Transactions With Affiliates

12 Months Ended

Dec. 31, 2018

Note 9 – Transactions with Affiliates

As described below, Credco executes material transactions with its affiliates. The agreements between Credco and its affiliates provide that the parties intend that the transactions thereunder be conducted on an arm’s-length basis. However, there can be no assurance that the terms of these arrangements are the same as would be negotiated between independent parties.

In 2018, 2017 and 2016, Credco purchased Card Member receivables and loans without recourse from TRS and certain of its subsidiaries totaling approximately $299 billion, $262 billion and $225 billion, respectively. In 2018, 2017 and 2016, Credco sold Card Member receivables and participating interests to affiliates totaling $6.2 billion, $9.4 billion and $5.7 billion, respectively. The discount revenue on purchased Card Member receivables and loans totaled $1.0 billion, $0.8 billion and $0.5 billion for the years ended December 31, 2018, 2017 and 2016, respectively. The receivables agreements require TRS and its subsidiaries to perform servicing, clerical and other services necessary to bill and collect all Card Member receivables and loans owned by Credco. Since settlements under the agreements occur monthly, an amount due from, or payable to, such affiliates may arise at the end of each month.

As of December 31, 2018 and 2017, CRC owned approximately $6.7 billion and $4.1 billion, respectively, of participation interests purchased from RFC VIII.

Transactions with affiliates as of or for the years ended December 31, were as follows:

(Millions, except percentages)		2018			2017			2016
Loans to affiliates and other	$	14,136		$	14,527		$	10,659
Average interest rate on loans to affiliates and other		2.79	%		2.19	%		1.78	%
Due from affiliates	$	210		$	189		$	997
Restricted cash with affiliates		93			100			―
Short-term debt to affiliates		5,899			5,997			4,559
Average interest rate on short-term debt to affiliates		2.09	%		1.04	%		0.49	%
Maximum month-end level of short-term debt during the year	$	14,216		$	8,377		$	5,091
Long term debt to affiliates		7,523			270			―
Average interest rate on long-term debt to affiliates		2.69	%		0.23	%		―
Maximum month-end level of long-term debt during the year	$	8,725		$	270		$	―
Due to affiliates		2,869			1,988			1,517
Maximum month-end level of loans to affiliates during the year		14,136			14,527			13,083
Interest income from affiliates and other		383			279			207
Interest expense to affiliates		225			58			24
Other, net expense		2			2			1
Interest paid on short-term and long-term debt	$	198		$	54		$	21

Credco’s loans to affiliates represent floating-rate interest-bearing intercompany borrowings by American Express Company, other wholly owned subsidiaries of TRS and the American Express joint ventures. Revenue earned from loans to affiliates and other is recorded as interest income from affiliates and other in the Consolidated Statements of Income. As of December 31, 2018 and 2017, no amount of loss reserves has been recorded and no loans are 30 days or more past due.

The components of loans to affiliates and other as of December 31 were as follows:

(Millions)		2018		2017
American Express Limited	$	3,847	$	3,847
American Express Services Europe Limited		3,552		2,747
American Express Australia Limited		1,839		1,616
Amex Bank of Canada		1,334		1,737
American Express International, Inc.		1,243		1,180
Amex Global Holdings C.V.		888		888
American Express Company (Mexico) S.A. de C.V.		463		812
American Express International, Inc. - Branch - Singapore		383		124
American Express Bank (Mexico) S.A.		348		325
Alpha Card S.C.R.L./C.V.B.A.		114		138
American Express International (NZ), Inc.		72		80
American Express Saudi Arabia (C) JSC		53		34
Amex Funding Management (Europe) Limited		―		38
American Express Company		―		961
Total ^(a)	$	14,136	$	14,527

As of December 31, 2018 and 2017, approximately $7.2 billion and $5.0 billion, respectively, were collateralized by the underlying Card Member receivables and loans transferred with recourse.

Due from/to affiliates relate primarily to timing differences from the purchase of Card Member receivables, net of remittances from TRS and its subsidiaries, as well as from operating activities. As of December 31, 2018, due to affiliates primarily represents tax liability on account of the Tax Act. Refer to Note 11 to the Consolidated Financial Statements.

As of December 31, 2018 and 2017, the amount of interest-bearing restricted cash was $93 million and $100 million, respectively, which represents cash deposited with Amex Bank of Canada relating to the purchase of Card Member receivables and the collateralized loan arrangement for transfer of Card Member loans. It is included under “Other assets” on the Consolidated Balance Sheets.

Short-term debt to affiliates consists primarily of master note agreements payable on demand. Credco does not expect any changes to its short-term funding strategies with affiliates. Components of short-term debt to affiliates as of December 31 were as follows:

(Millions)		2018		2017
AE Exposure Management Limited	$	5,122	$	4,548
American Express Europe LLC		517		765
American Express Holdings Netherlands CV		192		192
Accertify Inc.		68		48
American Express Swiss Holdings GmbH		―		444
Total	$	5,899	$	5,997

Long-term debt to affiliates consists primarily of master note agreements with original contractual maturity dates of one year or greater and are not payable on demand. During the fourth quarter of 2018, the master note arrangement with American Express Company was amended to exclude a ‘payable on demand’ clause. This revision in the agreement resulted in a change in the classification of the net borrowings from short-term debt to affiliates to long-term debt to affiliates. The net borrowings from American Express Company were nil as on December 31, 2017. Components of long-term debt to affiliates as of December 31 were as follows:

		2018				2017
		Outstanding	Year-End Stated			Outstanding	Year-End Stated
		Balance	Interest Rate on			Balance	Interest Rate on
(Millions, except percentages)			Debt				Debt
American Express Company^(a)	$	7,240	3.32	%	$	―	―	%
Amex Funding Management
(Europe) Limited^(b)		283	0.28			―	―
LB Luxembourg Two S.a.r.l.		―	―			270	0.22
Total	$	7,523	3.20	%	$	270	0.22	%

Amounts payable by November 2023.
Amounts payable by September 2021.

Service Fees to Affiliates

Credco’s affiliates do not explicitly charge Credco a servicing fee for the servicing of receivables purchased. Instead Credco receives a lower discount rate on the receivables purchased than would be the case if servicing fees were charged. If a servicing fee had been charged by these affiliates from which Credco purchases receivables, fees to affiliates for servicing receivables would have been approximately $305 million, $234 million and $253 million for the years ended December 31, 2018, 2017 and 2016, respectively. Correspondingly, discount revenue would have increased by approximately the same amounts in these periods.