Good morning. Welcome to our 2017 Annual Meeting of Shareholders. I am Ken Chenault, Chairman of the Board and Chief Executive Officer, and I will be presiding at this meeting. I'm very pleased you could join us today. With me on the dais is Carol Swartz, Secretary of the company, who will assist me in conducting the meeting.
Before we begin, I remind you that the order of business and the rules of the meeting are set forth in the printed agenda handed out when you came in. Now before I comment on the company's financial performance, Carol will read a statement called for under these securities laws.
Good morning. 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 risks and uncertainties. Factors that could cause actual results to differ materially from these forward looking statements are set forth in the presentation slides for today's meeting, as well as the company's 2016 Form 10 ks and other 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 today's 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.americanexpressdot com.
We encourage you to review that information in conjunction with today's discussion.
Thanks, Carol. As I typically do, today I'll give you an update on our 2016 results and our performance to date in 2017. Let me start with 2016. I think it's safe to say that a lot has changed since we met together a year ago. We faced a challenging economic environment as well as challenges to our financial performance.
Given these challenges, we initiated a 2 year game plan in which we identified 3 priorities for the organization: accelerate revenue growth, optimize investments and reset our cost base. We focused on each priority throughout the year, and I've been pleased with our performance against each one, the results of which were seen in our financial performance. For 2016, we generated revenues of $32,100,000,000 On an adjusted basis, our revenue growth for the full year was 5% and we gained momentum exiting the year as this growth rate increased to 6% in the 4th quarter. Our diluted earnings per share for the year was $5.65 Excluding restructuring charges, we posted adjusted earnings per share of $5.93 which was in line with the raised earnings per share outlook we provided last October. Return on average equity for the year was 26%.
Our business metrics reflected the strengthening of our adjusted revenue performance. Global billed business on an adjusted basis was up 8% for the full year, reflecting strength in the U. S. As well as in key international markets such as the UK, Japan and Mexico. Card member loans were up 11% even as we reported a best in class write off rate of 1.6%.
Our performance in 2016 was marked by a number of highlights. We acquired more than 10,000,000 new proprietary cards during the year, helped by increased investments in marketing and promotion and advances in our digital acquisition capabilities. We continue to grow our global merchant network, adding more than 1,000,000 new merchant locations in the U. S. During the year, while also expanding in key international markets.
Our progress in getting more small businesses to accept our cards through our OpBlue program gave us more confidence that we can achieve merchant coverage parity with Visa and Mastercard in the United States by the end of 2019. We remain the most globally diversified payments provider, helped by the strong performance of our international businesses. FX adjusted billed business outside of the U. S. Was up 10% for the year, driven by targeted investments in a number of key markets.
As I noted earlier, our loan growth continued to outpace the industry, even while maintaining excellent credit performance. The commitment we made to reduce our cost base by $1,000,000,000 on a run rate basis by the end of 2017 has been a focus across our entire organization. We lowered our adjusted operating expenses by 1% for 2016, and I'm pleased to say we're making good progress against this ambitious goal. We achieved these results while still investing appropriately in key areas such as business growth, control and compliance and infrastructure. While new products and services have been a key focus for us, we haven't lost sight of our heritage.
And as such, we continue to strengthen our customer service capabilities. Because of this, our card member recommend to a friend scores have improved by approximately 24% since 2011, reaching an all time high at the end of 2016. During the year, we used our capital strength to repurchase $4,400,000,000 worth of shares and returned $1,100,000,000 in common stock dividends to investors. These amounts collectively represent a 99% return of total capital generated during the year. Another important development concerned our legal battle with the Department of Justice, which began in 2010.
Last September, we earned a significant victory when the 2nd Court 2nd Circuit Court of Appeals ruled unanimously in our favor. The Department of Justice appealed the ruling, but in January, the full appellate court denied their request. While the Department of Justice still has the option to appeal to the Supreme Court, we believe the appellate court sent a clear and unmistakable message with their decision. Throughout this time, we fought for the right to protect our card members from discrimination at the point of sale, and we stand ready to continue the fight if need be. So overall, 2016 was an important transitional year for the company.
We implemented a number of growth initiatives that will benefit the company over the short, moderate and long term and made good progress in positioning the company for success in a very competitive marketplace. Helped in part by our investment optimization, we're off to a good start in 2017. In the Q1, we generated $1.34 of earnings per share, which reflects the steady progress of our revenue and expense initiatives. Revenues accelerated during the quarter, up by 7% on an adjusted basis, and our return on average equity was 25%. Adjusted global card billings grew by 8%.
Worldwide loans grew by 12% on an FX adjusted basis, while our credit metrics continue to be very strong. Our global net write off rate was 1.7%, an indicator of excellent credit quality. And finally, our capital ratios continue to be exceptionally strong and well above regulatory requirements. In closing my discussion of our performance, let me just say a few things. As I've discussed with you before, my focus is to appropriately position our company for future growth.
Our business model and our assets, capabilities and relationships are unique in the industry and I believe they can serve as a foundation for growth. We're now 1 year into our 2 year financial plan and while we continue to face substantial competitive and environmental challenges, I am pleased with our performance. In 2017 and beyond, we're moving forward on transforming our 100 and 67 year old company for the future and extending our leadership within payments, services and commerce. I'm confident we can take advantage of the diversified growth opportunities we have across our businesses and continue generating value for our investors. With our commitment to shareholder value, our financial strength, our unique competitive advantages, the strength of our brand, and most of all, the quality, character and commitment of our people.
I believe we're more than up for this challenge. Thank you. Let's now turn to the official business of our meeting. Because this is a meeting of shareholders, only shareholders should speak and the comments should relate to the company's business. To permit shareholders who could not be here today to listen to these proceedings, we are providing a live audio webcast of today's meeting.
As Chairman, I will be responsible for the conduct of today's meeting. I will seek to have an orderly and formative session in which we get our business done, complete the voting and tabulating and give shareholders the opportunity to ask questions that are relevant to the company's business. To accomplish this, I ask each shareholder to keep his or her remarks brief and to the point and not interrupt other shareholders. Please keep your remarks to 2 minutes unless you are presenting a proposal. Our goal is to assure that all persons who wish to speak get a chance to do so in an orderly way.
Privacy considerations prevent from discussing at this meeting questions related to any specific card member. If you need help with any personal card matters, please go to the table outside of this room after the meeting adjourns. We have made arrangements for you to speak with our customer care professionals. Let me now introduce our slate of directors. Will ask each to stand briefly while I mention their names.
Please hold your applause until all have been introduced. With us today are Jack Brennan, Ursula Burns, Peter Chernin, Ralph Di La Vega, Anne Lobillon, Michael Levitt, Ted Leonsis, Rick Levin, Sam Palmisano, Dan Vasella, Bob Walter. Charlene Barshevsky and Ron Williams could not be with us in person here today. I want to ask Jack Brennan to stand. Jack joined our Board earlier this year, and this is his first annual meeting.
Jack is an outstanding businessman, having led The Vanguard Group, one of the world's most successful global investment management firms. Jack has significant financial services, accounting and public company governance experience. We are very pleased to welcome Jack to our Board. Please join me now in applauding this outstanding group of directors. Also with us today is Lisa Sawicki, a partner of our outside audit firm, PricewaterhouseCoopers.
All right, Carol, let's get on with the formalities.
Ken, I present a copy of the notice of annual meeting of shareholders dated March 20, 2017, and affidavits showing that notice of this meeting was duly given. A copy of the notice and affidavits will be filed with the minutes of this meeting. All shareholders of record at the close of business on March 3, 2017 are entitled to vote at this meeting. A certified list of the company's shareholders of record is present at today's meeting and will remain open for inspection during the meeting. The minutes of the last annual meeting with shareholders are also here and are available for inspection.
The company has designated Peter Deskovich and James Dufourli of Broadridge Financial Solutions to act as inspectors of election. The inspectors have taken their oaths to faithfully and impartially execute their duties.
All right, Carol. Do we have a quorum and may we proceed?
The inspectors of election have determined that holders of at least 805,000,000 shares or over 89% of the common stock of the company entitled to vote at this meeting are present or are represented by proxy and constitute a quorum.
Fine. The meeting is now duly convened for the purpose of transacting business properly before it. At this point in the proceedings, we will move to the various proxy proposals. Please limit any comment at this time to matters relating to the proposals. We will have time later in the agenda for general questions.
If you have already voted by proxy and do not wish to change your vote, you don't have to do anything further. For those of you who haven't voted by proxy or for those of you that wish to change your vote, ballots will be handed out to you. Will any shareholder who wants a ballot please raise your hand? Someone right over here. And so an usher will come to you and give you a ballot.
If you are voting today by ballot, please vote on all items as submission of a ballot now will revoke your prior proxy. We will now introduce the proposals. The first item of business is the election of the Board of Directors.
I propose that the 14 persons whose names and biographies appear on Pages 14 to 21 of the proxy statement be elected as Directors of the company to hold office until the next Annual Meeting of Shareholders and until their successors are duly elected and qualify.
The next matter is the proposal to ratify the appointment of PricewaterhouseCoopers to audit the company's accounts in 2017. The company's Audit and Compliance Committee has appointed PricewaterhouseCoopers as the company's independent registered public accounting firm for 2017. And the Board asked the shareholders to ratify the company's appointment. Carol, would you introduce the proposal the resolution rather?
I offer the resolution appearing on Page 38 of the proxy statement, ratifying the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm to audit the accounts of the company and its subsidiaries for 2017.
The next matter is the advisory vote on executive compensation. Carol, would you introduce the resolution?
I offer the advisory resolution to approve the compensation of the company's named executive officers as disclosed pursuant to Item 402 of Regulation S K, which appears as Item 3 on Page 42 of the proxy statement.
The next matter is an advisory vote on the frequency of future say on pay votes. Carol, would you introduce
I offer the resolution to approve the frequency of future advisory votes on executive compensation, which appears as item 4 on Page 76 of the proxy statement.
The next proposal is a proposal of Myra Young requesting adoption of shareholder action by written consent. It appears on Page 77 of the proxy statement. Ms. Lam will now introduce the proposal on her behalf.
Good morning.
How are you?
Good. How are you? Good. Good morning, Mr. Chairman, members of the Board and fellow shareholders.
My name is Natasha Lam. I'm here to move a couple of items this morning, but first proposal number 5, the right to act by written consent, which is sponsored by Mira K. Young of Elk Grove, California. Resolved that shareholders request that our Board undertake such steps as may be necessary to permit equal consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action of the meeting at which all shareholders entitled to vote thereon were present and voting. The written consent is to be consistent with applicable law and consistent with giving shareholders the fullest power to act by written consent with applicable law.
This includes shareholders' ability to initiate any topic for written consent consistent with applicable law. A shareholder right to act by written consent and call a special meeting are 2 complementary ways to bring an important matter to the attention of both management and shareholders out of the annual meeting cycle. Both are associated with increased governance quality and shareholder value. A shareholder right to act by written consent is one method to equalize our limited provisions for shareholders to call a special meeting. For instance, it takes 25% of American Express shares outstanding, net long to call a special meeting.
New York law allows 10% shares outstanding to call a special meeting without mandating a net long requirement. Please vote for our right to act by written consent to protect shareholder value.
Thank you.
Thank you very much, Ms. Lam. The Board of Directors' reasons for opposing this proposal appears on Page 78. The meeting will continue in a moment. Please remain online.
Performance benefits. Thank you.
Thank you, Ms. Lamb. The Board of Directors' reasons for opposing this proposal appear on Pages 80 and 81 of the proxy statement. Are there any other comments that pertain to the voting matters? If there are no other comments pertaining to the voting matters at this point in the meeting, I ask that you please turn in your ballots so we can tabulate the votes of the proposals introduced today.
The ushers will now collect the ballots. If you have brought your proxy to the meeting and haven't turned it in, you may do so now. Since everyone who wishes to vote has done so and has voted, I declare the polls closed and ask the inspectors of election to collect and tabulate the ballots. I will now take general questions while the inspectors of election count the votes. Mr.
Berman?
Philip Berman, Portfolio Manager and Shareholder, a brief comment and then some questions. Since we lost the Costco account and the high level AXP executive tension has maintained and reenergized the AXP brand and we now have bounced back very nicely. Now some questions. Have you seen any noticeable effect on our credit card business directly due to the depressed retail environment where many iconic retail stores are being downsized or closed and due to the sharp deceleration in sales of certain luxury goods.
It's very good to see you again. Hi, Simon. I appreciate your attendance always at this meeting. Let me say that the economy, while there is as we've seen a little bit of growth, certainly there are segments of traditional retail that are facing challenges. I think what is important is when you look at the American Express business model, we have a very diversified model and we've taken a number of actions that we talked about in our Q1 earnings release that have had more to do with our growth in billings and revenue than frankly the economic environment.
What certainly is happening as you know is that certainly online commerce has proven to be a very formidable competitor to traditional retail. What we have seen is though that there are some retailers who are very focused on leveraging the convergence of online and offline. And so we have seen examples of retailers that have been able to grow in this environment by in fact changing the retail experience, the in person retail experience and complementing that with a digital experience. So, we have not seen a environmental impact, if you will, as a result of the improved economy on our business at this point. We'd like to see more growth overall, but we are very focused on continuing to have strong relationships with a wide variety of both traditional retailers and online retailers.
And I feel very good about the partnerships that we have created in the retail sector.
Should we at all be concerned that Citi, Cap One and Synchrony have suddenly now reported losses on their lower end credit card portfolios?
I think you'd have to ask them that question. What I would say as I opened in my remarks, we feel very good about our overall credit performance. I think what is essential is that we are leveraging 1, the unique advantages of our closed loop model. We are leveraging the modeling skills that we have developed. I think we have the top risk management team in the industry.
And I believe that we are also careful in how we select our card members and what's also very important from a lending standpoint is we are focused on existing card members. So in the Q1, over 51% of the AR that we brought in came from existing card members. And when you do that, you are actually bringing in a much better customer from a credit perspective. So let me be very clear here. No one should be complacent about credit.
We're very focused on that, but we feel very good about our credit performance, very good about our strategy, very good about the mix of businesses that we have because the other point that I would make is our commercial payments business, which is very significant, 90% of the billings in that business are on our charge card pay in full. So having a diversified business model with a range of products and services,
I think really puts the company in good stead. In the last year, you are now being placed into the position of competing against 2 rivals whose Chairman and CEOs are long time American Express Executives who work directly with you. Has your direct knowledge of their strengths and weaknesses affected your strategies for keeping AXP far ahead of the rivals?
Here is I think what's important. I think the reality is that we have always been focused on making sure we have high quality people with the company. What I think is a testament to that is that in almost every major company, there is someone who worked at one time at our company. That's the reality when you are the best, people come after you. But what should also be very clear is the depth of this management team and the quality of the management team.
The second point that's very important is we have a differentiated business model. It is unique in the payments industry. And so I'm a strong believer in one of Warren Buffett's points that what you want to do in the best case is have top notch management matched with a unique and differentiated business model. And so we have clear strategies in place to take advantage of our unique business model and I'm confident based on the progress and momentum that we're generating that we are up to the challenge.
And one last question, what is your view of VMO? What? VMO. What is your view of VMO?
Venmo. I think that Venmo is an interesting P2P product. What they have to do and I think PayPal acknowledges this is to figure out how to make money with it. And that's going to be important as we go forward. I think what is also critical again is we also have a range of products and services to focus on different segments.
And from a millennial perspective, I feel very good about the numbers that we are attracting into our franchise. So that's something that we are looking at, that we're focused on, that we have products and services, But what will be important is they need to figure out how in fact they'll make money.
Thank you.
Thank you very much. Yes.
Yes, good morning.
Good morning.
My name is Howard Tonneau, I'm a shareholder and I have basically 3 sets of questions. First of all, I noticed on your annual report that 75% of our company's consolidated revenues is overseas. I also noticed that's on Page 31. On Page 81, I noticed the cash position is over $25,000,000,000 Can I presume that more or less that's also 25% of the cash is overseas? And if so, due to the potential tax ramifications that President Trump has in his tax plan where he basically wants to repatriate overseas cash back into the U.
S, is the company contemplating of putting some of that $25,000,000,000 back into the U. S. End of it to take advantage of the tax laws in that regard? And secondly, from a follow-up from last year's question concerning about the effects of Brexit, in fact, I don't want to single yet on this, Mr. Chambers, on record, because I know you keep it.
I had seen online where you keep a transcript of all the proceedings here, where you were predicted that the Brexit vote was going to fail and it did. I'm just wondering and follow-up question from last year, how has that affected our operations, not only in England, Great Britain, but also the potential where other countries such as France, irregardless of their upcoming presidential election, according to the polls in France, the plurality of citizens there also want to leave the European Union as well as some other countries rumored as Italy and Portugal, etcetera. How would that affect our operations down the road? And my final question, which I always forget to ask you is many years ago, when my late mother, when she tried to use her American Express card, one of the merchants wanted to hit her with a surcharge on the tax, I think it was like 2.5% at that time, that was at least 15, 20 years ago. And I'm just wondering how is the company combating that type of problem where merchants are trying to circumvent the charge by hitting customers, which in turn discourage using the American Express card.
Yes. I think let me try to do that in reverse order and I'll try to remember each of your questions. The first with respect to your mother, the reality is in the U. S, surcharging is not an issue. The reality is that it's an issue for the industry overall.
So selective surcharging is not something that is practiced in the U. S. In other jurisdictions, you do have a case of some selective surcharging. What's very important and American Express has made some real inroads here is to make sure that we are communicating the value proposition of our card that we bring incremental business that we have higher average charge. We're very vigilant in educating regulators that that is really not a customer friendly move.
And so I think we are managing that on a broad basis, but it's something that we're very, very focused on. And so I think from 20, 25 years ago, we've made substantial progress. That's why I can stand up here and tell you that we believe by the end of 2019, we'll be at parity coverage with Mastercard and Visa. Now as far as the Brexit issue, I don't necessarily recall that I said the Brexit vote would fail. I was as surprised as anyone of what happened with that vote.
But the reality is that we believe that we have the type of business model that we can adjust. And what I think is important and we went through this in the first quarter is we have achieved billings growth in the double digit level in the UK post Brexit. And again, that speaks to the strength of the business model. As far as what happens in other countries, that is speculative. It's unclear.
I think what is important is to have a flexible, adaptable business model. Now the first question, let me broaden it and it really goes to tax reform overall. And the reality is that we are strong supporters of comprehensive tax reform of a territorial tax framework, which we think would be important. You should know that American Express has a tax rate that is quite high, in the low to mid-30s. And so we would benefit from a cut in the corporate tax rate, And I think that would be very beneficial to our shareholders and the optionality of what we could do with that.
So thank you very much.
But what about the potential with the cash position, would you contemplate putting some of the overseas cash back into the U. S. To take advantage if that point of the
I think the reality is what we'd have to do is look at what the opportunities are, what in fact are the changes from a legislation standpoint. Thank you. Yes, in the middle here. If you could just wait for the microphone to come so we could hear you.
My name is
Darlene Bookoff and I am a shareholder. And I wanted to ask you, you just mentioned that you felt fairly confident about your ability to attract millennials. And I have some concerns about both. I've read articles recently about millennials preferring the Chase Sapphire card because they felt that it's the image of elitism that American Express has cultivated throughout the years that they object to and also the new newly announced benefit on the platinum card of the relationship with Uber. If you had to pick a company that's sort of the bad boy of the new economy, you couldn't have picked the worst company.
Every day, I seem to be reading another article, really negative article about the CEO and the company itself. So I have concerns about that and how that might impact your ability to grow your customer base among the millennials?
Good. So let me just say from a millennial perspective, what I think is very important is to understand the facts. The reality is that we are attracting a substantial number of millennials to the American Express franchise. The American Express franchise resonates very well. The point that I would make is, if one goes back to the early 90s, American Express was viewed as more elitist, in some cases, arrogant.
We acknowledge that publicly. But what you've seen is that the brand has become a more welcoming brand. And what's very, very important is if you think about the partnerships that we've been able to develop with Airbnb, with Facebook, with Twitter. If you look at the products and services that we're offering, our platinum product, right? The reality is in 2016, with the introduction of Chase Sapphire, 2016 was the best year in the history of Platinum Card in terms of cards acquired and in spending on the cards.
So we have tangible evidence that from a millennial perspective, service and services are important. And I think one of the things people identify with from a millennial perspective are the values of the company, the services that we provide, the experiences that we provide. And so it is a major area of focus for the company. But I am very confident, I will tell you by the end of 2017, 75% of the cards that we acquire will come from mobile channels. And as you can imagine, a significant percentage of those customers will be millennials.
So those are the facts. And think it's important that you understand that we are very, very focused and in fact very pleased with the progress we're seeing on a global basis. And what I should add is this is not just consumer, this is also in small business. So, we feel very good. 1 of our programs we have, Pay With Points, from a millennial, they love it.
They are the largest users of those capabilities. Now with respect to Uber, I think you should talk to them. But what I would also say is that we have partnerships with companies that go through a set of different challenges. And I think Uber has to deal with those challenges. I think they publicly acknowledge that they have to deal with those challenges and I think that's important.
So if there are no other questions, I'm going to conclude the question and answer session.
The votes I'm about to announce are preliminary. In accordance with SEC rules, we will file a report on Form 8 ks with the SEC within 4 business days and that 8 ks report will contain the final tabulation of the votes. On the election of directors, the inspectors of election report that each of the 14 nominees of the Board of Directors listed in the proxy statement received over a majority of the votes cast. Each of the 14 nominees received over 94% of the votes cast. On the ratification of PricewaterhouseCoopers, the inspectors of election report that at least 97% of the votes cast were voted to ratify the appointment.
On the advisory vote on executive compensation, the inspectors of election report that at least 73% of the votes cast were voted to approve the compensation paid to the company's named executive officers. On the advisory vote on the frequency of future say on pay votes on executive compensation, the inspectors of election report that at least 93% of votes cast were voted to approve holding an annual vote in future years. On the proposal relating to action by written consent, the inspectors of election report that at least 61% of the votes cast were voted against the proposal. On the proposal relating to gender pay equity disclosure, the inspectors of election report that at least 88% of the votes cast were voted against the proposal.
As a result of this morning's voting results, I declare the slate of 14 director nominees recommended by the Board of Directors are elected for a 1 year term. The company's shareholders have approved and ratified the company's appointment of PricewaterhouseCoopers for 2017. The company's shareholders have approved the compensation paid to the company's named executive officers. The company shareholders have approved the company continuing to hold annual advisory say on pay votes. The shareholder proposal relating to action by written consent did not pass and the shareholder proposal relating to gender pay equity disclosures did not pass.
There being no further business to come before the meeting, I declare the meeting adjourned. Thank you very much.
Thank you.