AXP - American Express Company (AXP) Goldman Sachs 2023 US Financial Services Conference
2023-12-05 18:12:09 ET
American Express Company (AXP)
Goldman Sachs 2023 US Financial Services Conference
December 5, 2023 11:20 AM ET
Company Participants
Stephen Squeri - Chairman and Chief Executive Officer
Conference Call Participants
Ryan Nash - Goldman Sachs
Presentation
Ryan Nash
All right. We're going to get started here. Up next, we are excited to have American Express joining us once again. American Express has continued to deliver best-in-class top line growth through a differentiated customer acquisition strategy, leveraging its best-in-class premium brand.
Here to tell us more about the American Express story is Chairman and CEO, Steve Squeri. Steve and I are going to have a fireside chat. Welcome here, Steve.
Stephen Squeri
Thanks. Glad to be back.
Question-and-Answer Session
Q - Ryan Nash
Trying my best to keep it to one question at a time. Ryan has lots of multiple question points. So Steve, I can't say I'll do that for the first one. So maybe just to start, big picture ‘23 was another strong year for the company. You're on track for 15% top line growth, strong EPS performance, strong continued customer acquisition. However, listening to presentations today, the economy has clearly softened, we've seen growth rates decelerate a bit across some businesses, particularly SME. So maybe with that as a backdrop and as you think about ‘24 and beyond, can you give us a sense of how the company is positioned to win?
Stephen Squeri
Yes, I think -- look I think we're positioned very well and you have to remember the segments that we play in are the -- those most premium segments of the marketplace. And what I would say is, overall the strategy is working for us, right? Premium consumer, both U.S. and international, small business and we've really focused a lot from merchant perspective on coverage. And I think what you have to look at is over the last three years, we've really increased the scale of our company. I mean, we've grown revenue 17%, 25% and 15% to 17% this year we've added almost a little bit over $20 billion in revenue over the last three years.
And with that, we've driven a lot of scale and our business has natural hedges in it normally. What those natural hedges are rewards cost and marketing and so forth. And those hedges have gotten bigger. And what it's done, it's created tremendous earnings power for the company. So, we believe that in an economy that's slow, that is steady or slightly growing and whether we hit 10% revenue growth or not, we will deliver mid-teens EPS growth. And additionally in a full blown recession, well we probably wouldn't deliver mid-teens EPS growth. We're going to do better than the competition, because of the customer base that we have. And as we continue to grow that revenue, we're not taking on any additional risk. And as we look at our portfolio today, we're probably the only major card issuer that is still not at delinquency rates from 2019 or at write-off rates for 2019. And the premiumness of our business is a hell of a lot better than it was.
Ryan Nash
You know, I'm sure we'll get into formalized guidance when we get to the earnings call. You had been talking about 10%-plus aspirational revenue growth in ‘24 and beyond. Obviously, the economy has been a little bit slower, but can you maybe just talk about, one, what gives you confidence in the faster than pre-pandemic growth? How are you feeling about double-digit revenue growth versus when you first laid it out? And what are some of the moving pieces to drive the growth?
Stephen Squeri
Yes, and so you -- just go take a step back, just a little context here from 2010 to 2017, we grew at a CAGR about 4% revenue growth and still produced earnings. Pre-pandemic, we were growing 8% to 9%. When we entered in the pandemic, I think we made a lot of really good moves around our customers, around our brand, and coming out of that pandemic, we really decided to invest heavily in our customers, heavily in customer acquisition, and heavily in value propositions. And at that time, setting that aspiration of 10% revenue growth, we believe is the right aspiration.
And as I said before, I believe that, that's achievable really in a steady state and high growth environment. And if we miss on the 10%, it'll be, it's a year-to-year kind of thing, but even in a lower growth economy, as I said before, I believe that because of the premiumness of our product, we have a lot of growth opportunities still in that U.S. segment, in our international segment. SME goes up and it goes down. Right now we're in a little bit of a down cycle, but we're very well positioned from an SME perspective, and we continue to gain coverage -- make coverage gains, which enables us to gain more share of wallets. So listen, I think 10% aspirational revenue growth is absolutely the right growth for us and you know we're focused on that.
Ryan Nash
So maybe to be a little bit more short-term, you know, we are two months into the quarter, maybe just give us an update on you know what you're seeing performance wise from billings, maybe expectations for the rest of the holiday season? And are you seeing any changes in terms of what customers are spending on discretionary GNS versus T&E?
Stephen Squeri
Yes, so look, if you just go back in the second quarter, we had about 8% overall billings growth. Third quarter came down to 7%. In October, everybody got a little bit, you know, a little bit skittish, and I think other people have said the same thing, that growth wasn't as strong in October, and we didn't see growth in October like it was in the third quarter. And I think there's a lot going on in October, okay? But if we look at November, November is back to sort of what we looked like in the third quarter. In our holiday season, U.S. consumer retail was very strong from that Thanksgiving all the way to Cyber Monday. So we're very encouraged by that.
Overall, goods and services from a retail perspective, from a consumer retail and international, both U.S. and international, very, very strong. We still have double-digits, -- double-digit growth in billings from an international perspective. You're seeing a little bit of a slowdown in air, a little fewer transactions, maybe a little bit of decrease in transaction size. But overall, for the year, it's been pretty consistent for us with double-digit transaction growth, and that continues. SME, still a little bit soft. We saw 2% growth or so in the third quarter, and we're sort of hanging around that area right now.
Ryan Nash
Just as one quick follow-up on that the -- in October being not as strong, was there anything specific that you saw the slowdown in ¸that recovered that you'd like…
Stephen Squeri
I think you saw it in T&E, right? I think you know as I said, there's a lot going on in the world. You saw a little bit in T&E I think goods and services still remained relatively strong, and then we saw that continue into November.
Ryan Nash
Great. I appreciate the update. So maybe getting to some of the strategies, so Millennials and Gen Z spend was up 18% in the third quarter, now makes up almost a third of U.S. consumer spend, over 60% of the acquisitions globally. Talk about how these cohorts are performing relative to your expectations. How does the use of the product differ from your more mature clients, and how does the lifetime value of them evolve relative to your traditional customer base?
Stephen Squeri
So when you think about sort of Millennials and what we've done for Millennials in Gen Z, if you go back to the fourth quarter of 2019, it was about 19% of our spending. It's now 32% of our spending. What we found with Millennials, and I've said this many times before, what we found with millennials is you know our old strategy was get them on a no-fee card and then move them up into the franchise. They're very value conscious, they like to engage with the product and 75% in the U.S. of our gold and our platinum card acquisition right now is millennial and Gen Z.
And when you're getting Millennials and Gen Zs, what you're doing is you're building in long-term organic growth. Millennials and Gen Zs so far, have we been retaining them more than the other cohorts. Their spending, while when they start off is a little bit smaller, actually increases as they go through, the lifetime value is a lot higher. The other thing, just from a sort of a, I guess, perceptual perspective is some of our older cardholders still go in and say, hey, do you accept American Express.
Millennials don't have that situation because since we've gotten parity coverage in the U.S., since we've really increased our coverage in international, their expectation is the card is going to be used all the time. So we tend to get a much higher share of a Millennial and a Gen Z's wallet than we do a Gen X or a Boomer. They're more digitally engaged and they use less cash. So I think for us, that's absolutely right on strategy and it has absolutely performed exactly as we thought it was going to perform.
Ryan Nash
Which is really good to hear. In one of the earlier questions, you referenced the slowdown in small business. This has obviously been a big driver of growth across the company. You have dominant share in the U.S., you're building it out internationally. Maybe if we just start with the U.S., where we said we've seen sort of 2% growth in the most recent quarter, down from close to double-digits. Can you maybe just talk about two parts. What has driven the slowdown? And two, what do you think it will take for us to actually see a reacceleration?
Stephen Squeri
I think, look, small businesses go in cycles, right? If you look at small business spending last year, it was off the charts, and it was really driven by organic. The slowdown we're seeing is really organic growth. So new acquisition of small business customers is still strong. Small Business Credit is still strong. It's organic growth.
Now is -- and that's not just an American Express issue, that's an industry issue. So from a share perspective, we believe we're maintaining or gaining share at this particular point in time. But small businesses overall are just not spending at that level, but we anticipate that will come back.
And if you look historically, small businesses go in waves. And just comment on international. International is still -- we're still double-digit growth. It's a real nascent business in international, but we're still double-digit growth, both consumer and in small business and international. Lots of upside there.
Ryan Nash
Yes. And we'll come back to the international. Well, the growth in the U.S. SME has been slower more recently because of the organic growth, you obviously do have dominant share. Can you just talk about how the strategy -- what the strategy to grow this business over time is despite the fact that you have leaving share? And what will you say your competitive advantages over the competition that allow you to have this growth?
Stephen Squeri
Yes. Well, I think, look, having scale helps. And when we look at small business, I think the biggest advantage that we have is no preset spending limit and our ability to offer the appropriate amount of credit in a very judicious way to let small businesses run their businesses.
And when you look at our overall strategy, starting -- going back to the pandemic when we acquired Kabbage, it was really to create a small business ecosystem. And that ecosystem is not only to provide card lending, charging privileges on card, but small business lending, short-term working capital lending, insights, have a transaction bank account and really -- try and really get more involved with the small businesses in all of that they need to run their business from a financial perspective.
We're not talking about capital loans and mortgages and things like that but really working capital type of loans that helps them run their business. And that relationship that they've established with American Express over a number of years and from a positioning perspective, we're bigger than the next four or five small business cards in the marketplace. We believe that we've established a great relationship with these small businesses and trust and have the ability to grow with them.
Ryan Nash
So international SME and also the international consumer franchise have been the fastest-growing parts of the franchise, more recently still in the, I think, in the mid-teens. Can you maybe just expand on the comments you made about what's driving the growth? How is the greater acceptance that you put in help driving the growth in these businesses?
Stephen Squeri
Yes. I mean pre-pandemic, international was the fastest-growing part of our business. It was international small business, international consumer. Coming out of the pandemic, we really reorganized our business to put our large market, our small business and consumer into one organization and to leverage intellectual capital, leverage our marketing better, leverage our credit underwriting better and put more decision-making in the power of the country managers. And I think that's really worked out very well for us.
From a coverage perspective, we set a goal back a few years ago to get 75% coverage in 48 priority cities and 48 cities where our card members tend to go. We're about halfway there. We'll be about two-thirds of the way there by the end of 2024. In addition to continuing to sign everything that we can sign, we really wanted that focus. We've also focused on restaurants. We focused on tourist locations, and we've really focused in the entirety of international on e-commerce. So you see a lot of goods and services growth because of our e-commerce focus.
So I'm very bullish on small business because it is the fastest-growing part of our business. It continues to grow. And our coverage is not where we need it to be. And our objective with getting 75% coverage is much like we did many years ago in the U.S. We believe is if you can get to 75% location coverage, you can get to 95% spend coverage. The difference between the two is if you think about a strip mall that might have a Walmart, Walmart is going to do a hell of a lot more business than the small stores there. And so while we may only have five locations, we're going to get a larger percentage of spend. And 75% for us is that key numbers that we can capture about 95% of the spending of our card.
Ryan Nash
When you look at international SME relative to the U.S., which obviously international is much -- is many years behind. How far through the build-out do you think you are? And can this be a runway of much faster than company-wide growth for the first year...
Stephen Squeri
Yes. I mean we're at the beginning stages of this game. I mean it's really a charge card. We're just starting to get into lending in a very small way in some of the key international markets that we have. We don't have anything like Kabbage. So I think we have a lot of opportunity to build and grow as it relates to international SME.
Ryan Nash
Maybe just switching to talk about the competitive landscape here in both U.S. and international. Card acquisitions dropped a little bit below first -- $3 million for the first time since 4Q ‘21, although as you highlighted on the call, some of that was just timing. Maybe just give us an update on what you're seeing in terms of card acquisitions where you continue to see huge amounts of success with Gold and Platinum, which are obviously fee-paying cards? And as you continue to price for value, are you seeing a customer need shifting at all given that we're in a slower growth economy?
Stephen Squeri
Yes. So look, I mean, we've been 2.9%, 3%, 3.1% and so forth. And we -- obviously, we report those numbers. What we're really focused on is build business acquired and revenue acquired. And just to give you some color. If you look at the cards that we acquired in 2019, the cards that we acquired now spend 50% more than it did in 2019.
And so yes, you're going to have that fluctuate. But there's tremendous opportunity out there in the premium space. And as we look at the cards that we're acquiring right now, the cards that we're acquiring, we constantly require more at fees. So that 70% that continues to tick up every single quarter. So we're not seeing, as the economy theoretically softens here, we're not seeing any less demand for those premium cards that pay fees.
As far as the competition, listen, the competition is fierce. The competition has been fierce from people like JPMorgan, and Capital One is now in the premium space. But we'll continue to invest in value propositions and continue to invest in service, and we believe that, for us, that's a winning formula.
Ryan Nash
So maybe just build on that. You've continued to enhance the value proposition, both doing come out of the pandemic, making it more lifestyle-oriented. As you think about the current offering and changes that you've made, where do you see the greatest opportunities to further enhance the offering?
Stephen Squeri
Well, I think the key thing for us is that we made a decision a few years ago to -- on a constant basis, refresh our products. And we did that because when you're refreshing your products, you're constantly engaging with your cardholders, you're creating new demand, and that's really critical and important. And so if you've looked at our products, which were really T&E related, you see us getting into much more lifestyle type of offerings, everyday spending, so forth and so on. And you see a bifurcation as we think about our small business products. It used to be -- it was hard to tell a difference between a small business product and a consumer product. It's not the case anymore.
You can really see the value propositions continue to morph and continue to get better. And part of that getting better is the partner engagement. I mean one thing that we talk a lot about is this virtuous cycle that we have in this closed-loop network and the engagement that we have with our merchant partners, and our merchant partners provide a lot of value to our value propositions and -- because they want our customers.
And so you're going to continue to see us on this every three, four-year path, and you'll also continue to see us as products don't get fully refreshed, but maybe two years in, much like you do with the Platinum, U.S. Platinum. We added a Walmart Plus component or we modified the digital bundle. And so you don't set a product and let it sit for 10-years. What we've decided to do is to really refresh those products. And when I talk about refreshing those products, we'll probably refresh 20 products this year. Because remember, it's on a global basis. Most people just get focused on U.S. Gold, U.S. Platinum, but we've got products all over the world, and the same strategy applies.
Ryan Nash
I happen to be a Walmart Plus member. So Steve, maybe just spend a minute talking about marketing. You're going to spend about $5.5 billion this year to increase customer acquisition relevance across the customer base. I think you recently noted you expected to increase it in ‘24. Maybe just talk about where you're seeing the best opportunities to invest and how are you driving efficiencies across the overall budget?
Stephen Squeri
Yes. I mean, look, the best opportunity -- we're focused on the premium segment. We're focused on small business and small business for us we're still looking for high-quality credit customers from a small business perspective. And we're not just focused in the U.S., we're focused international. So even when you look at spending $5.5 billion, there's a lot of opportunity out there.
And as we look at how we deploy our money, it's -- I've used this expression before, we've had a little -- we have small teams of people that go out in sort of like Shark Tank, right? We have small teams of people that come up with ideas to go out and figure out how they're going to get the best returns. And then we adjudicate those and invest in those.
But we're constantly investing in new technologies. For example, we invested in something that we call Gambit, which allows a cardholder to apply for a card, knowing if they're going to get declined or not without hitting the credit bureau. There's only two other companies that do that right now, which is Apple and Venmo. Our traditional competitors can't do that. It's a huge advantage.
We do a lot of personalized offers that are out there. Most of our marketing now is digital marketing, whether that's through affiliates or through other channels. And we're constantly raising the bar on ROI internally as people fight for money, and that's why I use that expression of Shark Tank.
Ryan Nash
And there any areas you're pulling back just given where we are in the economy?
Stephen Squeri
Well, again, this goes back to what I talked about as sort of natural hedges. And we're constantly looking at credit underwriting. We're looking at the ROI thresholds that we have. We look at gamers and things like that. And we're always tightening up credit as we move into -- as we think we start to move into something that could get a little dicier than it has been. But it's something that we did going into the pandemic and something that we relaxed as we came out of the pandemic.
Ryan Nash
So maybe to just shift gears a little bit. There were several articles that cited you as a potential candidate to take over a card partnership from another large financial institution, I'm not going to name one that is. But I guess maybe just talk about your interest in adding co-branded partnerships? And when you do add partnerships, what do you look for when you bid on this?
Stephen Squeri
Yes. I didn't read any of those articles. When we look at co-brand partnerships, and we have over 50 co-brand partnerships, you're really looking for one plus one equals three. And how do you get there? What you're looking for is great value propositions. What value proposition can you bring? Let's just take Delta as an example. It's our largest one.
What's the delta value proposition combined with the American Express value proposition? Can you target premium customers? Can you get better distribution, right? Because that's what you want to co-brand partnership with distribution as well. And does it add value to both brands and do you create premium economics? And so as we evaluate partnerships, that's the lens that we use. And yes, it worked out really well for us, and we have some really great partners, not just in the United States but across the globe.
Ryan Nash
And then deals that you've passed on in the past, what have been the biggest impediments?
Stephen Squeri
Sorry, say that again, Ryan?
Ryan Nash
Maybe like you've looked at lots of deals. Whether you use the things as a credit as an example?
Stephen Squeri
Well, I mean you look at it and say, does your -- the premium card base is one of the biggest impediments that you would have because sometimes the partner wants to reach into everybody. And that's just not who we are, right? When you think about American Express, you're thinking about the higher end of the premium space. And we've been able to make that work with Delta, with Hilton, with Marriott, and British Airways and lots of others. And so there are others that we've walked away from or not engaged with because of their -- of the breadth of the card base -- of the breadth of their customer base, and that's how we think about it.
Ryan Nash
Got it. So if we -- when we were sitting here last year, we were talking about the risk of a recession. Many more people are talking about a soft landing. Obviously, there's been concerns for a long period of time about what billings could look like if we do see an economic slowdown just given the cumulative effect of inflation and potential for rising unemployment. So talk about how you think about spend or what areas are you the most vulnerable to your business if we do see a less than soft landing as people are…
Stephen Squeri
Yes, I mean, look, the first place that people look for a small business, right? I mean that would be it -- but I think here's what you -- I think what you need to take away. I've been here for 38 years, and I've been through the optimal crisis, the financial crisis, 9/11, the pandemic and everything else that we've had. And spending goes down and it bounces back up. And it bounces back up because of the type of customers that we have. And just look at the pandemic. We were down for a couple of quarters and then we came roaring right back and look at the revenue growth that we had.
So I think the important thing to focus on, if there is a downturn is to make sure that we continue to be vigilant with credit and to make sure that we take care of our customers and continue to invest in our customers. And so even during the pandemic, we still invested in customer acquisition. Not to the extent that we had, but we did invest in customer exits, we never shut those pipes off. The other thing that we did is we invested in customer value. And so we've increased our retention rate.
So look, we're going to go through a downturn at some point. We'll use the same playbook that we've always used. And I think, again, as long as we're running that we continue to focus on the medium to long term, you'll have a little bit of a trough in billings. You'll have some trough in earnings, but then we'll come right back. It's really how do you position yourself for the rebound because the rebound will always come.
Ryan Nash
So as I alluded to earlier, the customer acquisition growth has been outstanding, we've seen a premiumization of the portfolio. And because of this, we've seen the cost of service has gone up by a variable engagement costs. We've seen some signs of stabilization out there in the reporting. And I'm wondering, have we reached the point where the incremental cost of servicing premium customers is starting to level off? Or do you expect the cost of value to continue to increase?
Stephen Squeri
No, I don't see any more step function in sort of variable card member engagement costs. I think we're around that area. Last quarter, we were at 40%, maybe the year we're at 42%, maybe be at 42%, maybe be at 43%. But I think it's really important to understand why you do that. And when you're investing in variable cost of customer expenses and engagement, what you're really trying to do is you're trying to drive revenue and you're actually trying to get marketing efficiencies.
And let me explain that. Because when you're investing value propositions, you're making your marketing dollars work a lot harder for you. So that combination of VCE and marketing expenditures creates more demand, creates improved margins and creates marketing efficiencies. So when we add value to products, we see demand go up and we usually see margin expand. And that's why we do it. And so it's worked out very, very well for us because those between OpEx, VCE and marketing, you play with those expenses.
Ryan Nash
Got it. So lending is obviously a smaller part of your business. It has a nice contribution to revenue this year and sort of you talked about hedges in your business, it's been a nice hedge to revenue growth as billings have slowed a bit. And I think a lot of your growth is coming from your existing customers, right? So I think somewhere around 70%. How do you think about the right level of loan growth for the company balancing a greater share of wallet that you're targeting right now versus the cyclical risk of credit worsening over a period of time?
Stephen Squeri
I think, look, we're -- 20%, 22% of our revenue is interest revenue for us. But I think what people get focused on is we had 34% NII growth in the third quarter. But let's pull that apart because I think you got to look at volume, and you got to look at rate. When you look at that growth, we add 15% AR receivables growth, just like everybody else, pretty much in the industry.
When you look at where we were from 2019, we've had 20% receivables growth in loan growth in 2019, 35% billings growth. And those are important numbers. And our growth has come -- 70% of our growth has come from existing cardholders. When you look at the rate side of it, we don't offer very many zero interest balance transfers or card acquisition, and that really helps margin.
And the other thing that's going to help us margin, it hasn't helped our margins so much year-over-year. But we're now funding about 70% of our receivables through -- in the U.S. through deposits versus about 50% when you went back to 2019. So I think that has helped us as well. And so when you look at that NII growth, probably half of that is rate, half of that is volume. When you take all that together and you look at it, our base is more premium than it was in 2019. Our delinquency rates are below 2019 and our write-offs are below 2019. So we feel pretty good about it.
Ryan Nash
The one area that I do get a lot of questions on is Millennials and Gen Z. And given how much of a driver they've been of customer acquisition, I think there's an underlying assumption that they've been a disproportionate impact to the loan balances. Can you maybe just talk about how their credit performs relative to the rest of the portfolio? What is different about them versus other cohorts that you've attempted to grow at a fast pace historically?
Stephen Squeri
Yes. I mean, well, look, they spend a little bit less, so they have fewer balances. But from a seasoning perspective, they season and look just like any other any other of our cohorts. They look like Gen Xers, they look like boomers because when you start to look at sort of credit performance, it's really new tenure and old tenure. And new tenure Millennial and Gen Zs really look and perform just like any other new tenure. Look, the Millennial and Gen Zs, FICO tends to be a little bit less, but we're talking about 750, which is I think a lot of people would take that as a less.
Ryan Nash
So you mentioned a couple of times that you're the only issuer, I think with write-off rates that are still below pre-pandemic levels. Do you think -- do you equate this more to the performance of the high end as opposed to specific changes that you've made to underwriting or the clients that you've been targeting? And do you think you can continue to buck this trend of much better credit performance than the industry?
Stephen Squeri
Well, we've been doing it for our history. So yes, I think so. I think that we've always been lower than the industry. I think now the gap is even greater, right? And so I think there's a couple of components here. I think we've got a more premium card base. We have if you look at, we have less 660 FICO than we've had in our history.
And if you look at our capabilities, we continue to invest in our capabilities. But I think one thing that's really important to understand about premium cardholders, they self-regulate. And so when they feel stressed or when they feel in trouble, they spend less. They still pay you, but they spend less. And that's different.
And even if you look at the -- during the pandemic, when a lot of the banks, the balance sheets continue to get bigger, our balance sheet was self-liquidating. It was self-liquidating because people spent less, right? And so that's how our base deals with it. And so when you see a recession, you see a downturn. It's not that write-offs are not going to go up and delinquency rates are not going to go up. They're going to go up less, the margin between us and competitors will expand more because our cardholders will just spend less.
Ryan Nash
And I want to follow up on the comment that you made earlier. I think you said that obviously the aspirational goal is still to put up double-digit revenue growth. But even if you don't have it, then you still expect to have mid-teens EPS growth. Can you maybe just talk about in a slightly more challenging revenue backdrop? What would be the levers that you'd have to continue to drive that? I'm assuming part of it will be OpEx. But can you maybe just expand on that comment?
Stephen Squeri
Yes. I mean, look, you've got OpEx. You've also got a challenging environment. Marketing will self-liquidate because your opportunity set, you'll get a little bit tighter on that opportunity set. You'll also have VCE, which will come down a little bit, right? You won't have the same rewards cost and those other kinds of things.
And so I think what we've done now is because of the scale from an OpEx perspective, marketing perspective and VCE perspective, we've created those hedges, and we've created enough scale that we have enough levers to continue to target a mid-teens EPS growth. And I think ultimately, it's about earnings power.
Ryan Nash
So Steve, each year, I'd like to ask you now in a counter-oriented question or a regulatory question, just to keep you on your toes, last year with CECL. So this year, it will be about Basel III end game. The new proposals would suggest that you need to hold significantly more capital for operational risk and eliminate a big part of the 350 basis point buffer kind of ironic for one of the least risky companies. But can you maybe just talk about the conversations you're having with regulators? Are you hopeful that we could see some changes? And if not, does this change the way you price the business?
Stephen Squeri
You know I made you an accounting [Multiple Speakers] you know that.
Ryan Nash
I was an accounting agent.
Stephen Squeri
Good. Look, I think when you look at our CET1 ratios, we target between 10% and 11%. We're at 10.7%. Our regulatory capital requirement is 7%, right? And we got over 30% ROE. And so I mean, if you look at our risk-weighted assets and you look at the proposal as it is, that would chew up a buffer, right?
Now there's a lot of comments going on. We've had our comments. We've met with the regulators, and they have their questions about some of their proposals, right? But the reality is whatever happens, and we'll see when that happens. And when it gets put in, it's not going to change our strategy as it relates to our customers, and it's not going to really change our investment strategy at all either. So we'll see how it all plays out. Comment period continues to go, and there's lots of conversations going on, and we'll see.
Ryan Nash
Do you think it would change your ability to return capital in the short to intermediate time?
Stephen Squeri
I think that from a long-term perspective, it wouldn't, it would all depend on how much more capital we would have to have to build up. And then there's always going to be a bleeding period, right? You're not going to have to get to that capital on day one. It probably happened over a two, three year period. And so we'll just have to see.
Ryan Nash
Maybe just to end with here in the last minute, the business model under your leadership has had tremendous success, and it showed huge amounts of resilience through the pandemic. Just as you look out over the medium-term horizon, what are the areas of risk that you're paying the most attention to that could have an impact on your business?
Stephen Squeri
Yes. I think first, I look inside first. And I think it's important that we continue to execute, that we continue to execute and not get distracted and not get distracted by the shiny object, whether that happened to be crypto or anything else and just stay focused.
I think, look, in the short term, macroeconomic environment, but even there, I think stay true to the strategy. I think that's really important. And then look, we're not blind to the competitive piece of this, right? We look at both our traditional competitors. We look at them in the U.S., we look at them internationally, we look at the fintechs. And we make sure that not only are we making sure that our model is insulated from that, but that we can learn from them as well and see the kinds of things that you're doing and maybe those are things we need to bring to our customers as well.
Ryan Nash
Great. Well, with that, we are out of time. So please join me in thanking Steve.
Stephen Squeri
Thanks. Thanks a lot. Enjoy the vacation.
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American Express Company (AXP) Goldman Sachs 2023 US Financial Services Conference