UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2008

or

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                  to                 

Commission file number 1-7657

AMERICAN EXPRESS COMPANY

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

AMERICAN EXPRESS COMPANY

FORM 10-Q

INDEX

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Millions, except per share amounts)
(Unaudited)

See Notes to Consolidated Financial Statements.

1

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Millions, except per share amounts)
(Unaudited)

See Notes to Consolidated Financial Statements.

2

AMERICAN EXPRESS COMPANY

CONSOLIDATED BALANCE SHEETS

(Millions, except share data)

(Unaudited)

See Notes to Consolidated Financial Statements.

3

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Millions)

(Unaudited)

See Notes to Consolidated Financial Statements.

4

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.              Basis of Presentation

The Company

The accompanying Consolidated Financial Statements should be read in conjunction with the financial statements which are incorporated by reference in the Annual Report on Form 10-K of American Express Company (the Company) for the year ended December 31, 2007.

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

The interim financial information in this report has not been audited.  In the opinion of management, all adjustments necessary for a fair statement of the consolidated financial position and the consolidated results of operations for the interim periods have been made.  All adjustments made were of a normal, recurring nature.  Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

Accounting estimates are an integral part of the Consolidated Financial Statements.  These estimates are based, in part, on management’s assumptions concerning future events.  Among the more significant assumptions are those that relate to reserves for cardmember losses relating to loans and charge receivables, asset securitizations, Membership Rewards, and income taxes. These accounting estimates reflect the best judgment of management, but actual results could differ.

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

5

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.  In 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 and notes related thereto. 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 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.  The following table summarizes the approximate assets acquired and liabilities assumed by segment as of March 31, 2008:

The assets and liabilities that are directly attributable to the respective CPS businesses (including acquired intangible assets) have been allocated to the corresponding operating segments.  The remaining assets, primarily goodwill, are reflected in the GCS segment at September 30, 2008.  The final allocation of these assets to the appropriate operating segments will be completed in a subsequent quarter.  Further, the values of acquired intangible assets presented above are based on preliminary

6

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

valuations that will be completed in a subsequent quarter and adjusted to reflect the final valuations. As those customers who ultimately opt to convert to American Express migrate to the Company’s products over the coming quarters, the associated receivables will be reflected in the cardmember receivables and cardmember lending lines on the Consolidated Balance Sheet.

The acquisition of CPS did not have a significant impact on the Company’s results of operations for the three and nine months ended September 30, 2008.

Recently Issued Accounting Standards

Effective January 1, 2008, the Company partially adopted the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157).  SFAS No. 157 applies broadly to financial and non-financial assets and liabilities reported or disclosed at fair value under existing authoritative accounting pronouncements.  FASB Staff Position (FSP) FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP FAS 157-2), delays the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least annually), until its fiscal year beginning after November 15, 2008, including interim periods within that fiscal year (January 1, 2009 for the Company).  In accordance with FSP FAS 157-2, the Company has partially adopted SFAS No. 157 and has not applied the provisions of SFAS No. 157 to its non-financial assets that are not measured at fair value on a recurring basis. On January 1, 2009, the adoption of SFAS No. 157 for its non-financial assets is not expected to have a significant impact on the Company’s financial position or results of operations.

The Company’s partial adoption of SFAS No. 157 did not result in significant changes to the valuation techniques it had previously used to measure the fair value of its financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date, and is based on the Company’s principal or most advantageous market for the specific asset or liability. The primary impact to the Company upon its partial adoption of SFAS No. 157 is the expanded disclosure requirements. There were no impacts to the financial statements.

On October 10, 2008, the FASB issued FSP No. FAS 157-3 “Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active” (FSP FAS 157-3), which applies to financial assets that are required or permitted to be measured at fair value in accordance with SFAS No. 157.  FSP FAS 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that asset is not active.  FSP FAS 157-3 is effective, and was adopted by the Company as of September 30, 2008. The adoption did not have a significant impact on the Company’s financial position or results of operations, nor did it have a significant impact on the valuation techniques used by the Company in measuring the fair value of its financial assets.  Refer to Note 7, which provides further details on the Company’s adoption of SFAS No. 157 and related pronouncements.

Effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (SFAS No. 159).  SFAS No. 159 allows companies the option to irrevocably elect, on a contract by contract basis, fair value as the initial and subsequent measurement for certain financial assets and financial liabilities.  The Company has not elected the option for fair value measurement under SFAS No. 159 for any additional financial assets or financial liabilities that were not previously recognized at fair market value.

As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, the Company will adopt the new measurement date provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of the FASB

7

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Statements No. 87, 88, 106, and 132(R)” in the fourth quarter of 2008. The adoption of the new measurement date will result in a one-time adjustment to retained earnings and accumulated other comprehensive income in the fourth quarter of 2008.

The following accounting standards as disclosed in the Company’s Annual Report on Form10-K for the year ended December 31, 2007, which are effective for the Company beginning January 1, 2009, are currently being evaluated for possible impact to the Company upon adoption:

·                  SFAS No. 141, (revised 2007), “Business Combination”;

·                  SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements”; and

·       Emerging Issues Task Force (EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements”.

   During 2008, the FASB has issued the following accounting standards, which are effective for the Company beginning January 1, 2009:

·                  SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (SFAS No. 161), amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), requiring enhanced disclosures about the Company’s derivative and hedging activities. Under SFAS No. 161, the Company is required to provide disclosures about (a) how and why it uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect the Company’s financial position, results of operations, and cash flows.  SFAS No. 161 is effective prospectively, and applies to derivative instruments existing at the reporting date, with comparative disclosures of earlier periods encouraged upon initial adoption. The Company is currently evaluating the impact of this accounting standard.

·                  FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSP FAS 142-3), removes the requirement within SFAS No. 142 “Goodwill and Other Intangible Assets” for an entity to consider, when determining the useful life of a recognized intangible asset, whether an intangible asset can be renewed without substantial cost or material modifications to the existing terms and conditions.  FSP FAS 142-3 requires an entity to consider its own historical experience in developing renewal or extension assumptions.  In the absence of entity specific experience, FSP FAS 142-3 requires an entity to consider assumptions that a marketplace participant would use about renewal or extension that are consistent with the highest and best use of the asset by a marketplace participant.  FSP FAS 142-3 is effective prospectively for all intangible assets acquired after its effective date, with additional disclosures required for all recognized intangible assets as of the effective date. The Company is currently evaluating the impact of this accounting standard.

·                  The FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP EITF 03-6-1), which is effective for the Company beginning January 1, 2009.  FSP EITF 03-6-1 states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (i.e., Restricted Stock Awards) whether paid or unpaid, are participating securities and should be included in the computation of basic and diluted earnings per share pursuant to the two-class method.  FSP EITF 03-6-1 requires all prior-period EPS data presented to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform to its provisions.  The retrospective adoption of FSP EITF 03-6-1 is expected to have an annual decrease of between $.01 and $.03 on prior period basic and diluted earnings per share.

8

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.              Discontinued Operations

The operating results, assets and liabilities, and cash flows of discontinued operations are presented separately in the Company’s Consolidated Financial Statements.  Summary operating results of the discontinued operations primarily include AEIDC and AEB (except for certain components of AEB that have not been sold), as further described in Note 1, as well as businesses disposed of in previous years. Results from discontinued operations for the three and nine months ended September 30, 2008 and 2007, were as follows:

(a)        The sale of AEB to Standard Chartered caused certain taxable events under applicable U.S. tax rules to occur, resulting in the higher effective tax rate for the nine months ended September 30, 2008.

(b)       Included in the nine months ended September 30, 2008, is an after-tax gain of $11 million realized upon the sale of AEB.

At September 30, 2008 and December 31, 2007, the assets and liabilities of the discontinued operations described above were as follows:

9

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

At September 30, 2008, there was no accumulated other comprehensive income or loss relating to discontinued operations.  At December 31, 2007, the accumulated other comprehensive loss, net of tax, associated with discontinued operations was as follows:

Assets and Liabilities of Discontinued Operations Measured at Fair Value on a Recurring Basis:

As described in Notes 1 and 7 of the Company’s Consolidated Financial Statements, on January 1, 2008, the Company partially adopted SFAS No. 157 for its financial assets and financial liabilities that are accounted for at fair value.  The fair value measurement and disclosure provisions of SFAS No. 157 are prospective in nature and, therefore, apply to financial assets and financial liabilities included in discontinued operations from January 1, 2008, forward.  The following table presents the AEIDC financial instruments carried at fair value at September 30, 2008 and the respective SFAS No. 157 fair value hierarchy level:

(a)        For further details on the fair value hierarchy and the Company’s fair value methodologies of these financial instruments, see Note 7.

(b)       As of September 30, 2008, the Company’s Alt-A portfolio has been written-down to 57 percent of its original value.

(c)        Represents investments in other asset-backed securities transferred in the second quarter of 2008 from Level 2 into Level 3 of the fair value hierarchy primarily due to the significant inputs to the fair value of these assets being unobservable as a result of limited marketplace activity.  These investments are backed by cash flows on underlying tangible assets, and because of the inactivity in the market for these types of investments the Company used brokers, who used internal models to determine the fair value.  Therefore, the Company has classified these investments in Level 3 of the fair value hierarchy.

During the three months ended September 30, 2008, the Company had $9 million in purchases, issuances and settlements, net and $1 million in realized losses, reducing the $23 million investment value as of June 30, 2008, to $13 million.  During the nine months ended September 30, 2008, the Company had $10 million in purchases, issuances and settlements, net and $1 million in realized losses, reducing the value when these investments were transferred into Level 3 during the second quarter of 2008 from $24 million, to $13 million.

(d)       Including the $69 million of mortgage and other asset-backed securities discussed in Note 4, this represents the Company’s full exposure to mortgage and asset-backed securities.

10

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.              Accounts Receivable

Accounts receivable at September 30, 2008 and December 31, 2007, consisted of:

(a)        Includes receivables primarily related to the Company’s International Currency Card portfolios at September 30, 2008.

(b)       At December 31, 2007, Global Network & Merchant Services cardmember receivables also included receivables purchased from joint ventures of $429 million that were reclassified to other receivables during 2008.

(c)        Includes approximately $11.4 billion and $12.4 billion of cardmember receivables outside the United States at September 30, 2008 and December 31, 2007, respectively.

(d)       Other receivables primarily represent amounts due from the Company’s travel customers, third party issuing partners, accrued interest on investments, and other receivables due to the Company in the ordinary course of business. Other receivables at September 30, 2008, also includes the acquisition of other receivables of CPS and accruals for the Company’s litigation settlement with Visa, and certain amounts due from the Primary Reserve Fund, a money market fund.

The following table presents changes in the cardmember receivable reserve for losses for the nine months ended September 30:

(a)        Represents write-offs of charge card balances consisting of principal (resulting from authorized and unauthorized transactions) and fee components, less recoveries of $151 million and $152 million for the nine months ended September 30, 2008 and 2007, respectively.

(b)       Primarily includes other adjustments to cardmember receivables such as waived fees.

11

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.              Investments

Available-for-Sale Investments

The following is a summary of investments, all of which are classified as available-for-sale at September 30, 2008 and December 31, 2007:

(a)        U.S. Government and agency obligations include U.S. Treasury securities and senior debentures issued by Government Sponsored Entities (Fannie Mae and Freddie Mac).  At September 30, 2008 and December 31, 2007, these amounts included $3.1 billion of securities issued by Fannie Mae and Freddie Mac.  These amounts also included $899 million and $970 million of securities loaned out on an overnight basis to financial institutions under the securities lending program at September 30, 2008 and December 31, 2007, respectively.

(b)       Represents the amount of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.  See Note 2 for the Company’s remaining exposure to mortgage and other asset-backed securities which are recorded in assets of discontinued operations.

(c)        In 2006, the Company acquired a non-controlling interest in the common stock of Industrial Commercial Bank of China (ICBC) for $200 million. The Company is restricted from selling 50 percent of this investment until April 2009 and the remaining 50 percent until October 2009.  As a result, the investment has been accounted for at cost and included in other assets.  Beginning in April 2008, 50 percent of the investment fell within 12 months of the restriction period and was reclassified from other assets to available-for-sale securities at fair value. Changes in the securities fair value from its cost at date of acquisition are recorded in other comprehensive income in 2008.

(d)       Consists primarily of investments of retained subordinated securities from the Company’s securitization programs (estimated fair value of $1.3 billion and $78 million at September 30, 2008 and December 31, 2007, respectively) as well as short-term money market and state tax exempt securities (estimated fair value totaling $90 million and $833 million at September 30, 2008 and December 31, 2007, respectively).  During 2008, the Company retained B and C tranches of securitization transactions, which included gross unrealized gains and (losses) of $15 million and $(56) million, respectively at September 30, 2008.

Unrealized losses may be caused by changes to market interest rates, which include both benchmark interest rates and credit spreads, and specific credit events associated with individual issuers. The gross unrealized losses on the state and municipal securities are attributable to pricing pressures resulting from the excess supply of these types of securities in the market that were caused by unusually high redemptions of municipal money market funds that occurred in September 2008. The gross unrealized losses on all other securities are attributable to changes in market interest rates, particularly the widening of credit spreads. The Company has the ability and the intent to hold these securities for a time sufficient to recover the unrealized losses and believes at this time that contractual principal and interest will be received on these securities.

12

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5.              Loans

Loans at September 30, 2008 and December 31, 2007, consisted of:

(a)        Other loans primarily represent small business installment loans, revolving credit due from U.S. Card Services’ customers, acquisition of an Australian retailer storecard portfolio whose billed business is not yet processed on the American Express network, and small business loans associated with the CPS acquisition.  See Note 1 for further details.

The following tables present changes in the reserve for losses for the nine months ended September 30: