M E M O R A N D U M
Subject: TREASURY INVESTMENT IN AMERICAN EXPRESS
Date: December 23, 2008
To: All American Express Employees
From: Ken Chenault
When I wrote to you last month about our decision to become a bank holding company, I explained that we took this step to align our regulatory status with other companies in the financial services industry and to broaden our access to capital during a time of unprecedented strain in the credit markets. Today, we benefited from this decision as the U.S. Treasury Department notified us that we will participate in its capital purchase program.
The Treasury Department is making an equity investment in American Express similar to the ones it has been making in some of the largest and best-capitalized U.S. banks. The Treasury will purchase $3.39 billion in newly issued American Express preferred shares. The proceeds from the sale will further strengthen our capital position. In return, we will pay a five percent dividend annually for the first five years and then nine percent annually thereafter. The terms also state that we can repay the Treasury its original principal amount and retire the shares after three years.
The amount of the Treasury Department's investment in American Express was determined by a formula based on the asset size of companies participating in the program.
The government created the capital purchase program several months ago to help restore stability and confidence in the financial system. The additional capital we gain from the Treasury's investment will clearly enhance our position and give us added stability and capital strength.
The preferred shares that Treasury will own are a different class of shares than the common stock most investors in American Express own. These preferred shares will not come with the full voting rights that common shares provide. The Treasury Department will also receive warrants to purchase common shares with a value of up to 15 percent of its preferred share investment.
Today's news comes at a tumultuous time for the world's economies, but it's important to remember that economic cycles turn. While we are clearly dealing with significant uncertainty in the near term, here are some predictions I am confident in making:
+There will be ample growth opportunities on the other side of this crisis.
+Consumers and businesses will resume their spending, and when they do, they will put more of it on cards and e-payments.
+And we will benefit when that happens.
It's not going to be tomorrow, or next month, or perhaps not even next year. Nor will it be easy to navigate the challenges directly in front of us. We have some hard work ahead.
That's why we have moved so aggressively to refocus our organization on three near-term priorities: staying liquid, staying profitable and investing selectively in growth.
All of us have to stay attuned to the environment and act with a sense of urgency. It's just as important to keep a sense of perspective.
With your dedication to our customers and to the success of our business, I know we are equal to the tasks ahead in 2009. Once again, let me wish all of you and your families a joyous holiday season and a very happy new year.