(p.69_axp_ financial review)
The negative effect on AEFA’s pretax earnings of a 10 percent decline in equity markets would be approximately $89 million and $57 million based on assets under management, certificate and annuity business inforce, and index options as of December 31, 2003 and 2002, respectively. AEFA’s acquisition of Threadneedle resulted in balance sheet exposures to foreign exchange risk, which is managed primarily by entering into agreements to buy and sell currencies on a spot or forward basis. At December 31, 2003, foreign currency products with total notional amounts of approximately $777 million were outstanding. Based on the year-end 2003 foreign exchange positions, the effect on AEFA’s earnings and equity of a hypothetical 10 percent strengthening of the U.S. dollar would be immaterial. AEFA’s owned investment securities are, for the most part, held by its life insurance and investment certificate subsidiaries, which primarily invest in long-term and intermediate-term fixed income securities to provide their clients with a competitive rate of return on their investments while controlling risk. Investment in fixed income securities is designed to provide AEFA with a targeted margin between the interest rate earned on investments and the interest rate credited to clients’ accounts. AEFA does not trade in securities to generate short-term profits for its own account. AEFA’s Balance Sheet Management Committee and the Company’s ERMC regularly review models projecting various interest rate scenarios and risk/return measures and their effect on the profitability of the Company. The committees’ objectives are to structure their investment security portfolios based upon the type and behavior of the products in the liability portfolios to achieve targeted levels of profitability within defined risk parameters and to meet contractual obligations. Part of the committees’ strategies include the use of derivatives, such as interest rate caps, swaps and floors, for risk management purposes. AMERICAN EXPRESS BANK
Results of Operations STATEMENTS OF OPERATIONS Years Ended December 31, (Millions)
2003
2002
2001
Net revenues: Interest income
$ 575
$ 606
$ 698
Interest expense Net interest income
226 349
246 360
396 302
Commissions and fees
238
215
203
Foreign exchange income and other revenues Total net revenues
214 801
170 745
144 649
Human resources
271
236
247
Other operating expenses
279
244
255
Ongoing
102
147
65
Restructuring related Total provisions for losses
— 102
— 147
26 91
(2) 650
(3) 624
70 663
151
121
(14)
49 $ 102
41 80
(1) $ (13)
Expenses:
Provisions for losses:
Restructuring charges Total expenses Pretax income (loss) Income tax provision (benefit) Net income (loss)
$