Spencer Capital Management presents an investment thesis for American Express Company (AXP). Key points: 1) AXP has a valuable global payments franchise with a premium customer base and closed-loop network, but faces near-term earnings uncertainty and negative sentiment due to economic conditions. 2) Long-term, AXP has robust growth prospects through increasing market share, merchant acceptance, and rewards/loyalty programs. 3) Valuation analysis using comparable companies, discounted cash flow, and historical P/E multiples suggests AXP is undervalued and offers upside of 86% over 3 years to a target price of $81-95 per share.

1. A Good Idea for a Bad Market
May 2008
Spencer Capital Management, LLC

2. Disclaimer
This document is not a solicitation to invest in
any investment product nor is it intended to
provide investment advice.
While every effort has been made to provide
data from sources considered to be reliable, no
guarantee of accuracy is given.
Private investment vehicles and / or accounts
managed by Spencer Capital Management, LLC
and / or its owners, employees or affiliates may
have positions in, and may make purchases or
sales of, securities discussed in this presentation
and / or securities whose performance is related
to matters discussed in this presentation.
2

3. Spencer Capital Management
• 7 year track record
• $225 million of AUM
• Concentrated, event-driven value investing
• Look for asymmetric payoffs
Low-case outcome = No capital loss
High-case outcome = Double or triple our investment over 3
years
3

4. Research Process
• Internally generated ideas
• Rigorous bottom-up fundamental analysis
• 4-Step Research Process
1. Formulate Thesis
2. Define a Strategy to Collect the Data That Will Support or
Refute the Thesis
3. Collect Data
4. Analyze
• Research time allocation: 4 lists
1. Portfolio
2. Active Research
3. Waitlist
4. Watch List
4

5. We Eat Our Own Cooking
• Spencer Capital grew out of a partnership that managed family
money
• 30% of capital from employees, friends and family
• Long-Term investment perspective
• Volatility is key to successful long-term investing

6. Thriving in a Bear Market
To survive a bear market and plant the seeds for future returns you need
three things: Hands, Head and Heart
– Hands:
• Financially strong hands to hold onto what you own, as well
as liquidity to take advantage of great new opportunities
– Head:
• A library of already well-researched ideas
– Heart:
• The emotional ability to invest and take on more risk during a
crisis
6

7. American Express Company
Market Cap: $56 billion
2008E Revenues: $31 billion
2008E Earnings: $3.9 billion
Ticker: AXP
2008E EPS: $3.33
Price: $48
P/ 2008E EPS: 14.4X Fiscal Year End: 12/31
7

8. American Express Business Description
• World’s largest issuer of charge and credit cards as measured by
purchase volume
– 88 million cards-in-force generating over $650bn of spend
• Premium customers best in class credit quality
• “Closed loop” payments network
Irreplaceable global franchise with significant
and growing competitive advantages
8

9. American Express Timeline
American Express has evolved into a pure-play
payments company by divesting non-core and low
return businesses
9

10. Average Return on Equity 1998 - 2007
10

11. Capital Returned to Shareholders: 1998 - 2007
11

12. American Express Thesis
• Uncertain near-term earnings, negative sentiment
• Valuable network and processing segment
• Robust long-term growth prospects
Intrinsic value well in excess of current share price
12

13. American Express 1-Year Stock Chart
Amex sees
weaker economy
and increases
reserves
13

14. Industry Trends
• Cash Plastic
• Merchant discount rates increasing
• American Express increasing market share
• Card associations now publicly traded corporations
– MasterCard (MA) shares up 5x since IPO
– Visa (V) shares up 70% since IPO
– Highlights value of networks with scale
14

15. Paper or Plastic?
15

16. Total Card Purchase Transactions (billions)
16

17. Merchant Discount Rates 2001 - 2006
17

18. Credit Card Purchase Volume Market Share (U.S.)
Only network increasing
market share
18

19. American Express Spend-Centric Model
19

20. High Average Spend
20

21. Premium Economics
21

22. Rewards & Service
• American Express spent over $5 billion on rewards and cardmember
services in 2007
• The redemption rate for rewards has been increasing, a reflection
the appropriateness of the reward offers and cardmember loyalty
• Rewards and customer service improve:
– Attrition rates
– Credit quality
– Customer satisfaction
22

23. Rewards & Service = Customer Satisfaction
23

24. Closed-Loop: A Key Differentiator
• Direct relationships
• Robust data
• Valuable spending incentives
• Marketing and loyalty programs for merchants
– Example: cardmember access to a limited supply of hot items
customized using past purchase behavior. Doubled average
transaction size for participating merchants.
– Co-branded cards
– Business savings: merchant community
Merchant discount rates based on value delivered
24

25. Closed Loop: A Key Differentiator
• Competition has tried to replicate the success of American Express
with mixed results
– Interchange fees have been increasing to allow issuers to fund
better rewards programs
– Visa Incentive Network
• American Express spent nearly $8 billion on marketing, promotion,
rewards and cardmember services in 2007, or $90 per card-in-force
– Total non-interest and non-provision expense for JP Morgan
Chase was $4.9 billion, or $32 per card-in-force
25

26. Closed Loop: A Key Differentiator
• Merchant acceptance
– Over 90% of spend covered in the U.S.
– Over 80% of spend covered outside the U.S.
• Growth in acceptance accelerating
– Network partnerships
– Recent deals with FDC, Heartland Payment Systems and Nova
to increase location penetration amongst small and medium-
sized merchants
26

27. Payments Value Chain
27

28. Payments Value Chain - Revenue
28

29. American Express - Closed Loop
29

30. American Express as a Card Issuer
Growth vs.
FY06
15%
12%
7%
4%
3%
3%
30

31. American Express as a Card Issuer
Growth vs. 2007 Net
FY06 Write-Offs
13% 4.7%
3% 5.0%
4% 3.7%
22% 3.3%
8% 4.1%
-3% 4.3%
31

32. American Express as a Network
32

33. American Express as a Network
• Global Network Services (GNS) = bank co-branded cards issued
on American Express network
– Prevented from operating in the U.S. until 2004
– Today includes large issuers such as Citi and BofA
– Increasingly significant contributor
– Provides strategic optionality
– Expands merchant acceptance – particularly internationally
33

34. American Express as a Network
All business metrics have been growing dramatically, adding
scale to the American Express brand and network
34

35. American Express as a Merchant Acquirer
35

36. Bear Case
• Credit quality
• Funding costs
• Credit card securitization market
• Investment portfolio risk
36

37. Credit Quality
Total provision for losses is 3.5% of total receivables
37

38. Credit Quality
38

39. Credit Quality
In a worst case scenario, we believe that American Express could
lose 1 - 2 years earnings due to charge-offs
39

40. Credit Quality
• American Express is reacting
– Lowering credit lines
– Adjusting models for higher default probability
– Increasing credit and collection staff
– Increasing FICO score at acquisition
American Express has a flexible
business model to adapt to
changing market conditions
40

41. Credit Quality
41

42. Funding Costs
• American Express borrows in the commercial paper, unsecured and
securitization markets
– Commercial paper: ongoing access at favorable rates
– Unsecured debt & securitizations: liquidity at higher spreads
• Risk is long-term disconnect between LIBOR and Fed Funds
– Customer is priced off of Prime (Fed Funds)
Spreads have widened but benchmarks have come down
42

43. Credit Card Securitization Market
• Different than subprime mortgages
– Lending standards not compromised
– Credit card issuers maintain financial stake
– Long-term relationship between originator and customer
– Most transactions investment grade
– Credit enhancement levels sized to withstand significant stress
• AAA prime credit card ABS sized to withstand over 25%
charge-offs
• Open for business
– Q407 volume up 77% versus Q406
– Expected to be biggest ABS sector in 2008
American Express has continued to have access to the
securitization market throughout the credit crisis
43

44. Investment Portfolio
American Express has a high quality, low risk portfolio and has
been reducing exposure to ABS
Less than $0.8B
at 3/31/08
Our target price for American Express is $81 - $95
44

45. Valuation
• We believe American Express will earn at least $4.50 per share in
2011 (approximately 3 years from today)
– Implies a 7% annual EPS growth rate from 2007, significantly
below management’s target of 12 – 15% “on average over time”
• We believe American Express should (and will) trade between 18 –
21x earnings, based on:
– Comparable company analysis
– Discounted cash flow analysis
– Historical precedent
Our target price for American Express is $81 - $95
45

46. Comparable Company Analysis
American Express is both an issuer and a network/ processor. Using
a blended multiple of the two segments yields a 18x multiple
46

47. Discounted Cash Flow
• Assumptions
– 10 year DCF
– 28% average return on equity (versus 33-35% management
target)
– 65% payout ratio
– Implied annual EPS growth = 10%
– Terminal Multiple: 12x
– Discount rate: 6%
• Net Present Value per share: $68
• Implied multiple on 2008E EPS: 19x
47

48. P/E Ratio 1988 - Present
48

49. Target Price Summary
We believe the stock offers upside of 86% by 2011 (3 years from
today)
49

50. Conclusion
• Strong and growing competitive advantage
• Historically low valuation
• Robust long-term growth prospects
Intrinsic value well in excess of the current share price
50

51. Contact Information
Ken Shubin Stein, MD, CFA
Portfolio Manager
(212) 586-4190
kss@spencercapital.com
Emily Geiger
Investor Relations
(212) 799-4711
ejg@spencercapital.com
51