Rick Petrino - SVP, Investor Relations Jeff Campbell - EVP and CFO.

Craig Maurer - CLSA Don Fandetti - Citi Mark DeVries - Barclays Sanjay Sakhrani - KBW Bill Carcache - Nomura Securities Bob Napoli - William Blair Betsy Graseck - Morgan Stanley David Hochstim - Buckingham Research Group Sameer Gokhale - Janney Capital Markets Daniel Furtado - Jefferies and Company.

Ladies and gentlemen, thank you for standing by and welcome to the American Express First Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions) And also as a reminder, today's teleconference is being recorded. At this time, I'll turn the conference call over to your host Mr. Rick Petrino. Please go ahead, sir..

Thank you, Tony. 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 earnings press release and earnings supplement which were filed in an 8-K report and in the Company's other reports already on file with the SEC. The discussion today also contains certain non-GAAP financial measures.

Information relating to comparable GAAP financial measures may be found in the first quarter 2014 earnings release, earnings supplement and presentation slides, as well as the earnings materials for prior periods that may be 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 CFO who will review some key points related to the quarter's earnings through the series of slides included with the earnings documents distributed.

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 Rick and good afternoon everyone.

Our performance this quarter showed strong earnings per share growth driven by disciplined controlled of operating expenses, another quarter of write-off rates near historical lows and a strong balance sheet that has allowed us to return a substantial amount of capital to shareholders in the form of share repurchases over the past year.

We delivered 16% EPS growth despite having modestly lower revenue growth sequentially. And these results highlighted once again the flexibility of our business model.

During the quarter, we took several important strategic steps including rolling out our OptBlue program to expand the coverage amongst smaller merchants, launching a new credit Amex EveryDay designed to capture a greater share of everyday consumer spending; and expanding Loyalty Partner by introducing the program in Italy.

All of these steps are part of our broader strategy to reach new segments of the market and make the American Express brand more welcoming and more inclusive. Additionally, in the quarter we were pleased that the Fed did not object to the capital plan included in our 2014 CCAR submission.

And we were also pleased to sign the formal agreement for the Business Travel joint venture that we announced last year. I'll discuss each of these items in more detail later on the call. To begin now with our financial results for Q1. As you can see on Slide 2, FX adjusted billed business growth was 7%.

This increase was the primary driver of FX adjusted revenue growth of 5%. Both of these growth rates represent a modest deceleration versus Q4 levels which occurred predominantly in the U.S. market and was more pronounced among our U.S. small business and corporate card members. Net income of $1.4 billion was up 12%.

The increase was driven by a combination of greater revenues, continued tight control of operating expense. Over the last four quarters we repurchased more than $4 billion of our common shares that translated into a 4% decline in average shares outstanding versus the prior year. This then allowed us to grow our diluted EPS by 16%.

These results call to mind the presentation we made at our Investor Day in February of last year when we laid out several scenarios illustrating our ability to achieve our on average and over time earnings targets in a variety of economic environments.

Given the slower revenue growth we experienced during the first quarter, our strong capital position and disciplined control of operating expenses were particularly important contributors to our financial performance and helped to drive 16% increase in earnings per share to $1.33.

These results also brought our ROE for the period ending March 31 to 28% above our on average and over time target of 25%. Let's turn now to a more detailed look at several trends that will give you a better sense of the quarter starting with billed business on Slide 3.

Overall billings remained solid with an FX adjusted increase of 7% versus 9% last quarter. The sequentially slower growth was primarily in the U.S. where billings rose 6% in Q1 compared to 9% during Q4. I said a minute ago this decline was more evident among our small business and corporate card members.

Additionally, volume growth rate appeared to be influenced in part by the severe winter weather. I would add that while we are always cautious about drawing conclusions from intra-period trends, we were encouraged to see that U.S. billing growth increased over the second half of the quarter as the weather improved. Outside the U.S.

where volumes continue to growth at a faster pace than the total company, billed business was up 10% year-over-year on an FX adjusted basis. Overall, growth rates across international regions were generally consistent with the prior quarter and we did see a small uptick in EMEA from 6% in Q4 to 7% in the current quarter.

Turning to billed business by segment on Slide 4, volumes continue to be particularly strong in GNS, up 15% year-over-year on an FX adjusted basis. GNS growth continues to be highest in the JAPA region powered largely by China and Japan. You do see across both the regional and segment view of our billings that the stronger U.S.

dollar continued to put downward pressure on our billings and hence revenue growth as has been the case for the last five quarters. To give you a better sense of the drivers here, we have provided on Slide 5 some background on the major concentrations of our billed business by international currency.

The first row shows the approximate range of billed business in each market as the percentage of total billed business. While the bottom row shows the year-over-year change in that foreign currency compared to the U.S. dollar. Overall, in Q1 this mix translated into approximately one percentage point reduction in both billings and revenue growth.

Moving on now to loans, the other key revenue driver. We see on Slide 6 that loan balances grew 3% globally. U.S. loans were up 4% from a year ago. Both of these growth rates are consistent with what we saw in Q4. I’ll also note that the total level of loans declined $3.2 billion versus Q4 which is in line with normal seasonal trends.

We are pleased that our loan growth in the U.S. continues to outpace the industry average. Putting all the pieces of revenue together you see on Slide 7, the total revenue grew 4% on a reported basis and 5% on an FX adjusted basis.

Consistent with our spend-centric model this growth was primarily driven by the discount revenue growth that was generated by increased spending volumes. The other primary driver of revenue growth was an 8% increase in net interest income as we continued to benefit year-over-year from both lower funding cost and an increase in average loan balances.

Another point I would make about our revenues was that the sale of our publishing business last year continues to depress the growth rate of other revenue and impacted total revenue growth this quarter by a little less than 1%. Turning now to provision. You can see on Slide 8 that our credit metrics remain near all time lows.

Worldwide lending write-off and delinquency rates increased slightly in the quarter, consistent with seasonal trends. As a reminder our objective is not necessarily to have the lowest possible write-off rate, but is instead to achieve the best economics on our portfolio.

Therefore, at some point we would expect that lending write-off rates will increase somewhat from today's low levels. Slide 9 shows the trend in our lending reserve coverage levels. We believe that our coverage levels remain appropriate even the risk level inherent in the portfolio.

The fact that our delinquency rates have become more stable and our loan portfolio was growing resulted in a smaller reserve release in the first quarter and a year ago. The smaller reserve release more than offset the benefit from lower write-offs this year and grow total provision up 17% compared to a year ago as you can see on Slide 10.

The increase in the charge card provision in particular is primarily due to a reserve billed in the current year versus a reserve release in the prior year along with higher card member receivables.

I'll also note that beginning this quarter we have reclassified fraud losses from provision for losses to operating expenses in order to be more consistent with industry practices. This had the effect of lowering provision and increasing operating expense, so we have reclassified prior periods for this change to keep everything comparable.

Turning now to expenses. On Slide 11, you can see the total expenses were down 1% versus the prior year. Clearly, maintaining disciplined control of expenses particularly our operating expenses was the key driver behind our strong earnings performance during the quarter.

To comment on a few specifics, you see that while marketing and promotion was relatively flat in this quarter, going forward we do anticipate that investment levels will increase as we move into Q2. For rewards expense, you see growth that was relatively consistent with our billed business growth during the quarter.

The key story around expenses is obviously operating expenses. And we provide more detail on these on Slide 12 which shows a 4% decline in total operating expenses versus the prior year with lower expenses seen across every line. We did benefit from the timing of certain items this quarter.

But also remind you that the sale of our publishing business continues to suppress operating expense growth by a little more than one percentage point. That said, our operating expense decline this quarter went well beyond our goal for the full year of keeping growth to less than 3% as you can see on Slide 13.

Of course we remain committed to our annual target. But we would not expect to see similar declines in the remaining quarters of the year. To turn more broadly now to our marketing and promotion efforts to grow our business, Slide 14 shows that these expenses were relatively flat versus a year ago in Q1.

As you can see on the chart, marketing and promotion is typically lower during Q1 and ramps up beginning in Q2. We continue to see many attractive opportunities in the market place including those for new customer and merchant acquisitions.

To be specific, during the quarter we launched Amex EveryDay, a new credit card that rewards card members for how often they use the card not just how much they spend. The reward structure intends card member to use the card for everyday purchases at the places they frequent most.

We are excited about the potential of the product to attract new customer segments to our franchise. At our Investor Day in February, we introduced OptBlue, the next step in the evolution of our merchant acquiring program in the U.S.

OptBlue give small merchants the convenience of working with our network of third party merchant acquirers who have the flexibility to give them one pricing construct, one monthly statement, one settlement process and one contract that covers all of the major card brands the merchant chooses to accept.

In February, we reported that we had signed six merchant acquirers to the program. Since then we have continued to add partners and believe OptBlue will provide a significant lift to our small merchant acquisition efforts as it is rolled out.

And we continue to target a portion of our investment for longer term opportunities, in particular focusing on two large initiatives. Reloadable Prepaid, a product that help you move and manage your money and Loyalty Partner, our rewards coalition program.

These initiatives continue to ramp up as evidenced by this quarter's launch of our Loyalty Partner program in Italy where we now have over 3.5 million collectors as of the end of March.

A common theme across all of these new initiatives is to have the American Express brand be more welcoming and inclusive; to be meaningful to more people and more merchants. To return now to the financial. Turning to Slide 15, you see that during the first quarter our effective tax rate was 35.1%.

This is the second quarter in a row that our tax rate has been somewhat higher than the recent past. Tax rate as you know often fluctuate from quarter-to-quarter due to a variety of discreet items.

More importantly over the longer term we have seen modest increase in our average effective tax rate primarily because of the changes in the geographic mix of where we generate income.

Additionally, in 2014 we are being impacted by certain changes in tax laws including the delay in the renewal of the active financing exemption and the loss of the R&D tax credit. In the past, we've mentioned that we expected our average effective tax rate to be in the low 30s range.

When you look at the trend, we now believe that our rate for the full year could be closer to the mid 30s. And a last note on tax, I would point out that our tax rate at Q2, 2013 was just 29.6%. It was unusually low and was driven by certain discreet tax items.

A challenge we will face in this year second quarter where will be growing over the impact of this lower rate. Now let's turn to capital. The substantial amount of new capital regenerate provides us with significant degrees of flexibility as shown on Slide 16.

This quarter, we were able to return 73% of capital to shareholders, while also strengthening our already strong capital operations. And we have worked hard to continue to strengthen all aspects of our capital planning processes. In last month we were pleased that the Fed did not object to capital plan included in 2014 CCAR submission.

The good news from the Fed underscore both our balance sheet's strength and our ability to remain profitable under hypothetical severe stress scenario while also reflecting the strength of our overall planning processes.

In fact, in the Fed severe scenario we have the highest pretax income as a percentage of assets among all bank holding companies and our Tier 1 common ratio both before and after capital actions were in the top quartile as you can see on Slide 17.

These results give us a leeway to increase our dividend by 13% beginning in the second quarter and to repurchase up to $3.4 billion of shares during the last three quarters of 2014 with up to an additional $1 billion during Q1, 2015. That represents a payout ratio that would be among the highest of all the CCAR participants.

Our capital plan focused on three important priorities. Supporting our growth strategy, maintaining a strong balance sheet and returning a significant amount of the capital regenerate to our shareholders. One aspect of a strong balance sheet is maintaining a good mix of funding sources.

And as you can see on Slide 18, we have improved the diversity of funding sources by building a significantly larger deposit base over the last several years. At this point, we believe our funding mix should be relatively stable going forward. Before concluding I want to provide an update on the plans for our business travel joint venture.

It's a reminder; our global business travel organization provides corporate customers with 24x7 support for travel in more than 135 countries. The agreement we signed this quarter entails our partners investing $900 million and the company contributing the assets of our business travel business to the joint venture.

The new structure should provide greater resources to grow the business as a separate entity while maintaining important linkages with American Express. We still plan for the transaction to close by the end of the second quarter.

However, as is the case with most sizable transactions there are regulatory aspects that could delay the transaction closing date. That we could receive regulatory approval very late in the second quarter which due to the complexity of the closing process could push back or second quarter earnings release date.

We will keep you posted on the timing as we progress through the second quarter. More importantly, we expect to realize a sizable pretax gain which we currently estimate to be between $600 million to $700 million prior to considering any cost related to the transaction.

As we have said before we plan to use a substantial portion of any gain net of transaction cost to position the company for the future. This will include supporting some of our newer growth initiatives including Amex EveryDay and Serve, as well initiative to increase the efficiency of the organization among other efforts.

When we release Q2 results, we plan to provide additional detail to give you a clear understanding of our underline performance, the resulting gain on the transaction and associated cost, incremental spending and growth in other initiatives as well as the expected impact the JV will have as we present our results in the future.

So in summary, coming back to our first quarter result. Our strong earnings performance makes us feel good about the flexibility of our business model. We generated EPS growth above our on average and over time target driven by disciplined control of operating expenses, our strong capital position and continued low write-off rate.

While billings and revenue growth slowed modestly from the first quarter, our financial performance was solid. Looking forward we continue to believe that the flexibility of our business model enabled us to deliver significant value to our shareholders. With that I'll turn the call back to the operator for your questions.

I would ask that you limit yourself to one question with only one follow up so that we can ensure we give as many people as possible the chance to participate.

Operator?.

(Operator Instructions). Our first question will come from Craig Maurer with CLSA. Please go ahead. .

Yes, good evening guys, thanks.

I wanted to understand your thought process on the spending trend in the quarter and how the shift of Easter into April affected the year-over-year comparison?.

Well, I guess I would say couple things about the spending trend. As I said the sequential decline was clearly stronger amongst the small business and corporate card member segment.

I think it is also important to point out that the sequential trend across the quarter and well that's something we are always very cautious as you know Craig to draw too much attention to because there is inherent volatility when you look at any short term period. But we did see the second half being stronger than the first.

And I would say in the first few days of April, we haven't seen anything that contradicts that general trend.

We do lots of internal analysis where we make a number of adjustments to how we look at our spending considering exactly what the days are or the week are in this period, trying to use historical patterns around holidays to make adjustments so when I make comments about trends they are considering all of those adjustments.

All that said, there is clearly some art to doing something like an adjustment for a holiday like Easter that moves around quite a bit from year-to-year. So we take what we think is a fairly sophisticated approach to those adjustments but there are some subjectivity to it. .

Thank you. Our next question in queue will come from Don Fandetti with Citigroup. Please go ahead.

Yes, good evening.

Jeff, it looked like the March data suggest some slight uptick in year-over-year loan growth in the U.S.? Are you seeing any signs of increase consumer appetite for debt or are we just still in a holding pattern?.

Well, when you look at our loan growth Don it is actually been pretty consistent for the last few quarters at around 3% to 4%, globally it was 3%, this quarter little higher in the U.S., 4%. And when you look as you know at the industry data the industry has been bouncing around flat, sometimes down little bit.

I think the February year-to-date numbers were up about half a point in the U.S. So we have certainly been pleased by the fact that our loan growth was holding steady at a little bit above that industry average.

But frankly you don't see anything in our first quarter result that suggest any particular acceleration of that trend or do we see it yet in the industry data we’ve looked at. .

Thank you. Our next question in queue will come from Mark DeVries from Barclays. Please go ahead. .

Yes, thanks. Jeff I know you indicated that we shouldn't expect to see OpEx remain at this kind of down 4% year-over-year level going forward.

But if you don't see a meaningful acceleration of billed business growth particularly with the modest headwind we have now from kind of higher tax rate is it reasonable to think you’ll have to remain kind of well below the cap of 3% growth, if you want the hit the on average over time targets for EPS growth this year?.

Well, I think Mark that's a very good question, really goes to the flexibility of our business model. As I said in my earlier comments, I would actually take you and other folks back to the February FCM when we showed that we have a quite a number of levers that we can pull and have a history of pulling.

So certainly I would stick to the remarks I made a few minutes ago that the 4% decline year-over-year you see in the first quarter is not indicative of what you would expect -- should expect the next couple of quarters, there were some timing items.

But we are very committed to using the flexibility of our business model to achieve our earnings targets. I think we have a pretty strong track record pulling various levers and how much we let operating expenses, and other expenses grow over the remainder of this year will certainly be heavily influenced by the economic environment we see.

We don't try to out-guess the economic forecasters and we build plans based on consensus GDP forecast.

The consensus has actually come down slightly in the last 90 days but we certainly hope that that’s wrong and we hope the economy shows strong acceleration from here, but we think we have the flexibility in our business to react to whatever environment we face..

Okay, that's helpful. In the earnings supplement there was comment that indicated U.S. consumer travel sales declined 7% year-over-year.

The question I have is, is that trend you expect to continue? Were there any signs that weather affected that? And do you generate higher fees on the consumer side than you do on business travel?.

You have very sharp eyes for somebody who has only had an hour or two to stare at the voluminous amount of material we put out, so yes you are correct. The consumer travel business shows a decline of about 7%.

That's actually driven by the fact that we’ve sold a small part of that business that provided the packaged vacation, it was such a small transaction not particularly material so we didn't bother to call it out last year but that actually is what the loss of the revenue associated with that business or what drove the 7% decline. .

Thank you. Our next question in queue will come from Sanjay Sakhrani with KBW. Please go ahead. .

Thank you. I guess just focusing on the volume trends going forward.

I mean when we think about and maybe even revenue growth, when we think about the trends going forward, are there any investments that you are making that might start paying their dividend sometime from second quarter onwards? And I guess broadly speaking, when I look back in time it seems like that 8% target hasn't been hit for a while and I guess over the past several years if not more it is probably only been hit once.

So can you just talk about conceptually how you guys think about that revenue growth target going forward? Thanks. .

Well, we continue Sanjay to think that the 8% revenue target is an appropriate target on average over time and a non-average and over time economic environment. You are quite factually correct but if you look at the last few years our revenue has -- tends to be a little bit below that level.

I would point out that despite that we have shown much better performance on the EPS side due to the flexibility of the business model I just talked about. We certainly have an economic environment over the last year that has not gotten to the global economies or in particular the U.S. economy’s long term average trend.

Certainly when you look at the original GDP consensus forecast for this year, there is target to approach those long term averages. It appears based on what economic data is out there so far that's probably not going to be the case the first quarter. And that is probably reflected somewhat in our results.

But we would not in any way want to back off from the appropriateness of that 8% target and we continue to believe that as the economy returns to more normal growth rates, you will see us head towards that.

The other part of your question, we certainly are always balancing across our investment portfolio, things that are going to help us in the near term to medium term and the long term.

And we have made a number of incremental investments and did some stepped up investing towards the latter part of last year and those are things that as you – if we follow normal patterns will help us as we get further into 2014 and beyond. You also as I mentioned in our remarks saw us launch a few – a new product in the U.S.

market EveryDay just at the end of the last quarter. We just re-launched Serve at the end of last year, those are things that again as you get later into 2014 and beyond, you will begin to see meaningful contributions. .

Thank you. Our next in queue will come from Bill Carcache with Nomura. Please go ahead.

Hi, thank you. I had a question follow up on the JV thing. I believe that your reported expenses were decreased significantly once you deconsolidate that business travel segment and started accounted for it under the equity method.

So I guess my first question is that right? And then more broadly how would that JV gain impact? How we should think about your commitment to that operating expense growth below 3% through the end of this year?.

Those are both very good questions, Bill. So first just may be to it sounds like you got and may be I should be making clear for everyone.

So as we execute on the joint venture transaction that will shift our accounting to the equity method which means that all you will see in our P&L will be are proportionate 50% share of the joint venture's earnings each quarter. We won't report any revenues, we won't report any expenses.

So that means you will see the travel and other commissions revenue line come down significantly into that line predominant thing within that line today is our revenues from the business travel joint venture. And then most of the expenses of business travel appear in the operating expense category.

So both of those assuming we hit our current timeline beginning in the third quarter, you will no longer see the business travel amount in those rows. We will as we get close, as we get to in actual close give you the real specifics on that.

But that's the structure or the methodology if you will but everyone should keep in mind as they think about what our finance statements will look like going forward. .

Okay, thank you. If I may with one follow up.

Can you talk about whether it is reasonable to expect that you are fully complete buybacks up to the full amount that was in your capital submission and then along those lines, can you talk about how are you thinking about the stock at these levels? I think in the past you guys have thought about capital return as capital return haven't I believe in a so much focused on the price.

But I wanted to see if may be you could update us on the thought process. .

So let me those two questions. So certainly we are committed to the amount that the Fed did not object to in our CCAR submission.

There is a very small portion of the total each year that is a little tricky at the end because what the Fed actually approves, not to get too in the details here, is a net repurchase amount net of the proceeds we get from option exercises.

So as we go through the year and we get to the fourth quarter of CCAR year which is really the first quarter of the calendar year, we make an estimate of what we think the option exercise is going to be that year and then we conservatively size our share repurchase in that last quarter to match that, so if you did all the math, you do see we grew about $60 million or so below for the fourth quarter period what was approved in our 2014 CCAR.

That's just sort of not to get into detail too much as I said. That's the mechanics of the process we do our best to estimate what's going to happen but option exercises are not always the easiest thing to exercise.

More importantly and more broadly, you are correct and we do very much remained committed to the philosophy that we believe we should have a well capitalized and strong balance sheet.

We believe we should pursue all the internal capital spending and external opportunity that we think are prudent and offer good return to our shareholders, once we are done with those two things, we don't believe we should sit on excess capital and so we will return capital once we have hit those first two objectives to our shareholders through a mixture of dividends, and our dividend for the factoring for our profile we think is a competitive dividend, and then we use share repurchase to return the remaining capital.

We think we have a tremendous track record of growth over many, many years as a company. We continue to believe we have many growth opportunities going forward.

And so we believe that is a good financial proposition for our shareholders to continue to return capital to our shareholders and we are not therefore very indifferent to modest swings in the price. I would also just make the observation that our stock in a normal economy environment is not a particularly volatile stock.

And so just not figure greatly in our repurchase efforts I guess is the last comment I just remind you that mechanically as a public company these all kinds of constrains under which we buyback shares so practically you end up with more of an averaging in approach when you are returning a large amounts of capital that we return to our shareholders. .

Thank you. Our next question will come from Bob Napoli with William Blair. Please go ahead. .

Good afternoon.

Question, at the GNS business continues to show very strong spent growth 15% then trending is at that level, but the revenue growth is only showing this quarter at 5% in that segment and I just like I mean do you think that GNS can continue to grow with those types of rates? And shouldn't revenue, why is not revenue growth matching the spend growth?.

Well, couple of comments. First just a mechanical comment. Remember what you actually see in our statements is what we refer to as GNMS which is a mixture of our GNS business and the proportionate share of the little over 20 countries where we do the proprietary acquiring of the merchant portion of the economics.

So it's really the GNS growth rate are not the same as the GNMS growth rate. All that said and we don't break the GNS growth rate out publicly separately. All that said, when you look at that GNS billings number, I try to always remind people that while we are really pleased with that 15% number, a portion of that high growth is driven by China.

And China as you know is a market where because of the regulatory environment; it is very difficult for any player to get a lot of economics out of the billings.

We are pleased with what we have been doing in China because we think without any capital expenditure we are building awareness in presence in brand in China that we believe we will find ways to monetize over the longer term.

But in the near term, China is the market that produces a significant number o billing in our GNS business and very, very little revenue. So the GNS revenue is below that billing's number but you can't see it when you look at the GNMS number. .

Okay, then my second question is just on the OptBlue. And we've heard from some contacts that product is very well received by the market and it is only handful of merchant acquirers offering it today.

But can you comment on what's your expectations are for OptBlue? Do you expect to have that in the hands of most merchant acquirers? At some point and then it does offer lower discount rate and are you comfortable with the economics and the strategic value of OptBlue as you seen operate now for a few months?.

Yes, good question. So the first, let me start on the facts, so when we first talked about this in February, we talked about the fact we had six merchant acquirers on board and we have been very pleased since then to add several more, and we think we are on a track to really get most of the industry on board and we are very excited about that.

It is very, very early in the process. So we all need to watch and see how this plays out in the coming quarters and couple of years, but I would say all of our early experiences are positive and very reinforcing of the plans we set out at that February financial community meeting.

And you are correct that there are some trade-offs here but what we also pointed out that we are in a fact offering a sort of my term a wholesale discount rate to the acquirer.

There are also certain incentives that we have traditional paid to acquirer that go away, so that helps on portion of that wholesale rate that will just show up in a different place from financial perspective but helps offset it. Here the much more important thing is that we believe this program has the potential in the U.S.

over the next several years to make very, very material dent in the coverage gap that we have in the U.S. And we think that is very powerful for our issuing businesses and can drive incremental volumes that will make this a very positive trade off for the company and for our shareholders. .

Thank you. Our next question in queue will come from Betsy Graseck with Morgan Stanley. Please go ahead..

Hi. Just a follow-up on the topic we were just talking about. You indicated the discount rate is a little bit lower but I'm just wondering lower than what, because when we look at your all-in discount rate obviously you would skew -- I would expect to some larger merchants.

So are you suggesting the overall company discount rate is negatively impacted by this or just the like for like small merchant?.

Yes, that's a good question, Betsy. So to be very precise my comments are really directed at the economics with the very small merchants who are part of the OptBlue program. Now obviously any change with any merchant does affect the company's overall rate.

But it is important to realize that while in merchants that we believe we will gain through this program are very important from a coverage and a perception of coverage perspective.

In terms of the percentage of our total billing that these very small merchants generate that is very, very modest portion overall of our whole billings and therefore the impact on the company's overall discount rate is changes is very much moderated by that mathematical reality if you will. .

Okay and then separately you indicated earlier in the call that the US billings growth rate was negatively impacted by weather and you ended the quarter better than the first couple of weeks of the quarter.

Could you tell us what January, February, March was in terms of the year and your growth in billing year?.

Well, if you will, we don't like to break it out that specifically by month. I would just stick to the comments that the second half of the quarter was certainly stronger than the first half and we haven't seen anything in the early part of April that contradicts that trend.

I'll also just make the observation that partly because of the closed loop, we have a tremendous amount of information by merchant by type of merchant, by industry, by city, by day, that allows us to do quite a detailed analysis of the impact of some of the most severe weather by city by day that you saw in a country and that's what makes us quite comfortable in my commentary that there certainly was weather impact in January and February..

Okay and lastly on the expenses you indicated that there was some timing issue there and we shouldn't expect obviously to have this sub zero, 4% shrinkage in OpEx on go-forward basis.

Is there anything that you have planning now to do that would be incenting incremental billings growth for Q2 and 3Q or really to get into that the kind of activity we have to wait for the closing of the global trouble business?.

Well, I guess I would say we generally are not targeting our spend decision in terms of the benefit of spending, we do quite is precisely as you just suggested by so that we know the benefits and how they're going to appear by quarter. We generally are making investment choices that we think will help us over longer time period.

Certainly as I pointed out in my remarks, as you get into Q2, you would expect to see some incremental spending in a number of areas supported by the business travel. We did just launch the EveryDay card at the end of March, so we are really just in the introduction phase of that.

The Serve product is in its very early days since we just re-launched with vastly improved functionality towards the latter part of last year.

And there are probably a few steps you will see us taking that are just another step on our journey of the coming days and ever more efficient company with a really good solid cost structure and some of the things would drive some one time charges. So all of those things are targeted at helping us as we move into the latter part of 2014 and beyond.

But I wouldn't want to suggest that there was precise thing help us in any specific quarter. .

Thank you. Our next question in queue will come from David Hochstim with Buckingham Research. Please go ahead.

Thanks. I had a follow-up to Betsy and Craig' question again about the trends in the first quarter of spending.

And can you tell us the recovery in the second half of the quarter bring you back to sort of fourth quarter growth rates in the USCS or -- is there any other comments you have in terms of where the spending was weak in the first half aside from geography?.

Well, certainly so couple of comments. I gosh I don't want to get so specific that I am calling out specific numbers based on a few weeks.

To step back for just a second and try a little bit context, I mean if you look over the last several years and our billing rates and our revenues rates, you will find some modest volatility quarter-to-quarter where we go up or down a point or two and it is not necessarily indicative of a long term trend so that's why we are cautious about even now talking about within a quarter or within a couple of weeks trends that overly specific.

In terms of the specific geographies and industries I think it is all the things you would expect so if you pull out a weather database, you will see specific days in Europe and Boston and Chicago, in St.

Louis of extreme weather and when we look at what happened in those places you see some pretty extreme results in those cities on those days, when you look at things like airline billings, it is lots of lots of public commentary about the massive, in fact that we record number of flights, that might whole industry manage to cancel in January and February, that's lost revenue to the airlines which is why they are talking a lot about how much revenue they lost, frankly it is also lost business to us.

So those are the couple things I probably call out that are in these specific things we looked at. .

And the travel aspect of that would be the reason you call out small business and corporate spend as opposed to consumer in the quarter?.

Well, that certainly a logical connection, I mean at some point all of that start, we can't understand the psychology of everyone of our card members, so at some point I want to be careful here because it gets to us making some educated judgments and we can't prove that to you but those have -- that fact pattern would appear to fit together to us..

My basic question was I just wonder if you could share any incremental thoughts about the European regulation, and given that we have been through now the parliament process, what is your thinking in terms of vulnerability of GNS business in Euro zone or UK?.

Well, certainly the -- those discussions are something that we are following closely. We are very engaged in and we spend a lot of time trying to help all of the players involved there, understand the real economics and the real competitive dynamics of that market place.

Just to level set for everyone I would remind people that we are somewhere to use -- may be I use a cricket term but yeah we are in somewhere in the middle innings right because they first the commission published their draft proposal, the parliament came out just a few weeks ago with their version of the recommendations, the next thing is that the European Council recommendations and then there is sort of the equivalent of a conference committee in the U.S.

where they all come together. We are very engaged and certainly there are some things we think in the regulation that are -- have the potential to have some real untended consequences and achieve results that are probably not what the regulators intended. Those are the kinds of things we have a lot of dialogue with them amount.

All that said, we do business in many, many countries around the globe with many different types of regulatory regimes. And frankly our business model varies from country to country. So we are used to and a little experienced that dealing with evolving environment and evolving our business models. This is the situation that is very important to us.

We are watching it very closely. We are going to just have to see how this all plays out which we think will continue to take some time..

You don't expect final resolution this by summer or something?.

No, not to go out on limb and guess politics but we don't. We would say at this point and you are correct that originally they were trying to get this done by April or May that is clearly not going to happen. Our view would be the earliest you could get to a resolution is probably much later this year and certainly could extend beyond that. .

Thank you. Our next question in queue comes from Sameer Gokhale with Janney Capital. Please go ahead. .

Thank you. Jeff, I do understand the cricket terminology so just stop over to --.

Well, you'll have to educate me on what I just said. .

Well, I do have a couple of questions. So first one was just to clarify the re-class of fraud losses out of provisions into operating expenses looking at I don't know if you disclose a specific number for this quarter but looked like the run rate was $70 million or so a quarter.

Is that correct? Or maybe you disclosed the actual number for this quarter and I just missed it..

Well, you are correct that the run rate tends to be $70 million to $80 million a quarter. I think we often talk about fraud on a basis point level because our fraud rate when you just look at industry data or as you know about half the industry were just for 70 to 80 is good run rate.

I don't know, did we disclose a specific number more specific; it doesn't vary that much from quarter-to-quarter usually. .

Okay. That's helpful. Then just the other question was in terms of the amexoffers.com there was the program where you can basically just go online check for offer, save them to your card and be able to redeem them. It looks like AMEX offers are basically ranked on individual relevant.

So I'm kind of curious if there was anything that from a timing perspective or technology perspective that resulted this in kind of coming together relatively recently. I mean is this tied into your big data projects and trying to mine some of your consumer data to make more relevant offers? That was one question.

The second part of it is how big do you see this program becoming potentially?.

Well, certainly we think that our ability to put together an offer eco system is particularly strong because of our close loop and a particular source of value both for our merchants and for our card members and of course card members value at the more we can customize for them, what we offer them and of course we are getting better that every month including using your location to be very specific to what we offer you.

And we have seen growing interest on the part of merchants in using that eco system to help them drive business. So we are I think quite excited about our ability to continue to expand our efforts in this area and our ability to use it is one of the many key tenets we have to create value across our entire network of both card members and merchants. .

Okay and then I'm getting a little bit specific here, but just on a different note here with your EveryDay preferred credit card, you're referred to this program. And I was looking at some of the rewards associated with the preferred card and they do seem somewhat rich depending on how you use them.

But is this a sign because I think some other card issuers also have been ramping up the rewards if you will and some of the card offer, Wells Fargo is clearly indicated they want to grow their card business.

So I mean Is this a sign that we are seeing competition at this point now that is going to eventually just reduce the profitability, the products across the board or do you see these are just very specific to certain target demographic and so as a result of that we shouldn't read into this more broadly that there will be rational competition?.

Well, certainly I guess I made the couple of points. One, remember that our goal is to engage our card members in the reward program because that is really how we generate the most loyalty, the most spend and the best bottom line result.

So feel an irony here is as a general statement it can be a very positive thing for us when our rewards expand goes up.

We've also done a lot of work over the last years and you continue to see as every quarter really expand the range of redemption offers because people have lots of different preferences and lots of different likes and dislikes and we have found great receptivity amongst our card members to that growing range of offers, which I think someone may trying to do the kind of comparison you just described.

A little trickier because you don't necessarily know the redemption pattern and some ways you can look at our rewards cost each quarter. And that does give you a macro view of how it is trending relative to billings.

On EveryDay preferred, clearly we think we have a proposition here that is going to be very attractive to a segment of the market that fits our long standing risk profile that we are after but frankly a segment of the market we probably didn't have the right product for it.

And certainly offering the right product to that demographic has to include having a competitive set of rewards, but I guess I will be a little cautious about extrapolating from that one data point anything overly broad about rewards in general. .

I think operator we probably have time for one last question..

Thank you. Our question will come from Daniel Furtado with Jefferies. Please go ahead.

Great. Thank you for the opportunity here. Earlier in the prepared remarks you said you were working on products that are more welcoming and more inclusive. And focusing on new customer segments.

The way a layman should read this is simply that you're looking to move slightly down the credit spectrum as the economy has improved or how should we read those comments?.

Well, I don't if I used focus on the word credit. I like to think as I said if you look at this company over the last 30-40 years, we started out with a credit card with target our charge card, that was targeted in a very, very small group of customers who travel a lot in State at certain types of hotel.

And there has been a steady evolution over decade of us moving beyond that initial very narrow customer demographic, moving beyond the very narrow merchant demographic and moving towards EveryDay spend, moving towards the broader customer base, we added lend products etcetera.

And so when we look at things like the EveryDay card, the prepaid products, and the OptBlue program to expand merchant coverage, all of those things to us a part of long running trend in this company to extend the franchise and the brand which we think is so powerful.

But that doesn't mean that we are changing the risk profile or the credit profile of the company. We think it means having the right product for different parts of the market. And matching that with ways that we provide value and merchant.

So I -- yes we feel real opportunity here to continue to expand the footprint of our brand but this is not about changing our risk profile. For the EveryDay card, this is for people who already would have qualified for other products. And frankly we didn't really have a product that they thought was relevant for them. That's what we are trying to do. .

Okay, great. Thank you for the opportunity. That was my only question. .

So thank you all for your time and your interest in American Express. Have a good evening. .

Thank you. And ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect..