Ladies and gentlemen, thank you for standing by and welcome to the American Express Third Quarter 2016 Earnings Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the conference over to Toby Willard, Head of Investor Relations. Please go ahead.

Thanks, Ryan. 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 maybe found in the third quarter 2016 earnings release and presentation slides as well as the earnings materials for prior periods that maybe 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, and good afternoon, everyone. As you can see in this afternoon’s earnings release, our earnings per share for the third quarter came in at $1.20, which is 3% below the prior year. These results reflect our continued focus on our priorities of accelerating revenue growth, optimizing investments and substantially reducing our costs. There is clearly still a lot of work to do, but we are pleased with our performance through the third quarter and our results have come in above the expectations that we shared with you earlier this year. The favorability was driven by faster than anticipated progress on our expense initiatives and steady credit performance. Also as we have discussed previously, we did take a very balanced approach to our second half assumptions given some of the dynamics within the U.S. consumer marketplace, including the portfolio sale last quarter in the overall competitive environment. While the environment continues to evolve, we now have greater clarity after seeing the consistent growth in adjusted billings, loans and revenue that we experienced in the third quarter. Also as expected, Q3 included a higher level of investment spending than the prior year and certain impacts from our ongoing cost reduction initiatives, including a modest restructuring charge. And finally, we continued to use our capital strength to return a substantial amount of capital to shareholders. Separate from our operating results, this quarter also saw the recent Court of Appeals’ decision in our favor in the Department of Justice antitrust lawsuit. Though I would point out that the DOJ has the right to further appeal the decision. The progress we have made this year gives us confidence to move ahead more aggressively into Q4 with a number of initiatives that we have been working on for some time. These include a…

Great. Thanks, 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. And with that, the operator will now open the line for questions. Ryan?

Thank you. [Operator Instructions] And we will go to the line of Craig Maurer with Autonomous. Please go ahead.

Yes, hi. Thanks for taking my question. Limiting it to one question, if we do see a rise in interest rates, do you expect there to be any change in the competitive environment as it would seem low credit combined – advantageous credit combined with low rates has allowed what you could call some second rate players to simply throw cash at the problem in the form of Cashback rewards?

Well, Craig, I guess a few comments. We run the company and try to make our decisions based on a very long-term view of how we build long-term sustainable value for our shareholders by creating long-term relationships with our card members and merchants. Frankly, when we do that, we take it through the cycle view of the economics as we make decisions about what we can get good investment returns on and what we can’t. And so that leaves us believing that we should be aggressively investing where we see opportunities regardless of where we may be in the cycle. It is a competitive environment right now. But what I would say is that in response to that competitive environment, we try to stay very focused on our longer term goals and on creating the kinds of products, value propositions and offerings to our card members and merchants that bring to us people interested in the same kind of long-term sustainable value and relationships that we are after. Now, what is the rising interest rate environment as mean for that, well, certainly for us, I think everyone would recall that given the significance of our charge card franchise, for us all else being equal, rising interest rates are – cost us a little bit of money. 100 basis points all else being equal is a couple hundred of million dollars. On the other hand, rising interest rates, in theory, should be accompanied by reasonably good economic conditions and that generally provide some kind of offset. So we feel very comfortable that we have in place a range of strategies and tactics that will drive and be economically sustainable through whatever economic environment we face with these rising interest rates. What that might mean for the competitive environment, we will have to see, but we try not to make decisions counting on any particular change in the competitive environment.

Thank you. We will go to the line now of David Ho with Deutsche Bank.

Good afternoon. Just talking about the incremental investment spend, particularly in your Platinum product, was this – how much of it was reactive versus proactive in response to a new entrant late in October and to what extent will this continue and kind of what’s the pace of investment, we kind of felt a taste of that due to a recent value prop increase, but what else next?

I think it’s a good question, David. What I would say is we are continually working to maintain and keep vibrant what we believe is by far the gold standard in high end cards and that’s the Platinum product, both in the consumer market and the small business market. And you see as part of that us steadily and consistently evolving the product. If you think back over the last few years, every year have seen steady enhancements to the product from the introduction of the Centurion lounges to expansion of various travel oriented credits around TSA PreCheck and Global Entry through status that we are able to offer people through things like our partnership with Hilton HHonors. And so you see a very steady stream of these things. And there is a lot of thought, a lot of planning that goes into them. And what we have announced earlier this month is the latest in that steady stream. And as I said in my prepared remarks, you should expect more, so none of those things happen in response to any particular move by our competitors. They are all very long in the planning, but they all do stem from a general view of how we view the competitive environment evolving in general and how we think we can best evolve the product to take advantage of the broad range of brand and service and global reach that we can bring to our customers that are the kinds of things that we think let us stand out and are very difficult for competitors to match.

Our next question will come from the line of Bob Napoli with William Blair.

Thank you. And I guess I don’t want to beat the rewards thing to death, because there are so many other things to focus on. But with the Sapphire card and I would imagine that when you put your planning together, that you were aware that you would expect the Costco, Citi would have very aggressive marketing programs, but are you seeing – have you seen in effect on the cancellation rate or lost cards from these new competitive products and the rewards that you have put in place and the changes that you put in place, do you think that, that’s good enough to slowdown any competitive loss and then possibly lead to American Express starting to gain market share instead of losing market share?

Well, there is a couple of good questions there Bob and let me start by talking about a couple of different product value propositions. When you look at the Platinum franchise, I would point out to you, as I said in my prepared remarks, that we have seen very nice growth both in numbers of Platinum members in the U.S. as well as the fee income from Platinum members over the course of the past year and that was a contributing factor in our card fees being up 10%. So I would start there and say we feel pretty good about that franchise and its part of why we are continually thinking about how we enhance the proposition in response to the evolving environment. When you look at the Cashback climate, we have been very successful. And again in my prepared remarks, I talked about a particularly good growth we have seen in the U.S. consumer space with our Cashback products. So we feel pretty good about those value propositions. So we will have to – it’s far too early to see any impact from things that have only been launched in very recent weeks and months. And there is – I said a few minutes ago, we are in the game for the very long-term to build long-term relationships with our customers. We believe we have product value propositions that are about creating the kind of relationship with our card members that goes on for many, many years. I would point out that when you look at our Platinum franchise, in many ways is built upon a group of people who stay with us for decades, not for short periods of times. So we feel pretty good about all those value propositions. In terms of market share, we have…

Thank you. We will now go to the line of Sanjay Sakhrani with KBW.

Thank you. Jeff, I was wondering if you could help us with the run-rate of expenses as we move into 2017. I know 2016 has a lot of numbers, not a lot of stuff in there, but maybe you could just help us with how to think about the beginning point for 2017 off of which you will have those expense saves? And then secondly, just as far as the rewards costs are concerned, can you just help us think about how to think of the impacts to the rewards rate on the expense line and the discount rate as far as the cash rewards are concerned? Thanks.

Well, there is quite a bit there. Sanjay let me take a cut at a few of those. On 2017 expenses broadly, I guess, I maybe break them into three categories: operating expenses and M&P and rewards. So to remind everyone, in March at our Investor Day, we showed one scenario for how you might get to our EPS target for 2017 of earning at least $5.60. In that scenario and we did point out there were other ways to get there as well, but in that scenario, we had operating expense in 2017 of $10.9 billion. And what I am telling you this evening is when we look at the progress we have made in identifying and executing on a range of initiatives, we will do better than that. Just how much better, we will have to see, but we will clearly do better and we feel good about that and we are continuing to work everyday to find more money and get the number as low as we can. The next thing I said in that Investor Day scenario is that versus a 2015 base of M&P of about $3.1 billion, we thought we could trim as much as $200 million to $400 million. We will have to see on that one. I would tell you that certainly to the extent we can do better on OpEx, to the extent we have revenue trends that allow us to achieve our financial bottom line targets, I suspect we will probably not pull down M&P as much as we suggested in that Investor Day scenario both because we may have the financial flexibility enough to do it. And look, I am certainly not going to sit on this call, Sanjay, try to argue with people that the environment doesn’t continue…

Thanks.

Our next question comes from the line of Chris Brendler with Stifel. Please go ahead.

Hi, thanks. Good afternoon. First question on the UK, you see an acceleration there. I think it’s reflecting the same question I asked last quarter, it was 10% I think last quarter FX adjusted, now it’s 16%, lot of competitors sort of reacting to the interchange reductions there. What’s your strategy there? Are you gaining share because you are sort of holding the line of rewards in the face of the interchange reductions? And is there any color you can provide on your outlook for the UK business given that sort of competitive advantage at this point? Thanks.

Well, I do – we are pleased by the growth we have seen in the UK, which has been in the double-digits, above 10% for quite some time now. And then I would also point out, as I said earlier, that, that is typical of the majority of countries outside the U.S. where we, in most countries, not all, but in most do find ourselves are gaining share albeit starting from much smaller basis in share than what we have in the U.S. We have a very flexible business model. You hear us talk a lot about the many different advantages of having a closed loop model gives us and we talked a lot about the value that we get from that fact everyday we have to go out and negotiate with merchants to demonstrate our value. And everyday, we have got to demonstrate our value to card members. That is giving us some flexibility in the UK and across Europe to try to craft propositions for both the merchants and card members that people find very attractive as that environment evolves. So, we are pleased with the growth in the UK. I would say that growth has been strong for some time, but it does seem to have picked up even a little bit more steam as you look at this year. So, we are pleased with that and we are working hard all across the EU to further build on that momentum. I would remind everyone however that in the nearer term an offset, which we talk about when we talk about the discount rate is that we are in a multiyear process probably of slowly renegotiating many of our merchant agreements in Europe. And as we renegotiate them because of the caps on interchange, there is more pressure on us in many ways to keep the differential similar, but bring the absolute breakdown and that’s part of what we have been talking about for some time now. That’s part of what’s putting some unusual downward pressure on our discount rate. So, that is an offset that we should remember to some of the nice volume performance we are seeing in Europe.

Thanks so much, Jeff.

Thanks, Chris.

Our next question comes from the line of Chris Donat with Sandler O’Neill. Please go ahead.

Good afternoon and thanks for taking my question. I wanted to ask about the success you have talked about in digital marketing with the 1.7 million accounts you added in the U.S. this quarter and 5.9 million year-to-date. Are you seeing improvements in your cost of acquisition relative to what you have seen in the past and is that a function of being digital or you are just getting better at acquiring customers than maybe were a couple of years ago?

Yes. There is probably a couple of different phenomenon, Chris, worth commenting on. So yes, every quarter, we get better, more sophisticated more thoughtful about how we leverage our closed loop data in terms of making our digital marketing more effective. And that’s why across the globe in our consumer businesses, the majority of our new card member acquisitions for sometime now have come through digital channels. So, one of the reasons why we believe we can moderate marketing and promotional spend over time without losing traction on accelerating revenue growth is every quarter, we get a little better in digital marketing. It is far more economically efficient than some of the other direct mail or depending on what country you are in and the world we used direct sales channels sometimes in a few countries. The one thing I would acknowledge that goes the other way a little bit is certainly our relationship with Costco provided a really good source of acquiring new customers and that was a very low cost acquisition channel and they were good customers attracted to two good brands. So, we have lost that. One of the things internally that we do look at that and are pleased by is as we have lost that channel, we have effectively had to completely replace that acquisition effort with efforts in other channels. Digital has played a big part of that and we feel we have crossed the threshold, if you will, where our acquisitions now even though we have lost that one big former channel, we are above what they were in the prior year and we feel good about that mix. I would say though that certainly not all of our card member acquisitions are digital yet, and one of the positives to me about that is it means I see many years still ahead of us of getting better every year and that’s going to give us a little bit better economics every year. So thanks for the question.

And our next question comes from the line of Moshe Orenbuch with Credit Suisse. Please go ahead.

Great. Thanks. Jeff, most of my questions were actually asked, but I was just hoping you could kind of discuss the performance of the global merchant services, the growth rate in revenue, you talked about – you mentioned Fidelity in your comments, but talk a little bit about the revenue growth and margin trends there, if you could?

Yes. I would remind Moshe, you and for everyone, as we re-segmented the company after ‘10, reorganized the company late last year, we created the four new segments. In the new segments, what we call GMS, which is led by Anré Williams represents our merchant and loyalty businesses. That business does not have in it the – what we call the GMS or network business, which is the business that goes out and negotiates with third-party issues such as the third-party issuer of the Fidelity co-brands. That business is reported in our international consumer segment for the most card part because most of those are relationships are outside the U.S. Fidelity was one of the small number that were in the U.S. So with that as background, when you look at the GMS segment, quite frankly, it’s really going to track the overall company because what you are really seeing in that segment are the acquirer and network economics that go with the issuing done by the consumer in commercial segments. What you see when you look at what we are calling ICNS or the International Consumer and Network Services segment, is the combination of our proprietary issuing businesses outside the U.S. along with the network business. And we do provide in the tables some information about the growth in the network side of the business, which continues as it has for many years now to be of the highest growth in terms of billing segment of the company. So with all that as background, what I would say is the GMS segment really just reflects the overall company economics. And I am not sure I would add a lot there. When you look at the performance of the GMS or network business, we continued to be very pleased by growth in that business outside the U.S. I would say the business in the U.S. is not a growth business. It was down this quarter driven by Fidelity and that would be one thing that I would say is not a particular growth opportunity for the company at least in the near-term. But outside the U.S., we see very nice growth in Europe, Asia as well as Latin America. So thank you for the question.

Our next question comes from the line of Ken Bruce with Bank of America/Merrill Lynch. Please go ahead.

Thank you. Good evening and a surprising quarter in a very good way, so congratulations. My question relates to credit, you talked about competition being intense and most of that’s around rewards. One of the other areas that we have noticed is there has been a lot more focus on growing loans across the board and we are seeing some expansion of the credit box, all things being equal, you guys have been growing fast yourself and you talk about higher loss rates, I guess I would like you to try to dimensionalize kind of where you are expanding the credit box versus what you think is just seasoning within the portfolio without really changing the composition, the overall composition of that loan book. If you could help us with that, that would be great. Thank you.

It’s a good question. Okay. I guess I would say a couple of things. As I said in my prepared remarks, what you have seen is that as our co-brand loan portfolio has shrunk due to the portfolio of sales, we have worked very hard to replace the growth that was formerly coming from those co-brand card members with non-co-brand card members. And as a general statement, we find that the non-co-brand card members are more likely to revolve on their balances. They do have higher write-off rates, so the average credit quality is marginally below where it was for the co-brand card members. We price for that. That’s part of why as I went to the net interest yield, our net interest yield sequentially has gone up a little bit because you are losing the lower yielding co-brand card members and you are gaining more non-co-brand card members where the yield tends to be a little bit better. So that’s the one area where I would say there is some evolution in the nature of the card members. You add to that seasoning because you go through a process over the first year or 2 years that you require a revolving card member where they evolve through the credit process. And those are the two things going on that have led us for some time now to say we feel good about our loan growth. We think we can grow loans at the kind of rates we have been growing them for a very long time and we think we can do without materially changing the overall credit profile of the company. Because I would also just remind you the other reason that we have been able to do that for some years now, because remember it’s not –…

Thank you. Yes, it does. Thank you.

Our next question comes from the line of Don Fandetti with Citigroup. Please go ahead.

Jeff, I was wondering if we can talk a little bit about where your thinking is on the international strategy, it sounds like it’s going to be one of the areas of investment that you highlighted, it’s been a pretty strong area where some of the U.S. consumer businesses are feeling intense competition, can you talk a bit about what you are thinking, are you getting more aggressive there, or is this just sort of continuing the pace?

No, I – it’s a good question Don. And I do think we are trying to drive even more growth out of our international businesses. I will point out for some time now with the one challenge we had and Canada aside, we have seen really nice growth across our international consumer businesses. Our international small business segment, which is reported in GCS is – has consistently for some time now been our highest growth segment in the company. So we feel really good about the growth we have been getting and we will be doing a number of things to try to accelerate it further. When you say though talk about your international strategy, that’s always a challenging question, because we don’t have an international strategy. We have a strategy in the UK. We have different strategy in Germany where we are greatly able to leverage the tremendous strength of our business, which has really nice synergies. The card business, we have a totally different opportunity in Mexico where we have one of the largest market shares we have outside of the U.S. and a tremendous market position that’s growing rapidly. We have a very different strategy in Japan where due to a relationship we struck with JCB many, many years ago, it is one of the few international markets where we have tremendous coverage. And that has been fueling growth rates in the double-digits for a number of years right now. Sorry, I could go on, but I guess my point is we feel good about the trends that we have seen for a couple of years now. We are trying to provide even more resource and focus to invest in the markets where frankly we see the greatest traction and I just named a couple of them. It might be go on, but I won’t – don’t want to take too much of everyone’s time. And it’s really more about just putting more time, effort, resource and focus behind the things we are already doing.

And just as to quickly clarify I know it’s not material, but the China activity pick up, is that outbound coming out of China, is that sort of just organic growth or are there new signings of deals?

No, it’s really organic growth. And so you do see the growth across all types, including outbound, but the biggest chunk is still intra China, where like all networks our share, we are allotted under the Chinese government’s rules is quite modest, to put it mildly. So we like to thank we have continued to you very successfully build the brand and build presence of China. We have been able to do that without putting any capital into China. And as the Chinese government inevitably moves towards a more open and competitive market, we hope that that brand presence that we have been able to create is an asset that we will be able to leverage more over time in the future.

Thank you.

Our next question comes from the line of James Friedman with American Express [ph]. Please go ahead.

Hi. I want to ask Jeff, if you had any observations or comments about your incubation strategy, I remember a couple of years ago you sold your Concur out of your portfolio, I think you probably disclosed Foursquare and [indiscernible] in China, I was wondering are there any assets that you are particularly excited about, I think that you might monetize over time? Thank you.

That’s a good question, James. Certainly, we were pleased in the last couple of years, I would say, you saw two in particular really significant investments that turned out quite well for us, the ICBC investment as well as the Concur investment. We do run, as you would find it, many if not most companies of our size and scale, a venture capital group. And we do have very modest investments in a range of companies across the payments and technology spectrum. I would say our goal there is really about making sure we stay very close to where innovation is happening across all of the spaces that are interesting to us. Our goal is to invest with companies where we can also create working relationships and operating relationships where we can help them succeed and we can also stay with the pulse. And our goal is not to necessarily as the first priority find ourselves making lots of money by buying and selling these stakes. That’s not really the goal. And our goal is not to lose money. So from time to time, we have one of those companies that has some – take some kind of exit and there are modest gains that I don’t usually even bother to talk about are modest losses. For now that’s too quite a nice modest positive. But as I said, that’s not the goal. There is nothing else in the portfolio that I would say is material at this point that an investor should be aware of. There are always investments are quite small.

Thank you.

Our next question comes from the line of Ryan Nash with Goldman Sachs. Please go ahead.

Hi, good evening guys. I will try to make this one quick. Jeff, you gave us a lot of detail in terms of the puts and takes on the expense base, whether it’s the below 10.9 and/or the marketing and promotion dollars, can you just – given all the customer acquisition that you have done this year, can you just help us understand the outlook for revenues, clearly you talked about a lot of different areas, small business, calling back market share, increase lending what you have talked about on this call, but can you give us a sense of how you are progressing relative to expectations on revenues and given this increased marketing spend that you are doing, could – is there a potential we could see higher than expected revenue growth?

Well, I think Ryan, as you would probably expect me to say, we will have to see. We are pleased that when you look at Q3, you saw a little bit of sequential acceleration from the 4% you saw in Q2. We are pleased that year-to-date 35% [ph], I would remind everyone that our scenario that we showed back in March at Investor Day through 2017 had a 5% revenue CAGR, so we are already there. We as a management team, we are laser focused on thinking through the best strategies for accelerating revenue growth further into the kind of higher range scenario that we talked about beyond 2017 at Investor Day. But we will have to see. There is – we feel very comfortable and confident in the choices we have made, but there is a lot of factors, whether it’s the economy or interest rates that someone brought up earlier or the evolving competitive environment. What I would say is we feel good about the earnings guidance we have given people for 2016 and 2017. We feel good about the revenue trends we have seen year-to-date. We feel good about the decisions we have made and we will see how that all plays out in 2017.

Thanks.

Next question comes from the line of Eric Wasserstrom with Guggenheim Securities. Please go ahead.

Thanks very much. Jeff, I was hoping that you might just clarify how we should think about net income for next year? I mean, obviously, you have given the guidance on the EPS and we know that there is going to be significant share repurchases and you have talked to a number of the expense line items. But how do we think about the net income and core profitability relative to, let’s say, an annualized run-rate for the quarter that you just produced?

Well, I would make a few comments. I think you should presume that we will execute upon the CCAR approvals that we have from a share repurchase perspective. And so that math will get you to some continued significant uplift in EPS versus net income. When you think about the quarter we were just in, I would say a couple of things. You would expect to see based on all the comments we have made a little growth in rewards costs relative to the quarter we just saw. On the other hand, we have a lot of operating expense that we are now confident we will get out as we get into 2017. We also believe we can moderate the marketing and promotional line somewhat. I talked a little bit earlier about the tubing and throwing that we will debate internally over the next couple of months about just how much. And then clearly, we are very focused on continuing to get good revenue growth and our goal is to accelerate it. So, you can sort of back into what that will mean depending on what you want to believe about where we end up on an EPS perspective. In some ways, I suppose the probably least variable of all the – variables I just talked you through would be share repurchase, because you can publicly see what we are going to do. Thanks to the CCAR process. So, that’s probably the way I would think about it, Eric.

Thanks very much.

Hey, Ryan, I think we have time for one more question.

Okay. That comes from the line of Rick Shane with JPMorgan. Please go ahead.

Hey, guys. Thanks for taking my question. I will try to be quick here. Jeff, you had talked a little bit about the distortion that’s occurring is as you increase the mix towards Cashback between member rewards and the impact on net discount revenue. I am curious as we think about the fourth quarter and your emphasis on marketing – or excuse me, on growing the Platinum book, how we should think about that relationship, because I am assuming that’s not a Cashback offer?

Correct. Yes, so it’s a good question, Rick. So to remind everyone, what I have been trying to do the last few quarters just due to the way the accounting rules work, we put our Cashback rewards up as a contra revenue and our membership rewards and cobrand rewards generally go down is what you see in the rewards line. So, we try to add all those up as they have been growing so much similarly in recent quarters. Rewards have actually been growing a little bit slower than billings. That will clearly change next quarter because of the Platinum changes. There were also in last year’s fourth quarter a couple of true-ups that kind of one-time things you have from time-to-time that helped lower last year’s Q4 rewards line. So the year-over-year change will look a little bit more exaggerated in this Q4 than in others. In some ways, it might be better to look at the sequential run-rates of rewards, Rick, to try to figure out what happens to the rewards line. But that Cashback counter rewards sequentially aren’t going to do anything unusual other than just grow as the products grow. And the two things that will change on the rewards line are the implementation of these Platinum changes, which will clearly drive significant cost. How much? We will have to see what the take up is, etcetera, along with this accounting item that I talked about from last year. So hopefully, that’s a little helpful in how you think about it.

And the good news is that the clock is now ticking on anniversarying all of these adjustments. So 12 months from now, we won’t be thinking about this quite as much.

I think everyone will enjoy the October 2017 earnings call, Rick, when I don’t have to do adjust at anything. Thank you very much for that reminder.

You could be happiest guy out there.

Alright. Thanks, everybody for joining tonight’s call and thank you for your continued interest in American Express. Ryan, I think we are all set.

Okay. Ladies and gentlemen that does conclude today’s conference. Thank you for your participation. You may now disconnect.