American Express Co

NYSE:AXP

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q4 2023 Earnings Call. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded. I will now turn the conference over to our host, Head of Investor Relations, Mr. Kartik from Chandran. Thank you. Please go ahead.

Thank you, Donna, and thank you all for joining today's call. As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. The factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC. The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials as well as the earnings materials for the prior periods we discussed. All of these are posted on our website at ir.americanexpress.com.

We will begin today with Steve Squeri, Chairman and CEO, who will start with some remarks about the company's progress and results and then Christophe Le Caillec , Chief Financial Officer, will provide a more detailed review of our financial performance. After that, we'll move to a Q&A session on the results with both Steve and Christophe. With that, let me turn it over to Steve.

Good morning, and thanks for joining us. 2023 was another strong year for American Express. We delivered record revenues of $61 billion for the year, up 15% on an FX-adjusted basis, and we had record net income of over $8 billion, with earnings per share of $11.21. In the fourth quarter, we continued to drive strong customer engagement and demand for our premium products. We had solid growth in billings, strong new account acquisitions and continued strength in credit quality, which remains the best in the industry.

As a result, we achieved fourth quarter revenues of nearly $16 billion, which was another quarterly record and EPS was $2.62. Christophe will provide detail on our quarterly results, but I would like to take a step back to talk about what we've accomplished over the last 2 years and tell you why I'm feeling good about where we are today and why I'm confident in our future. Coming out of the COVID pandemic in January of 2022, we saw an opportunity to accelerate our growth and we set an aspiration to sustain growth over the longer term at levels that were higher than what we were achieving prior to the pandemic. At that time, we laid out a growth plan with the objective of positioning the company to be able to deliver on our aspiration of driving annual revenue growth of 10% plus and mid-teens EPS growth over the long term.

In executing the plan, we focused on listening to our customers and understanding their needs, and we invested in innovating our value propositions as well as uplifting our marketing and technology capabilities and backing our colleagues to meet those needs. Looking back over the 2 years since we announced the growth plan, I'm pleased to say that we achieved what we set out to do. And in fact, we're ahead of where we thought we'd be on our journey, thanks to the millions of premium customers we have around the world and the American Express colleagues who support them.

Today, we are a larger and stronger company. Since 2021, we've delivered record annual revenues, increasing the scale of our business by over 40% in just 2 years from $42 billion to $61 billion in annual revenues. In revenues -- annual card spending over this period has increased 37% on an FX-adjusted basis to a record $1.5 trillion. We've added about 25 million new proprietary card accounts over the last 2 years and over 70% of these new accounts are coming into the franchise on fee-based products. With the growth in new accounts we've seen over the past few years, we now have a total of over 140 million cards running on our global network.

Our focus on continuously innovating our value propositions to meet the needs of our customers is driving increased brand relevance across generations, including millennial and Gen Z consumers. These customers represent over 60% of the new consumer accounts we acquired globally in 2023 and 75% of new consumer platinum and gold accounts acquired in the U.S. came from this cohort. At the same time, retention continues to be very high, and our credit metrics remain strong and best in class. These strong results reflect the success of our strategic investments we've made in our business, along with the tremendous earnings power of our business model.

Looking ahead, let me tell you why I feel really good about our future prospects. We have a business model that is delivering premium performance, and we have strong momentum, which is driven by 4 key features of our model that differentiate us from the competition and are difficult to replicate. First, our economic construct has a set of diversified revenue sources that include card fees, spending and best-in-class lending with our subscription-like card fees being a core and fast-growing component of our revenue mix. We have a singular focus on premium customers and superior innovative value propositions. Our premium customers are high-spending, loyal and drive our strong credit performance.

We have a large and growing partnership ecosystem that expands our brand value to card members and merchant partners around the world. And we have a global brand that is servicing ethos that truly sets us apart. Our business model provides us with strong competitive advantages. And the way we've been able to leverage the model's unique elements and execute our strategy has strengthened those advantages giving us the runway for continuing our momentum across generations, geographies and both our consumer and small business customers. The power of our business model combined with the global scale of our premium customer base, the dedication and focus of our talented colleagues, and the attractiveness of the many growth opportunities we see ahead are the key reasons why I'm confident in our ability to continue on our growth plan. And it's why going forward, we'll remain focused on our long-term aspiration of delivering annual revenue growth of 10% plus and mid-teens EPS growth.

We believe this aspiration is the right one, and we aim to achieve it every year. However, we managed the company for the long term, and we anticipate there will be a range of potential outcomes in any given year due to a variety of factors such as external environment and actions we might take that we decide our best for the business. Looking at this year, the continued momentum we've seen in the business as we've executed our strategy gives us confidence in our guidance for 2024, which is in line with our long-term aspiration. For the year, we expect to deliver annual revenue growth between 9% and 11% and full year EPS of $12.65 to [ $13.15. ] In addition, we plan to increase our quarterly dividend on common shares outstanding to $0.70 a share up from $0.60 beginning with the first quarter 2024 dividend declaration. This represents more than a 60% increase in the dividend from when we introduced our growth plan in January of 2022.

As always, we will continue to run our business for the long term, and we'll do that by listening to our customers and meeting their needs through innovative unique value propositions and exceptional service that reflects our brand built on trust and security, delivered and supported by a world-class colleague base. In keeping our focus on backing our customers and our colleagues, we are confident that we will continue to deliver strong growth on a sustainable basis over the long term. Thank you, and let me now turn it over to Christophe.

Thank you, Steve, and good morning, everyone. It's good to be here to talk about our 2023 results, which reflect another strong year of performance and to lay out our expectations for 2024. I will discuss both our quarterly and full year results this morning. since its year-end and since looking at our business on an annual basis is more in sync with how we run the company.

Starting with our summary financials on Slide 2. I Full year revenues reached an all-time high of $60.5 billion, up 15% on an FX-adjusted basis. Our fourth quarter revenues were $15.8 billion and grew 11% year-over-year. This revenue momentum drove reported full year net income of $8.4 billion and earnings per share of $11.21. For the quarter, we reported net income of $1.9 billion and earnings per share of $2.62. Let's now go through a more detailed look at the drivers of these results, beginning with Bill Business on Slide 3. We reached record levels of spending for both the full year and the fourth quarter in 2023. The Total billed business grew 9% versus last year on an FX-adjusted basis. In the fourth quarter, Bill business grew 6% as we continued to see more stable growth rates after lapping the prior year impact of Omicron back in the first quarter. This 6% growth rate does reflect a bit of softening versus last quarter. But I would point out that the number of transactions from our card members continues to grow double digits year-over-year, a good indicator of the engagement of our customer base.

Our growth was driven by 5% growth in goods and services spending and although slower than last quarter, continued strong growth in travel and entertainment spending, up 9% for the quarter. Restaurant spending remains our largest T&E category and reached $100 billion for the full year for the first time, while airline spending growth slowed in the quarter. There are a few other key points to take away as we then break down our spending trends across our businesses. Starting with our largest segment on Slide 4. U.S. Consumer grew billings at 7% this quarter. We continue to see growth across all generations and fleet cohorts with millennials and Gen Z customers again driving our highest bill business growth within this segment. Their spending was up 15% this quarter. Looking at Commercial Services on Slide 5. Overall growth came in at 1% this quarter, consistent with last quarter's growth rate. Spending growth from our U.S. small and medium-sized enterprise customers remain modest given the unique dynamics seen by small businesses over the past few years.

Specifically, in 2022, we saw a large increase in organic spending as businesses restock their inventories following supply chain issues during the pandemic. This caused a significant grow-over challenge with spending from this segment in the industry in 2023. Importantly, we continue to see strong levels of demand for new accounts high levels of retention and strong credit performance on our small business products. Looking ahead, this positions us well for the future, a spending growth rebalance. And lastly, on Slide 6, you see our highest growth again this quarter in international card services. We continue to see double-digit growth across all regions and customer types. Spending from international consumers and from international SME and large corporate customers, each grew 13% in the fourth quarter. Overall, while we're seeing a softer spend environment, we are pleased with the continued strong engagement and loyalty of our card members across the globe.

As we think about 2024, we are assuming a spend environment similar to what we've seen in the past few quarters. Now moving on to loans and card member receivables on Slide 7. We saw year-over-year growth of 13%. We expect this growth, which has been elevated versus prepandemic levels to continue to moderate as we progress through the 2024, but to still grow modestly faster than billings. Turning next to credit and provision on Slide 8 through 10. First and most importantly, we continue to see strong and best-in-class credit metrics. We attribute this performance to the high credit quality of our customer base, our robust risk management practices and our disciplined growth strategy. As we had expected, our write-off and delinquency rates did continue to tick up this quarter, as you see on Slide 8. Going forward, we expect to see this delinquency and write-off rates remain strong with modest increases in 2024.

Turning now to the accounting of this credit performance on Slide 9. The modest increase in our current member loans and receivables delinquency rate, combined with the quarter-over-quarter growth in our loan balances, resulted in a $400 million reserve build. This reserve build combined with net write-offs, drove $1.4 billion of provision expense in the fourth quarter. As you see on Slide 10, we ended the fourth quarter with $5.4 billion of reserves, representing 2.8% of our total loans and card member receivables and continuing to reflect the premium nature of our card member base. This reserve rate remains about 10 basis points below the level we had pre-pandemic or day 1 CECL. We continue to expect the reserve rate to increase a bit as we move through 2024 similar to the modest increases we've seen over the past few quarters.

Moving next to revenue on Slide 11. Total revenues were up 11% year-over-year in the fourth quarter and up 15% for the full year on an FX-adjusted basis. Our largest revenue line, discount revenue grew 5% year-over-year in Q4 and 9% for the full year, as you can see on Slide 12. This growth is mostly driven by the spending trends we discussed earlier. Net card fee revenues were up 17% year-over-year in the fourth quarter and 20% for the full year, as you can see on Slide 13. As we expected, growth continued to moderate a bit this quarter from the high levels we saw earlier this year, reflecting our cycle of product refreshes. In 2024, we expect to exceed the year with some further momentum compared to the current growth, supported by continued product innovation and our focus on premium value propositions. We currently have plans to refresh around 40 products globally next year.

In the quarter, we acquired 2.9 million new cards and the spend revenue and credit profiles of our new card members continue to look strong. Moving on to Slide 14. You can see that net interest income was up 30% year-over-year on an FX-adjusted basis in Q4 and 33% for the full year. This growth is driven by the increase in our revolving loan balances and also by continued net yield expansion versus last year. When you think about 2024, you should expect to see net interest income growth moderate as balance growth moderates, with some continued tailwind from our tenured customers continuing to rebuild balances. And I would remind you that for our business model, we would not expect to see a meaningful impact from a lower interest rate environment next year. To sum up revenues on Slide 15. The power of our diversified model continues to drive strong revenue momentum, looking forward into 2024, we expect to see revenue growth between 9% and 11%.

Moving to expenses on Slide 16. Overall, total expenses were up 5% in the fourth quarter and 10% on a full year basis, both growing significantly lower than revenue. This expense growth reflects the strong growth we are seeing in our business, the investments we've made as well as our continued focus on expense discipline. Starting at the top of the page with variable customer engagement expenses, these costs came in at 40% of total revenues for the fourth quarter and 41% for the full year. I would note that these costs came in a bit lower than our expectations reflecting some of the natural hedges in our model. As T&E spend growth slowed a bit in the quarter, we saw lower remote costs than we had expected. For example, a lower mix of redemptions for airlines tickets and fewer points earned on airline spend. In 2024, I would expect our variable customer engagement expenses to grow slightly higher than our revenue as we continue to focus on our premium products and drive engagement from our card members.

On the marketing line, we invested around $1.2 billion in the fourth quarter and $5.2 billion for the full year. This is a bit below last year and our expectations to have marketing spend at around $5.5 billion. Marketing expense came in lower than we expected for the quarter, reflecting lower demand given the softer T&E environment. However, we saw demand increase as we move through the quarter, and we continue to plan for increased marketing spend in 2024. We're confident that with our sophisticated acquisition engine will do so in an efficient way. Moving to the bottom of Slide 16 brings us to operating expenses, which were [indiscernible] billion the fourth quarter and $14.9 billion for the full year 2023. This was above our original expectations, driven by a few notable items in the quarter. First, as part of the normal course of business, we set up a reserve to cover expenses as we continuously look to enhance the organization's effectiveness. We also set up a reserve for exposure to a specific merchant -- and like many others, we were impacted by the devaluation of the Argentine peso, which increased our OpEx in Q4 by $115 million.

Looking forward, we continue to see OpEx as a key source of leverage and are focused on delivering low levels of growth as we have historically done. In 2024, we expect operating expenses to be fairly flat to this year's expense. We will, of course, continue to assess opportunities as we move through the year, and our flexible model will allow us to dial up or down investments as needed. Taking everything into account in 2024, we expect total expense to grow mid- to high level digits for the full year as we expect to drive continued leverage through our operating expenses. Turning next to capital on Slide 17. We returned $5.3 billion of capital to our shareholders in 2023, including $1.4 billion in the fourth quarter on the back of strong earnings generation. We ended the year with our CET1 ratio of 10.5% within our target range of 10% to 11%. In Q1 2024, as Steve discussed, we expect to increase our dividend by over 15% to $0.70 per quarter, consistent with our approach of growing our dividend in line with earnings and our 20 to 25 target payout ratio. We plan to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth. We do not expect any material near-term changes to our capital management approach.

That brings me to our long-term aspiration and 2024 guidance on Slide 18. We continue to run our business with a focus on our aspiration of revenue growth in excess of 10% and mid-teens EPS growth, and we believe that is the right aspiration. As Steve discussed for the full year 2024 specifically, we are introducing our guidance of having revenue growth of 9% to 11% and earnings per share between $12.65 and $13.15. This guidance remains in line with our aspiration and also factors in a range of scenarios based on what we're seeing in our business today. We also recently announced an agreement to sell our certified business. Our guidance and the items related to 2024 that I just walked through do not include the potential impact from the sale. We do expect to realize a sizable gain on the sale and to reinvest a substantial portion of the gain back into our business as we've done with similar transactions in the past. We expect the deal to close in the second quarter and plan to provide more detail then. With that, I'll turn the call back over to Karthik to open the call for your questions.

Thank you, Christophe. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourself to just 1 question. Thank you for your cooperation. And with that, the operator will now open up the line for questions. Operator?

[Operator Instructions] Our first question comes from Don Fandetti of Wells Fargo.

Good to see the 24% EPS guidance and rev guidance. I guess on January spend -- some of your peers have noted a slowdown on weather. Can you comment on that? And then just maybe talk a little bit about build business in '24 in terms of SME.

Yes. So we don't talk about monthly numbers. So let alone about a few weeks into the month of January. So I think pass this to wait until the end of the quarter, and we'll provide a lot more color and detail on the billing in January so far. As far as how we think about bill business in 2024, our planning assumption is that we should expect or we're expecting billings to be consistent with what we've seen in the prior few quarters. And we are ready to see an upside if there is some. But for now, that's the assumption we baked in our plans. -- and how we constructed this guidance.

On the SME side, it's the same assumption, if you want. We are assuming either something similar to what we're seeing in Q3, Q4, and we are very focused on winning the recoveries with SMEs. As I said in my remarks, these card members have been through a lot over the last 2, 3 years. And we are focusing on providing the best experience, the best products. We're focusing on acquiring as many customers as we can in helping them grow their business. And we'll be ready when they're ready. Historically, this has been a volatile segment for us, you know how dynamic these customer segments are, and we play a critical role in that industry, and we'll be ready when they're ready.

The next question is coming from Ryan Nash of Goldman Sachs.

Maybe to build on Dan's question, can you maybe just dig a little bit deeper on some of the drivers of revenue growth at discount revenues, card fees? And Christoph, I know you said that NII should decelerate and are we assuming any sort of reacceleration as we move through the year, particularly in areas like U.S. consumer or SME?

Yes. Thank you for your question. So the building blocks of the revenue growth remain the same at a very high level we expect billing and, therefore, discount revenue to grow at a pace similar to what we've seen in the recent quarters. We expect card fees. So Q4 is at 17%, full year at 20%. We expect card fees to be a key contributor to growth going forward to remain a key contributor to growth going forward. And actually to exit Q4 at a higher level than where we are right now.

And I give you the context in my remarks, very much supported by the constant strength in premium acquisition through product refresh and renewals that we are committed to execute on and very strong retention rates, which we have experienced for many years now. And when it comes to the last component of our revenue pool, net interest income, you should expect that growth rate to moderate very much driven by the fact that -- and you've seen the trend, I'm sure, Ryan, their asset growth and their lending growth rate has been moderating over the past quarters. and we expect that moderation to continue. The very strong growth was a function of tenured card members rebuilding balances post COVID. And at some stage, we're going to reach their -- the more normal rate there, and that will naturally drive NII due to a more moderate level of growth.

I got to also mention that we believe that the interest rate dynamic and what the Fed will design doesn't play a big role here in terms of what's going to happen to NII. And when you put all of this together and you can -- we run multiple scenarios, what if is a bit stronger, what is the NII is a bit weaker. And we land in the same range of 9% to 11%. So that's very much how we think about the revenue guidance.

The next question is coming from Mark DeVries of Deutsche Bank.

Yes, thanks. Was hoping you could dig a little further into kind of where the loan growth is coming from how much of it is from new customers or relatively recently added customers versus older and gaining share there? And also whether you're seeing any kind of difference in credit performance on kind of balances from newer customers versus older?

Okay. So let me take loan growth first. the dynamic on loan growth has not changed. And for several quarters now, it's also our philosophy and how we run the company. About 70% of their loan growth comes from tenured car members and what we call tenured card members is car members who've been with us more than 12 months. And that's very much how we think about acquisition. We acquired card members, we develop relationships with them. Then we offer them either we cross-sell products. We increase the lines. We nurture those relationships. And we do that because we understand them better. We understand their spend patterns and they understand our products better as well. And that's the driver.

There -- we don't do much balance transfers, if any at all. And we don't have promotional offers, much promotional offers also. So it's very much growing with our tenured card members. And it's part of our strategy to contain, if you want the credit risk and to control it. And when it comes to the credit profile of the new card members, we haven't changed our credit underwriting models, right? We still -- and we haven't changed as well our marketing channels and products. Well, we still skew towards positive selection in terms of credit profile. That has not changed. And I need to say that there prospects that we bring in and become recent card members a very good credit profile.

The next question is coming from Bill Carcache of Wolfe Research.

I wanted to follow up on your comments about customer engagement spending outpacing revenue growth. Can you speak broadly to your ability to continue to drive customer engagement with elevated investment spending, while at the same time, offsetting that margin pressure with operating expense leverage in other parts of the business. And I guess, do you anticipate positive operating leverage on an aggregate basis with revenue growth outpacing the sum of that customer engagement and operating expense combined?

There's a lot here. So let me first take you through customer engagement. The key thing for us, and you heard us say this for years, right? We build premium products and we price for that value. You heard say as well that over the last years, we the mix of the portfolio shifted more towards premium products.

That premiumization of the portfolio is the key driver behind that ratio of variable customer engagement expenses to revenue. The more Platinum card members we bring, the more variable customer engagement expenses, you should expect to see. But at the same time, we have a lot of initiatives to actually optimize this. We have a lot of innovation in that space. I'm going to share with you one that is driving a lot of efficiencies for us. We recently introduced their pay with point option where you can actually go in the app or the website, select one specific transaction and pay with points. So we have that either constant innovation to try to delight the customers, making their life easier and at the same time, create efficiencies in terms of the weighted average cost per point.

Specifically in Q4, one of the driver of that efficiency or that variable card member engagement expense was the fact that we saw less point redemption with airline tickets, which is one of the most expensive cost per point that we have. That drove some efficiencies in that metric. We also saw as there was some softness in some T&E categories, less point accelerators earned, and that created as well some efficiencies there. The reason why I'm pointing that out is just to give you some example of some of the natural hedges that exist in our business model where when you see a little bit of softness in the top line, that creates some savings as well in some expense lines.

So we guided there towards a little bit of an increase in terms of the variable car member engagement expenses. And we're going to keep monitoring that. But I feel good about that trend. And I think margin is still very strong and able to generate very strong earnings. We're committed to containing OpEx. And as I said, we expect 2024 offering expenses to be about flat to where we are ending 2023. And marketing expenses will dial up or down based on opportunities that we see space on the efficiencies that we create as well. The model works really well, as you can see, and I'm comfortable that the model is strong, and we are stress-testing that model running multiple scenarios, and it works well in terms of its ability to generate earnings over time. And I would say risk-adjusted earnings because that powerful model, what do we pay on variable car member engagement expenses, comes back with a multiple on the credit line. We attract positive select, we generate positive select, we attract premium card members who have a very strong credit profile. And I like paying for that as opposed to trying to control the credit risk down the road...

The next question is coming from Jeff Adelson of Morgan Stanley.

Chris and Steve, just wanted to dig into the softer T&E trends a little bit. It looks like you're seeing some softness, particularly in airline spend. You're seeing some slower point redemptions for tickets there. Just maybe give us some insight into what you're hearing and seeing from your card members on that front? And then just maybe in the forward book, can you help us understand what you're kind of embedding in your expectations for T&E from here? I think in the past, you've talked about how the booking trends have been a pretty good indicator of what's to come. Maybe any comment on what you're seeing there?

Yes. So T&E sequentially, the growth rate came down. I need to point out, though, that is still up 9% year-over-year. So it's a pretty strong growth rate. In terms of airline spending, if you heard, I'm sure the Veris airline, they all made comments about a bit of a softer demand. And since many of those customers are using an American Exports card to pay for the airline ticket, we saw a similar trend. This being said, booking remains very strong on our TLS segment. I don't have the numbers in front of me, but I know they were strong. So I don't -- we'll see whether it's the beginning of a trend or whether it's a data point, but we keep seeing a lot of strength in the partnership we have with Delta is working very, very well. originations of new cars are very strong.

And the card members decided to redeem a bit less in Q4 with airline tickets than it did in the past. And we've seen that choppiness as well in the past. I don't worry it's one data point. And for 2024, we haven't communicated on exactly what assumptions we're making by category. But I'm not too worried. We have a call member base that loves traveling, and I'm sure they're going to keep traveling.

The next question is coming from Rick Shane of JPMorgan.

Look, you guys had alluded to the fact that the reserve rate is going to go up or drift up in 2024. I'm curious if what's driving that? Presumably, it's a mix shift between loans and card member receivables. But I'm wondering if at any level you're also suggesting that the reserve rate on the loan portfolio is going to go up as a reflection of either some sort of shift there? Or is it just pure mix shift as the loan portfolio grows faster than the card member receivables.

So thank you, Rick, for your question. So this is very -- this is an important point, so I'm glad you're asking the question. The first thing I want to say is that the absolute level, when you look at the delinquency rates or the write-off rates are very low in terms of our historical performance. And on the slide, I put as well their prepandemic levels. The write-off rate is 2% in Q4. It was 2.2% prepandemic, right? So we're still below where we were prepandemic. So in absolutely very low.

Relative to our peers, which I know you know well, they're also very good. And I'm sure you noted that every competitor appear reported their numbers and experienced the same tick but at a higher magnitude. Our take up of 0.2 or 20 basis points is one of the lowest in the industry. So I feel good about where we are, and I feel good about the trend. When it comes to the dynamic in the portfolio, the key driver behind this is that there's still some normalization going on here. We are moving from sub-1% write-off rate during the pandemic. As you all know on this call, this was not a sustainable level, and these rates are normalizing. And they are normalizing at a slow pace, and I like that. And the 2% is, again, a place where I feel comfortable from a credit standpoint.

The other thing to expand a little bit and take a step back in terms of what kind of loan growth we are seeing. The biggest contributors in terms of loan balances are their pay overtime facility that we offered with our charge products and their co-brand cards. And so both those portfolios have very strong credit profile and better credit profile than what we call internally proprietary lending, which includes Blue Cash everyday, for instance. So if anything, the profile of the portfolio and the mix of the portfolio is shifting and evolving more towards products that have a strong credit profile and high velocity. This being said, that normalization is happening, and that's what's creating that little tick-up. And as I said in my comments, we're not pipe down with that normalization. There's still a bit more to come in our mind, but not a lot.

The next question is coming from Saul Martinez of HSBC.

Maybe just ask on capital. Is there any updated thoughts on how you're thinking about Basel game? You obviously your preliminary expectations of the proposal at least are that it would take you down to closer to 7%. But there is a lot of talk about that, that being softened. Just how are you thinking about capital management. You obviously increased your dividend. But how are you thinking about buybacks going forward in light of the uncertainty?

So thank you for your question. So not a lot has changed on that front outside of the fact that we've been meeting with regulators, Steve met with regulators, I met with regulators as well. And what I can tell you is that they are listening, they're engaged. And I think they understand our comments the ball is back in their camp now and they're incorporating all the comments they received from the industry, and I'm sure you've seen a lot of those comments as well. So they have a lot of work to do. Right now, we are in waiting mode.

And I think we're expecting the current estimate is we're expecting there or at least their next version of the rules by the end of 2024. We'll see it took 10 years to get to their first drop. So we'll see when we get the next version. I'm not too concerned. I feel good about our starting point and our capital position. As you know, we generate about 30% return on equity, which means that we generate a ton of capital. And for now, we're not going to change our capital policy. The first thing we do is, of course, fund the balance sheet, then we distribute dividends.

We feel very confident about the increase that we are planning to do this year. And the rest is going to go and share buybacks so that we keep capital between 10% and 11% of our risk-weighted assets. And that's what we've done for years. That's what we're going to keep doing. And we don't adapt to the Basel rule. We're running the company conservatively as well with a big buffer over the 7% rate that we have. And so nothing has changed much on that front. So more to come when we get the final rules.

The next question is coming from Moshe Orenbuch of TD Cowen.

Great. And many of the questions have been asked and answered. But hoping to follow up on a comment that you had just made about the pay overtime business. Could you talk a little bit more about the characteristics of that? You mentioned that obviously, that's going to tenured charge card customers. So the quality is very strong. Can you talk a little bit about the yield and how much you've seen in kind of growth from that product?

Yes. The -- so your description is correct, Moshe. It's a facility that we attached to our Shareco products where they can decide if they want to revolve a portion of their bill. The -- this is the fastest-growing category for us in terms of loan growth. It was very well received. It was very well received by the card members. And I don't know what else I can tell you. Remember that their charge card has a no preset limit, which is an important feature here. So it's a way for us to give them as well, and it's a painful product. So it's a way for us to give them a facility where they can revolve over a period of time. And as I said previously, the credit profile is very strong on this product. very much because it is attached to a very premium base, right? Premium Gold Card members are using this facility and revolving from time to time.

The next question is coming from Sanjay Sakhrani of KBW.

Maybe I could ask the questions regarding what's embedded in the revenue growth expectations for 2024 differently. If we look at the fourth quarter exit run rate, would that sort of target us to the low end of the guidance range? And then Christophe, you mentioned that lower rates shouldn't help, but aren't you guys liability sensitive on the charge card portfolio?

So let me take the second question first. We are slightly liability sensitive and the key assumption for us, but the comment remains that in its totality, our total balance sheet and total funding stack level, the impact of rate cost is going to be very small to our NII. The bigger known here is what's going to happen to the beta. We've been, as an industry, trending around 0.7 on their way up. We probably got a trend 2.7% on the way down, but not immediately. And it's hard to say exactly at this point in time where we're going to be when the Fed starts cutting rates.

We are making assumptions that we think are conservative, but we don't know for sure, and we'll see where we are. So there is a bit of uncertainty here. But what is -- what you know for sure is that you should not expect a big impact to our NII depending on the rate curve. Going back to the -- to your first question around revenue, I just -- I don't have a lot to say on top of what I said earlier and what I said in my prepared remarks. I'm happy to be surprised on the upside if Bill business is stronger car fees, we have good visibility. NII, I think the trend is very established.

And on billing, as I said, we are assuming at this point in time something consistent with what we've seen in the previous quarters. And we'll see where we are at the end of the year. But if the economy rebounds, if the growth is a bit stronger than what is expected by Economist and our card members are optimistic and keep spending. I'd be delighted to have a high YouBuild business to report.

Thank you. The next question is coming from Dominic Gabriel of Oppenheimer Co.

Steve and Chris. I was just curious about the total card growth. I mean, we all know that you've seen some really excellent account acquisitions over the last number of years. But I was just curious about total card growth versus proprietary card and force growth, in particular this quarter, if there's any color you can provide on why that may diverge or what the strategy is between maybe having more proprietary cards as a percentage of total cards. Anything on that would be excellent.

Yes. So we have about 140 million cards that can transact on our network. Out of the 140 million cards, about 80 are issued by American Express. That's what we call the proprietary cards. They represent the bulk of the spend, and they drive the very vast majority of our economics. From a growth rate standpoint, if you look at cars in force and it's -- you'll see that in the details of our disclosures. The proprietary case in force of 5% year-over-year and the total cost in force. So including their cars issued by network partners is up 6%. Does it answer your question?

The next question is coming from Karen Kanovich of Citi.

Maybe you could -- I was wondering if you could talk about the plans for the next Platinum refresh in the U.S. I think the last one was on 2021 and whether or not you have any plans to do that this year and if that's in your guidance for the year as well.

Yes. So as you know, we have committed to refreshing 40 products this year as Christophe had said. And strategically, we look at refreshing all of our products on a sort of 3- to 4-year basis. And it's important because it's really important to make sure that we keep our products fresh, we're listening to our customers and putting in those enhancements and the extra value that they want and it enables us to make sure from a generational perspective, we are modifying those products as trends change and as our customer needs change. As far as specifically for the Platinum card, we don't really preannounce that. And so I think you just have to wait and see.

The next question is coming from Craig Maurer of FT Partners.

Two quick questions. Considering the strength of Delta Airlines over the last number of years is consistently the top airline. You've clearly benefited a lot from that in terms of new card issuance and likely spend as they've been able to hold fares better. As we see airlines spend slow, does that benefit diminish? And is it something you have to think about? And second, in terms of small business, we've been pretty flat now for a couple of quarters. Curious what you're seeing under the covers there. Is this -- are you still able to issue new cards or -- and are you seeing any reluctance from small business to take additional products that might increase their cost beyond the baseline. I'm just trying to understand the move better small business owners.

Yes. So from a small business perspective, -- the drive is really organic spend. We're not seeing existing small businesses spend more than they spent the year before. And that's not an American Express phenomenon. That is an industry phenomenon. As far as card acquisition within small businesses, that still remains strong. As far as small businesses looking at our platform and looking at our loans and so forth, that remains strong, and the credit quality remains strong. I think as Christoph said in his remarks, there is this phenomenon of inventory buildup, some interest rate shock and so forth. And so small businesses tend to be very, very secular. I would be much more concerned if we weren't acquiring cards, if we weren't engaging in new small businesses or if write-offs and delinquencies were higher. So at the moment, as we look at this, we truly believe this is an organic spending issue, and it's not American Express specific. I'll let Christophe talk a little bit about Delta.

Yes. So the Delta product is still going very, very strong. The total billing growth on the Delta product for the full year was up 15%. we are originating a lot of new cars as well. My comment about their softness in terms of Q4. Hard to say whether it's the beginning of a trend or whether it's just a blip, time will tell, but it's still doing very, very strong and the engagement with the partner is very strong. The partnership is going strong. So I don't see any softness there at all. And I will say as well that the credit quality of those new Con members remain very strong. I made comments about it's one of the fastest growing segment on the loan side, and it comes with very strong performance. People who travel a lot and we fly a lot tend to have strong credit quality. And we see that on the loan side, on the spend side, on the origination side. So I'm not worried about that at this stage.

Our final question will come from Mihir Bhatia of Bank of America.

I just wanted to go back a little bit and maybe just unpack the billings growth a little bit. Maybe can you just talk about how much of that is being driven by adding new card members versus winning wallet share? And then just related to that same topic, is just how are you thinking about the environment for new card acquisitions? Is this $3 million level that you have been at for the last couple of quarters, the right level to think about for the next year? I understand that is dynamic and you'll change, but what have you assumed in your planning?

Let me talk about sort of card acquisition numbers. When we go out and we look at acquiring card members really focus on acquiring build business and require revenue. And consistently now, if you take the first quarter out of last year, where it was a little bit more of an anomaly of 3.4 million cards, we've been around that 3% to 2.9. And we will -- as long as we have line of sight into high credit quality premium card members, we will continue to be out there aggressively acquiring card members. And that range will be where we see that range today between 2.9, 3.1.

We don't really provide any guidance on that. But with the amount of money we're planning on spending, I think that's a -- it's a pretty fair assumption. And we report that, but what we're really focused on is making sure that we're getting build business acquired. When you look at the composition, obviously, in a stronger environment, you're really looking for more organic growth from your existing cardholders. And I just made the comment before, where small businesses, that's not what we're seeing. And so when you look at any growth that you're seeing from a small business perspective, that is truly from new cardholders acquired. And a lot of the growth from a consumer perspective right now is new cardholders acquired, which actually, as we think about engaging with our cardholders gives me a lot of confidence going forward because as we continue to engage and not only get more wallet share, but as our card members get back to where they were probably before the third and fourth quarter, we believe there is upside there from a billings perspective.

And we've talked a lot about millennials over time. And we get on this growth trend, we get on this trajectory with these millennials and Gen Zs where we start with a higher share of wallet, and we start with that higher share of wallet because they're used to using their American Express Card everywhere. And as they move through their life cycles, their wallets increase. And so we have a lot of confidence in the long-term lifetime value of our -- of the millennial base and of the Gen Z base that we're now acquiring, and you see even in this fourth quarter, that is 32% now of our total spending. So the way to think about this right now is a lot of the growth is coming -- that you're seeing is coming from new card acquisition, but there will be an organic step-up as the economy gets better.

So and that gives us a lot of confidence of how we're positioned for future growth over the long term, which gives us confidence to say, aspirationally, we should be a 10% plus revenue company. And that's why you see the guidance that we've given this year both from a revenue perspective and EPS perspective.

With that, we will bring the call to an end. Thank you for joining today's call and for your continued interest in American Express. The IR team will be available for any follow-up questions. Operator, back to you.

Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call. You can also access the digital replay of the call at 877-660-6853 or 201-612-7415 access code 13743240 after 1:00 p.m. Eastern time on January 26 through February 7.

That will conclude our conference call for today. Thank you for your participation. You may now disconnect.