American Express Company is a leading global payments and travel company. The Company's principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. The Company's businesses are organized into two customer-focused groups, the Global Consumer Group and the Global Business-to-Business Group. The Global Consumer Group offers a range of products and services including charge and lending (i.e., credit) card products; consumer travel services; and stored value products such as Travelers Cheques and prepaid products. The Global Business-to-Business Group offers business travel, corporate cards and other expense management products and services; network services and merchant acquisition and merchant processing for the Company's network partners and proprietary payments businesses; and point-of-sale, back-office, and marketing products and services for merchants. The Company's various products and services are sold globally to diverse customer groups, including consumers, small businesses, middle-market companies, and large corporations. These products and services are sold through various channels including direct mail, on-line applications, targeted sales forces, and direct response advertising.

The Company's products and services generate the following types of revenue for the Company:

† Discount revenue, which is the Company's largest revenue source, represents fees charged to merchants when cardmembers use their cards to purchase goods and services on the Company's network;

† Cardmember lending finance revenue, which represents interest income earned on outstanding balances related to the cardmember lending portfolio;

† Net card fees, which represent revenue earned for annual memberships;

† Travel commissions and fees, which are earned by charging a transaction or management fee for airline or other travel-related transactions;

† Other commissions and fees, which are earned on foreign exchange conversion fees and card-related fees and assessments;

† Securitization income, net, which is the net earnings related to cardmember loans financed through securitization activities; and

† Other revenue, which represents insurance premiums earned from cardmember travel and other insurance programs, revenues arising from contracts with Global Network Services' (GNS) partners including royalties and signing fees, publishing revenues, and other miscellaneous revenue and fees.

In addition to funding and operating costs associated with these types of revenue, other major expense categories are related to marketing and reward programs that add new cardmembers and promote cardmember loyalty and spending, and provisions for anticipated cardmember credit and fraud losses.

Certain reclassifications of prior period amounts related to discontinued operations as further discussed below have been made to conform to the current presentation.

Certain of the statements in this Form 10-Q report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See the "Forward-Looking Statements" section below and Item 1A - Risk Factors.

Current Economic Environment/Outlook

Recently, concerns over the availability and cost of credit, the U.S. mortgage market, a declining real estate market in the United States, unemployment, the prospects of a global recession and geopolitical issues have contributed to increased volatility and diminished expectations for the economy and the markets. In the latter part of the third quarter and into October of 2008, the Company experienced slowing cardmember spending and loan volumes as increasing stress in the worldwide financial markets further eroded consumer and business confidence levels. Based on recent trends, the Company expects consumer and business sentiment will

likely deteriorate further and will translate into weaker economies around the globe well into 2009. The Company also expects unemployment will increase substantially in 2009.

The Company believes that cardmember spending in such an environment is likely to be very soft and loan growth will be restrained. In addition, credit indicators are likely to reflect the weaker economy, including a continued downturn in the housing sector. While the Company's net write-off rate was 5.8 percent in the third quarter, the rate increased to 5.9 percent in September, and the Company believes net write-offs will continue to rise further in the fourth quarter of 2008 and first quarter of 2009. The Company's objectives in this environment are to retain a liquid and strong balance sheet, to continue to generate returns that provide further capital flexibility, and to invest selectively in growth opportunities.

To prepare for this more difficult environment, the Company is moving ahead with plans that will result in restructuring charges in the fourth quarter. (See further discussion in Reengineering Initiatives section below). Through a combination of cost reductions and revenue-building actions, the Company expects to be able to free up a significant amount of resources that would be available to earnings starting in early 2009. The Company will continue to selectively and prudently invest in longer-term business-building actions and programs with the objective of capitalizing on its strong brand and competitive position in the payments industry. The Company also intends to implement a number of selective pricing increases in connection with certain of its products to help mitigate the negative impact of the current economic environment.

The impact of turmoil in the money and capital markets could impact the Company's net interest margins. The interest expense the Company incurs on a significant portion of its outstanding floating-rate debt, including asset securitizations, is indexed to U.S. dollar LIBOR. The prime rate, which changes with the targeted Fed funds rate, is used to determine the yield on the Company's variable-rate U.S. lending receivables. Recent differences in the movements of benchmark LIBOR rates, which have risen significantly as a consequence of the global credit crises, and the prime rate, which declined concurrent with the Federal Reserve's decisions in October to reduce its targeted Fed funds rate, if sustained during November and December, would have a material adverse impact on the Company's net interest margins and financial results for the quarter ending December 31, 2008. Historically, the prime rate has generally exceeded one month LIBOR by approximately 285 basis points. As a result of the increase in LIBOR during the ongoing credit crisis and the Federal Reserve's recent decisions to lower the targeted Fed funds rate (which have resulted in a consequent decrease in the prime rate), the spread between the prime rate and one month LIBOR has decreased significantly and for a period during October was close to parity. Although one month LIBOR has begun to decrease, it continues to remain above historical levels compared to Fed funds, and this circumstance, combined with the Federal Reserve's action on October 29, 2008, to reduce the targeted Fed funds rate to 1.0 percent, could continue the "spread compression" between one month LIBOR and the prime rate (See Financial Activities Section and Item 3. Quantitative and Qualitative Disclosures about Market Risk).

In addition, to the extent that the recent increases in LIBOR continues, the Company's net interest margins on the fixed-rate portion of its U.S. lending portfolio would also decrease and the interest expense on borrowings to fund its charge card portfolio would increase, which could have a material adverse impact on the Company's financial results (see Financial Activities Section and Item
3. Quantitative and Qualitative Disclosures about Market Risk).

The Company believes that in light of the challenging conditions described above, until the current economic environment improves, it will not meet its on-average and over-time financial targets.

Reengineering Initiatives

In July 2008, in response to the current economic environment, the Company announced management's intention to undertake certain significant reengineering initiatives in order to reduce the Company's cost structure. As a result of these reengineering efforts, the Company expects to record a pretax restructuring charge of approximately $370 million to $440 million ($240 million to $290 million after-tax) in the fourth quarter of 2008. The reengineering plan includes reducing staffing levels and compensation expenses, cutting operating costs, and scaling back investment spending as follows:

† Staffing and Compensation: The Company intends to eliminate approximately 7,000 positions or approximately 10 percent of its total worldwide workforce. These reductions will primarily occur across business units, markets and staff groups, focusing on management and other positions that do not interact directly with customers. The Company is also suspending management level salary increases in 2009 and instituting a hiring freeze for open positions. Total benefits from these staffing and compensation-related decisions are expected to amount to approximately $700 million in 2009.

† Other Operating Costs: The Company also plans to reduce operating costs by cutting expenses for consulting and professional services, travel and entertainment and general overhead. These steps are expected to realize benefits of approximately $125 million in 2009.

† Investment Spending: The Company will scale-back investment spending in technology, marketing, business development, and streamline costs related to certain rewards programs. The anticipated benefit is approximately $1.0 billion in 2009.

Although these reductions in spending are significant, the reengineering initiatives are designed not to sacrifice customer service or risk management capabilities.

The combined compensation, operating expense and investment reductions are expected to generate a total benefit of approximately $1.8 billion in 2009. These benefits represent reductions from previously anticipated spending levels in 2009. Additionally, the Company is moving forward with some pricing initiatives designed to generate significant additional revenue next year.

Visa and MasterCard Settlements

On November 7, 2007 and June 25, 2008, as previously disclosed, the Company announced that it had reached settlement agreements with Visa Inc., Visa USA, and Visa International (collectively Visa), and MasterCard International, Inc. (MasterCard), respectively.

Under the terms of the settlement agreements, the Company will receive aggregate maximum payments of $2.25 billion and $1.8 billion from Visa and MasterCard, respectively, for an aggregate maximum total of $4.05 billion.

The settlement with Visa is comprised of an initial payment of $1.13 billion ($700 million after-tax) that was recorded as a gain in the fourth quarter of 2007 and received in March 2008. The remaining payments are payable in quarterly installments of up to $70 million ($43 million after-tax) beginning in the first quarter of 2008 through the fourth quarter of 2011. The MasterCard settlement is comprised of quarterly installment payments of up to $150 million ($93 million after-tax) beginning in the third quarter of 2008 through the second quarter of 2011. The Visa and MasterCard quarterly payments are subject to the Company achieving certain quarterly performance criteria within the U.S. Global Network Services business. The Company recognized $70 million from Visa in each of the first three quarters of 2008 and $150 million from MasterCard in the third quarter of 2008 because the quarterly performance criteria were achieved. These payments are included in other, net expenses within continuing operations in the Consolidated Statements of Income and within the Corporate & Other segment.

Disposition of American Express Bank Ltd.

On September 18, 2007, the Company entered into an agreement to sell its international banking subsidiary, American Express Bank Ltd. (AEB) to Standard Chartered PLC (Standard Chartered). On February 29, 2008, Standard Chartered completed its purchase of AEB. In the second quarter of 2008, the Company and Standard Chartered agreed on the final purchase price of $796 million, equaling the final net asset value of the AEB businesses that were sold plus $300 million. For 2008 through the date of disposition and all prior periods presented, the operating results, assets and liabilities, and cash flows of AEB (except for certain components of the AEB businesses that were not sold) have been removed from the Corporate & Other segment and reported separately within the discontinued operations captions in the Company's Consolidated Financial Statements and notes related thereto.

American Express International Deposit Company

On September 18, 2007, the Company also entered into an agreement with Standard Chartered to sell American Express International Deposit Company (AEIDC), a subsidiary that issues investment certificates to AEB's customers, 18 months after the close of the AEB sale through a put/call agreement. The net asset value of AEIDC is expected to be realized through (i) dividends from the subsidiary to the Company and (ii) a subsequent payment from Standard Chartered based on the net asset value of AEIDC on the date the business is transferred to them. During the third quarter of 2008, AEIDC qualified to be reported as a discontinued operation. Accordingly, for all the periods presented, AEIDC's operating results, assets and

liabilities, and cash flows have been removed from the Company's Corporate & Other segment and reported separately within the discontinued operations captions in the Company's Consolidated Financial Statements. The net asset value of AEIDC at September 30, 2008 and December 31, 2007 was $50 million and $232 million, respectively.

The Company recognized $68 million and $192 million in net unrealized mark-to-market losses during the three and nine months ended September 30, 2008, respectively, as well as a net realized loss of $1 million and a net realized gain of $14 million, respectively, related to the AEIDC trading investment portfolio. The changes in the market value of AEIDC's investment portfolio will be reported under the discontinued operations caption within the Consolidated Statements of Income until the sale of AEIDC, which will occur no later than the third quarter of 2009.

Acquisitions

Corporate Payment Services

On March 28, 2008, the Company purchased Corporate Payment Services (CPS), General Electric Company's (GE) commercial card and corporate purchasing business unit. The total cash consideration of $2.3 billion paid by the Company consisted of the contractual purchase price of approximately $1.1 billion plus the repayment of CPS' $1.2 billion in outstanding debt as of the acquisition date. The component businesses of CPS are reported within the Global Commercial Services (GCS) and the U.S. Card Services (USCS) operating segments. See Note 1 of the Company's Consolidated Financial Statements for further details.

The Company is still in the process of signing agreements with CPS' customers and therefore, no migration of CPS' customers has occurred yet. The Company anticipates the migration of these customers to its network will be completed by March 31, 2009. As a result, the Company's financial metrics (e.g., billed business and cards-in-force) do not yet reflect CPS' card performance.

                            American Express Company

                        Selected Statistical Information



(Billions, except percentages and where indicated)



                                             Three Months Ended          Nine Months Ended
                                               September 30,               September 30,
                                             2008          2007          2008         2007
Card billed business (a):
United States                             $    120.3    $    115.2    $    358.4    $   336.3
Outside the United States                       55.2          47.3         164.4        133.5
Total                                     $    175.5    $    162.5    $    522.8    $   469.8
Total cards-in-force (millions) (b):
United States                                   54.3          51.7          54.3         51.7
Outside the United States                       37.8          33.0          37.8         33.0
Total                                           92.1          84.7          92.1         84.7
Basic cards-in-force (millions) (b):
United States                                   42.3          40.1          42.3         40.1
Outside the United States                       32.8          28.3          32.8         28.3
Total                                           75.1          68.4          75.1         68.4

Average discount rate (c)                       2.56 %        2.57 %        2.56 %       2.57 %
Average basic cardmember spending
(dollars) (d)                             $    3,049    $    3,006    $    9,233    $   8,874
Average fee per card (dollars) (d)        $       34    $       32    $       34    $      31
Return on average equity (e)                    27.8 %        38.2 %        27.8 %       38.2 %
Return on average tangible equity (e)           34.4 %        44.9 %        34.4 %       44.9 %

(b) Total cards-in-force represents the number of cards that are issued and outstanding. Proprietary basic consumer cards-in-force includes basic cards issued to the primary account owner and does not include additional supplemental cards issued on that account. Proprietary basic small business and corporate cards-in-force include basic and supplemental cards issued to employee cardmembers. Non-proprietary basic cards-in-force includes all cards that are issued and outstanding under network partnership agreements.

(c) This calculation is designed to approximate merchant pricing. It represents the percentage of billed business (both proprietary and Global Network Services) retained by the Company from merchants it acquires, prior to payments to third parties unrelated to merchant acceptance.

(d) Average basic cardmember spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees, including the amortization of deferred direct acquisition costs, divided by average worldwide proprietary cards-in-force. The adjusted average fee per card is computed in the same manner, but excludes amortization of deferred direct acquisition costs. The adjusted average fee per card was $39 and $36 for the quarters ended September 30, 2008 and 2007, respectively, and the amount of amortization excluded for these periods was $84 million and $71 million for the quarters ended September 30, 2008 and 2007, respectively. The adjusted average fee per card was $39 and $36 for the nine months ended September 30, 2008 and 2007, respectively, and the amount of amortization excluded for these periods was $243 million and $214 million for the nine months ended September 30, 2008 and 2007, respectively. The Company presents adjusted average fee per card because management believes that this metric presents a better picture of card fee pricing across a range of its proprietary card products.

(e) Return on average equity is calculated by dividing (i) net income ($3.3 billion and $4.1 billion for the one year periods ended September 30, 2008 and 2007, respectively) by (ii) average total shareholders' equity ($11.8 billion and $10.7 billion for the one year periods ended September 30, 2008 and 2007, respectively). Return on average tangible equity is computed in the same manner as return on average equity except the computation of average tangible shareholders' equity excludes average goodwill and other intangibles of $2.3 billion and $1.6 billion at September 30, 2008 and 2007, respectively. The Company believes the return on average tangible equity is a useful measure of the profitability of its business growth.

                  Selected Statistical Information (continued)



(Billions, except percentages and where indicated)



                                             Three Months Ended          Nine Months Ended
                                               September 30,               September 30,
                                             2008          2007          2008          2007
Worldwide cardmember receivables:
Total receivables                         $     37.6    $     38.5    $      37.6    $    38.5
90 days past due as a % of total                 3.2 %         2.8 %          3.2 %        2.8 %
Loss reserves (millions):
Beginning balance                         $    1,146    $      981    $     1,149    $     981
Provision                                        351           279            937          721
Net write-offs                                  (333 )        (247 )         (883 )       (658 )
Other                                            (30 )         (15 )          (69 )        (46 )
Ending balance                            $    1,134    $      998    $     1,134    $     998
% of receivables                                 3.0 %         2.6 %          3.0 %        2.6 %
% of 90 days past due                             95 %          91 %           95 %         91 %
Net loss ratio as a % of charge volume          0.33 %        0.26 %         0.29 %       0.23 %
Worldwide cardmember lending - owned
basis (a):
Total loans                               $     45.8    $     50.5    $      45.8    $    50.5
30 days past due loans as a % of total
(b)                                              3.7 %         2.5 %          3.7 %        2.5 %
Loss reserves (millions):
Beginning balance                         $    2,594    $    1,417    $     1,831    $   1,171
Provision                                        927           543          3,209        1,691
Net write-offs - principal                      (697 )        (410 )       (1,941 )     (1,162 )
Write-offs - interest and fees                  (161 )         (89 )         (437 )       (249 )
Other                                            (23 )           8            (22 )         18
Ending balance                            $    2,640    $    1,469    $     2,640    $   1,469
% of loans                                       5.8 %         2.9 %          5.8 %        2.9 %
% of past due (b)                                155 %         118 %          155 %        118 %
Average loans                             $     47.8    $     48.8    $      49.4    $    45.7
Net write-off rate (c)                           5.8 %         3.4 %          5.2 %        3.4 %
Net finance revenue (d)/average loans            9.8 %         9.3 %          9.6 %        9.4 %
Worldwide cardmember lending - managed
basis (e):
Total loans                               $     75.6    $     72.0    $      75.6    $    72.0
30 days past due loans as a % of total
(b)                                              3.8 %         2.5 %          3.8 %        2.5 %
Loss reserves (millions):
Beginning balance                         $    3,984    $    1,917    $     2,581    $   1,622
Provision                                      1,643           762          5,242        2,339
Net write-offs - principal                    (1,090 )        (567 )       (2,884 )     (1,618 )
Write-offs - interest and fees                  (245 )        (129 )         (649 )       (368 )
Other                                            (24 )           8            (22 )         16
Ending balance                            $    4,268    $    1,991    $    4, 268    $   1,991
% of loans                                       5.7 %         2.8 %          5.7 %        2.8 %
% of past due (b)                                148 %         112 %          148 %        112 %
Average loans                             $     76.2    $     70.1    $      76.0    $    66.4
Net write-off rate (c)                           5.7 %         3.2 %          5.1 %        3.3 %
Net finance revenue (d)/average loans            9.7 %         9.4 %          9.8 %        9.4 %

(b) These metrics were revised for the U.S. Card Services (USCS) segment to align with industry practice and the International Card Services (ICS) segment whereby payments made by U.S. cardmembers after billing cycle cut but before month-end are applied to their oldest balances. Previously, USCS applied such payments to current balances.

(c) In the third quarter of 2008, the Company revised its method of reporting the cardmember lending net write-off rate. Historically, the net write-off rate has been presented using net write-off amounts for principal, interest, and fees. However, industry convention is generally to include only the net write-offs related to principal in write-off rate disclosures. The Company is presenting the net write-off rate using the net write-off amounts for principal only, consistent with industry convention.

(d) Net finance revenue, which represents cardmember lending finance revenue (including interest and fees) less cardmember lending interest expense, is computed on an annualized basis. Reserves and net write-offs related to interest and fees are recorded through Provisions for losses - Cardmember lending.

(e) Includes on-balance sheet cardmember loans and off-balance sheet securitized cardmember loans. The difference between the "owned basis" (GAAP) information and "managed basis" information is attributable to the effects of securitization activities. See the USCS segment for additional information on managed basis presentation.

The following discussions regarding Consolidated Results of Operations and Consolidated Liquidity and Capital Resources are presented on a basis consistent with GAAP unless otherwise noted.

Consolidated Results of Operations for the Three Months Ended September 30, 2008 and 2007

The Company's consolidated income from continuing operations for the three months ended September 30, 2008, decreased $261 million or 23 percent to $861 million as compared to the same period a year ago, and diluted earnings per share (EPS) from continuing operations declined $0.20 or 21 percent to $0.74.

The Company's consolidated net income decreased $252 million or 24 percent to $815 million and diluted EPS decreased $0.20 or 22 percent to $0.70. Net income included a loss from discontinued operations of $46 million as compared to a $55 million loss from discontinued operations a year ago. Return on average equity (ROE) was 28 percent, down from 38 percent a year ago.

The Company's revenues, expenses, and provisions for losses are affected by changes in the relative values of non-U.S. currencies to the U.S. dollar. The . . .