as precise maybe as you were, in the way you phrased your question. Our point is, we expect continued really strong growth in loans and you'll still have some benefit from net interest yield, that's going to drive really good net interest income growth. Yeah, that'll come with provision growth on a percentage basis that is somewhere in the vicinity of what you saw for calendar 2017. You go do all that math, and it'll produce really nice overall economics for us. Platinum, we are pretty pleased by. If you think about the Q4 results with the highest revenue growth we've seen in quite some time. Well, the fourth quarter was actually when we already began to lap the Platinum changes.
That's actually why if you do the math of the rewards to billings ratio, while for the last four quarters you've seen rewards growing faster than billings, that's because of the Platinum changes. This quarter came back down to a much more normalized level where rewards were more consistent with billings. The fact that you continue to see strong performance in Platinum, the fact that you did not see any drop-off in revenue growth, we feel really good about. To end 2017, despite all the competition that you absolutely do see in the U.S., with a record level of Platinum members in the U.S., with record levels of spending, and with our fee increase fully hitting customers now for some time, I think it is a tremendously strong confirmation of the differentiated value proposition we offer, of the value of some of the experiential benefits.
The fact that we have the courage, because we believe in them, to price for those benefits and that value proposition. We think we, as a result, are going into 2018 with great momentum around this product.
Thank you.
Thanks, Craig.
Thank you. Now to the line of Bill Carcache from Nomura. Please go ahead.
Hey, Bill.
Hi, Jeff. Thanks for taking my question. Since the starting point for the stress test is the December 31st balance sheet date, some investors are asking whether your relatively low CET1 starting point of 9% could also hurt your ask in the 2018 CCAR cycle. Could you speak to that?
Yeah. Good question, Bill. I think the really important thing to think about here is we run the company for the long term. In the long term, the lower tax rate is going to produce much higher earnings, much higher capital generation, and therefore, much higher capital returns than otherwise. In the long run, we need to get back to whatever, as the Fed regulatory environment involves, whatever the appropriate steady state capital ratio is at any given point in time. The only question, given the $2.6 billion charge we took, is how quickly or in what pattern you get back to that steady state capital level. We could have continued to repurchase shares in the first half of 2018, then what you would have seen is a lower result as we go through the CCAR 2018 process.
Our decision, which we feel very confident in, was, "No, look, let's just very quickly rebuild the capital." That, of course, will be built into the CCAR 2018 process. This will, we think, produce, in fact, a much stronger CCAR 2018 result than if we chose to spread out a reduction in our share repurchases. Look, we'll have to see how the Fed's thinking evolves, because we're not the only CCAR participant in this situation. We'll have to see how the rating agency thinking evolves, although we've begun those conversations as you would expect today, and they're going fine. I just want to end with the emphasis to people that we have a strong track record of being aggressive about returns of capital. We are going to produce more capital in the next couple of years than we otherwise would have.
That's going to drive bigger capital returns. We think the best way to get at that is to take a small pause and to do it at a time when, if you think about our guidance, it's producing year-over-year EPS growth somewhere, depending on how you want to do the math, in the 20% plus range. We feel good about all those trade-offs.
Got it. Thank you.
Okay. Thanks, Bill.
Thank you. Now to the line of Sanjay Sakhrani from KBW. Please go ahead.
Hey, Sanjay.
Hey, how's it going? Maybe focusing on the revenue side of maybe where the benefits might reside from tax reform. I guess when we look at your guidance range, are you expecting any benefit as it relates to the macro, given the tax reform benefits to consumers and corporations? I guess when you talk to your customers, at least on the corporate side, is there an expectation that they'd invest some more towards expenses? I guess when we think about the returns that you're generating and the fact that your competitors also get this benefit, are you making any assumptions that some of the upside gets competed away?
Okay, I'm also taking notes, Sanjay, on you.
I'm sorry.
It's okay. A couple of comments. I think the reality of the way we do our planning process, Sanjay, is as you know, we don't try to be macroeconomic forecasters, but there's also a little bit of a lag here. We sort of built our plan over the last few months based on a view of the economy probably as it existed prior to the passage of the tax bill. Mechanically, the reality is we have not built into our plan any expectation that there is a stronger economy in the U.S. or anywhere else in the world for that matter, than what people thought prior to the passage of tax reform. To the extent that tax reform does help the economy, and we certainly believe it will in the long run, what that means for 2018 is probably a little trickier.
That will clearly be a good thing for us. Look, we ended Q4, I will say, with a little bit more momentum on the revenue side than we probably had originally anticipated. I think all of that bodes pretty well. I also think it is interesting to look at, and one quarter doesn't make a trend, but it is interesting if you look at our large global corporate customers. That's a segment that for some time now we've pointed out is not a growth segment. Most corporations like us are trying to control T&E spending because it isn't more T&E oriented. Actually, it grew 6% this quarter, which is the highest growth rate we've had in a while. If you dig through the tables, you see in our earnings release, you'll see that for the company, T&E spending sequentially strengthened a little bit.
As I said, a quarter doesn't make a trend, but it's an interesting data point if you think about a little bit more confidence in the economy and a little bit more of a plan to spend. It's upside to the extent the economy strengthens because of the Tax Act, and we'll have to see what happens. In terms of the competitive environment, I guess look, I can speak for our view, Sanjay, which is we have looked at the implications of the Tax Act, and we said we should do something for employees, which we did. We have sort of reset our baseline by choosing to invest up to $200 million more in customer-facing growth initiatives this year, and we've given you clear EPS guidance for 2018.
We have to now show you off that 2018 performance that as we get into 2019 and beyond, we can produce the same kind of steady EPS growth that the company has historically been known for, and that's what we're very focused on. That means we are not at all looking to do anything other than use the lower tax rate to produce 2018 performance and steady growth thereafter. I talked a little bit actually in response to other questions earlier about the reality for us that we always have a pool of unfunded things. That are good opportunities for us to invest in, but we don't. Having a little bit lower tax rate in all those models doesn't actually cause us, Sanjay, to think differently or to invest more because we're still focused on short versus long-term. We're focused on producing steady earnings growth.
Look, we'll have to see where the environment goes. I will tell you today, we feel really good about the value propositions we have in the marketplace, on the consumer side, on the corporate side, in the U.S., outside the U.S. As I think for that reason about the rewards to billing ratio, which some of the folks on the phone look at as a little bit of an indicator of the competitive environment. I will tell you that my expectations sitting here today for 2018 is that ratio is actually pretty flat to 2017 because I feel good about our value propositions. They're performing really well. We're trying to do the best we can for shareholders. That's what we're focused on, and that's how we think about it, Sanjay. Thank you for the question.
Thank you.
Thank you. Now to the line of Chris Donat from Sandler O'Neill. Please go ahead.
Hi. Good afternoon, Jeff. It's Chris Donat here. One other question on the up to $200 million of customer-facing spending. I'm just wondering what sort of timing you might expect for that. Will you front-end load it or kind of have it evenly over the year? Are you factoring in what competitors may or may not do? Will that affect how much you spend, if they're aggressive on things like promotion?
Yeah. Good question. A couple of things to put this in perspective. Our total marketing and promotional spending was over $3 billion last year. Our total spending on rewards was probably over $7 billion. Then you've got a bunch of money we spent on card member services. Look, $200 million, I'm choosing to call out because as you think about the EPS guidance range we've given, certainly had an impact on that EPS guidance range because this was at the margins a decision we made at the end, we didn't have to make it, we could have given you a little higher EPS guidance range. On the other hand, in the context of all the customer-facing spending that we're doing on an ongoing basis and plan to do in 2018, it's a very small number and a very small increment.
That's why we would anticipate that it is spread throughout the year. It is based on our current understanding of the competitive environment and how our value propositions play. I don't see it as changing anything about our value propositions. I do want to come back to that or changing anything about the level of incentives we need to put into the marketplace to attract any particular customer set. This is about there are incremental things we can do to garner more growth that we weren't previously doing. That's really what you will see it targeted at.
Okay. Thanks very much.
Thank you. Now to the line of Moshe Orenbuch from Credit Suisse. Please go ahead.
Hey, Moshe.
Hey. Great. Thanks. Jeff, with respect to the tax side of things, the actual DTA write-down was smaller, I guess, than we had thought, but in aggregate, obviously, still a pretty big number. It feels like that's going to take a bunch of years for that tax benefit to be recovered. Coming at the capital kind of question a slightly different way, how should we think about what to expect post the 2017 CCAR as you go into 2018? I guess also recognizing that the loan growth that you've put on in the last year probably has higher stress losses as well. Maybe kind of walk through that.
A couple of comments I think I'd make. When you think about our $2.6 billion charge, you're correct. The smaller piece is the $600 million piece, which is the revaluation of our net deferred tax asset. As you think about that number going forward, for us, we're a pretty simple business, monoline business financially. Our net deferred tax position doesn't change that much from year to year. It actually changes out pretty quickly. It's mostly driven by things like provision timing and membership rewards. There's not long, multi-year complicated investments or business impacts on that. Other than the revaluation, I wouldn't expect it to have any different impact on our regulatory capital calculations going forward than others. On the deemed repatriations, as everyone knows, one of the, in some ways, ironies there is you pay out that amount over eight years.
In fact, if you dig into the details, you'd see that the actual payment of the cash is back-end loaded.
Loaded, yeah.
From a regulatory capital perspective, we have to book it all upfront, and that's why you have the big hit to regulatory capital upfront, even though there's actually no cash impact for a while. I think that we will use the two-quarter A stoppage of the share repurchase program to very quickly get our capital ratios back into a range that all of the rating agencies, the regulators, and we are comfortable with. I think we will very quickly get onto the positive side of the one-time charge that we took in return for a much lower tax rate going forward.
Thanks.
Thank you. Now to the line of Ryan Nash from Goldman Sachs. Please go ahead.
Hey, good evening, Jeff.
Hey, Ryan.
I just wanted to ask two quick questions. First, I wanted to bring together some of the things that you talked about, Jeff. In terms of the EPS guidance, can you talk about what the two or three biggest swing factors would be that would get you from the top end of the range to the bottom end of the range, just given that the 7% does seem like a range that's wider than you've historically given. Then just on the renewals, the $200 million pre-tax impact, is that just a true-up from renewing the contracts and then that goes back down, or is there another step up beyond 2018? Thanks.
Let me take those maybe in reverse order. On Marriott and Hilton, the way I would describe this is, as you commonly see in these larger co-brands where you have very long-term agreements. As they are renewed, there tends to be a step down in the economics, and we work over the course of the subsequent five, seven, eight years to really rebuild the economics. You've seen that pattern several times with Delta. You've seen it with some of the hotel partners before. To be very clear, as I said in my remarks, we still have very attractive economics for us. They're just not as attractive as they generally are in the very last year of what was the prior contract. There is no further step up.
The over $200 million impact to PTI in 2018 is one of the hurdles that we have to overcome as we think about our EPS growth in 2018. It goes away in 2019. Just like our decision to do a little bit of incremental investing because of the Tax Act, it's really a one-time resetting of the baseline, and I wouldn't anticipate that same kind of increase in 2019 or beyond. That's a little bit on Marriott and Hilton.
On the EPS guidance, in many ways, I think I would go back a little bit to Sanjay's question, which is when you look at our performance in 2017, the plan we have articulated for you this evening is really one which is just a continuation of the momentum that we have today with the lower tax rate put on it and the impact of Marriott and Hilton and the decision to step up investment a little bit. The plan doesn't assume any particular greater strength in the economy. The plan does not necessarily assume a quicker take-up on some of the new and innovative things that we continue to do both in our proprietary product lines as well as with co-brand partners like Delta or Marriott or Hilton. Those are the kinds of things that I think could cause you to do a little bit better.
I think the main thing that I worry about in terms of anything that could put you more towards the lower end are really the standard external factors. If you see a blip in the economy or if you see some sudden regulatory change in some major market for us, none of which I particularly have any line of sight into today. It's those kinds of external factors that I would worry about that would drive you more towards the lower end. I think other than that, as I said, the guidance we've given you is just a continuation of the performance that you should have confidence in based on what we've seen recently, and if we get a little stronger economy and/or some of the new things we're doing take off a little quicker, that'll really help us get to the upside.
Thanks, Jeff.
Thank you. Now to the line of Ashish Sabadra from Deutsche Bank. Please go ahead.
Hi, this is Ashish Sabadra. Thanks, Jeff. My question was about NIMs. You talked about NIMs stabilizing. I was just wondering, how do you think about the loan yields going forward with the rate hikes? Also if you could comment on the deposit betas. Have you seen anything on the competitive environment there with the deposit rates?
Yep.
Thanks.
I think as we think about net interest yield, we have had a really good run over the last 5 or 6 quarters as we have evolved a little bit our mix of customers, as we have taken some thoughtful pricing actions where we could and as interest rates have edged up a little bit while the portion of our funding stack that comes from our Personal Savings program was acting with a beta of about 0.3. All of those things have given us a really nice sequential run. What I said in my remarks is, as you think about 2018, I think our ability to sequentially keep growing the net interest yield is probably about at a plateau.
Although if you look at full year 2018 results, there'll still be some year-over-year growth because what I'm telling you is we're plateauing kind of at Q4 levels, and in fact, the first part of 2017 was below that if you do a little bit of seasonal adjusting. That's how I think about net interest yield. If you look at deposit betas, Fed's now done 5 rate hikes. If you look at our Personal Savings program, our beta to date, if you will, is about 0.35. As we have for a while, for forward planning purposes, we assume a beta of 0.7 based on a lot of history. Certainly, I hope that is a very conservative assumption. And in general, we're trying to make sure we provide good returns for our account holders, but just competitive returns.
We're comfortable with the balances we have and with our ability to attract new balances. We'll have to see where that goes. As you know, if that beta flips all the way up to 1, then interest rates start to be, as they go up, a headwind for the company because of our charge card portfolio. If we can keep the beta a little bit below the 0.7 level, then interest rates going up ceases to be much of a headwind. And of course, the betas that we've had thus far, it's mostly a tailwind. We'll have to see where all that goes. Thank you for the question.
Kerry, we have time for just one more question.
Thank you. That comes from the line of Mark DeVries from Barclays. One moment.
Hey, Mark.
I just had questions around clarifying the guidance a little more. I think you exit the year with revenue growth FX-adjusted at 9%, and I think you called out an additional 100 basis point lift from the acquisition of the Hilton-related receivables from Citigroup, but you're guiding to 7%-8% for next year. Is there just some inherent conservatism in that, or are there some specific headwinds you have in mind? Then just to clarify the comments around the contributions to profit-sharing. I think you indicated you made some contributions in December but didn't talk about it in the context of the 2018 guidance. Is there more coming in 2018, and did you quantify that at all? Thanks.
Two good questions, Mark. First, on revenue. Look, we put together a plan, as I said in response to an earlier question, based on the world as it existed over the last few months. Not necessarily as it has existed since December 22nd when the Tax Act passed. The only two things that are at some point headwinds, not headwinds, but start to fade a little bit from the revenue growth you saw in Q4, are two things I've talked about for a while, which is net interest yield has, I think, started to hit a little bit of a plateau. It's still going to show nice year-over-year growth for the first half or so of 2018, but will probably show less year-over-year growth as you get into the back half. That's a little bit of a moderation of the revenue growth rate.
The second thing you've heard me talk about for a while is, at some point, the changes we made in the U.S. Platinum products way back in 2016, we'll be done lapping them. Now, we actually started to lap those in Q4, although not the increased fee in the Consumer Platinum, and yet we were still at 9%. As you heard me say earlier, look, Q4 probably came in a little stronger than we had anticipated. We'll have to see what all that means. I think our 7%-8% range that we're giving you guidance for on 2018 is one we're very comfortable with, that we can very confidently hit. Our job is to see if we can do any better. On the profit-sharing, let me clarify that.
If you think about the timing of all this, the decision to top up our profit sharing is one we made in the days after passage of the Tax Act as we thought about the overall economics of the company going forward and over the long term, as we thought about the strength of our 2017 results. As we thought about doing something very consistent with our view that we're about the long term. We're about the long term for our shareholders in terms of performance. We're about long-term relationships with our customers, and we want to be about the long-term well-being of our employees. That's why we think that doing something that we have not previously done, a real top up around the world of retirement-oriented profit-sharing plans is a really good thing to do for the long-term well-being of our employees.
That is a 2017 Q4 period expense, it would not be an expense in 2018, nor would we expect it to necessarily repeat.
Okay, great. Thank you.
Great. Thanks, Jeff. Thanks everybody for joining tonight's call. We appreciate your continued interest in American Express. Kerry, that's it for us.
All right. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.