American Express Company

American Express Tower
World Financial Center
New York, New York 10285
U.S.A.
(212) 640-2000
Fax: (212) 619-9743

Public Company
Incorporated: 1965
Employees: 100,188
Operating Revenues: $14.17 billion
Stock Exchanges: New York Boston Chicago Pacific London Zurich Geneva Basel Diisseldorf Frankfurt Paris Amsterdam Toronto Tokyo Brussels
SICs: 6211 Security Brokers and Dealers; 6221 Commodity Contracts Brokers, Dealers; 6141 Personal Credit Institutions; 6153 Short-term Business Credit; 6020 Commercial Banks; 6311 Life Insurance; 6082 Foreign Trade and International Banks

The American Express Company, a multibillion dollar holding company whose subsidiaries provide travel and financial services worldwide, traces its roots to a New York express business founded by Henry Wells in 1841. From the safe transport of valuables it grew naturally into money orders and traveler’s checks; from there its travel service operations, including its credit card, also grew naturally. In the 1980s, American Express expanded into financial planning through Investors Diversified Services, Inc. (IDS) to merger and acquisition advice from Shearson Lehman Hutton. Faced with intensifying competition and poor public relations in the early 1990s, American Express divested itself from many of the businesses it had acquired in the previous decade. Throughout its history, American Express has enjoyed a reputation for innovation, profitability, and integrity.

Henry Wells began his career as an expressman as an agent for William Harnden, who had founded the first express company in the United States in 1839. Express companies were in the business of transporting money and other valuables safely. Wells was an ambitious man who repeatedly proposed expanding the business westward—to Buffalo, New York, the Midwest, and the far West. When Harnden refused to leave the East Coast, Wells struck out on his own, organizing Wells & Co. in 1841.

At first Wells and his associate, Crawford Livingston, served only New York City and Buffalo, then an arduous route by five rickety shortline railroads and wagon or stagecoach for the last 65 miles into or out of Buffalo. A few years later, Wells and William G. Fargo launched an express service from Buffalo to major midwestern cities. Although appreciated by the midwest-ern business community, the new express service simply did not pay. In 1846, Wells decided to retrench and focus his energies on the growing routes serving New York City, Buffalo, Boston, and Albany, leaving the express business west of Buffalo to Fargo’s company, Livingston, Fargo and Co.

In 1849 John Butterfield, a wealthy and experienced transportation mogul, entered the express business with Butterfield, Wasson & Co., a direct competitor to Wells & Company on New York state routes. Later that year, Butterfield proposed that he, Fargo, and Wells eliminate their wasteful competition by joining forces. On March 18, 1850, the three companies consolidated to form the American Express Company, a joint-stock company with initial capital of $150,000. Wells was elected the new company’s first president; Fargo became vice-president.

Under Wells’s leadership American Express was immediately and unexpectedly profitable, expanding rapidly and acquiring small competitors in the Midwest, negotiating contracts with the first railroads, and running packet boats on the Illinois Canal to connect Ohio, Illinois, and Iowa with steamship lines on the Illinois River. In 1851, American Express reached an amicable agreement with its major rival, Adams and Co. (reorganized as Adams Express Co. in 1854). American Express was to expand north and west of New York while Adams was free to grow south and east. This agreement was kept and renewed over the next 70 years, buying American Express time to establish its business solidly.

Despite their agreement with Adams and Co., Wells and Fargo still distrusted their rival and feared the company would gain a monopoly in the California gold fields. When Wells proposed his old dream of a transcontinental express service to the American Express board of directors, they rejected his idea. But in 1852 Wells and Fargo got the board’s blessing to launch an independent venture, Wells Fargo & Company, to provide express and banking services in California.

In 1854, trouble developed with the New York, Lake Erie & Western Railroad (American Express’s link to the Midwest) when Daniel Drew, the railroad’s owner, became outraged that American Express had plcked off the Erie’s most profitable freight business by shipping light, high-rate freight on the Erie under its express contract. Drew was determined to award the express rights to others. In response, American Express created an affiliate and presented it as a bona fide competitor. American Express loaned the funds to start a new company to Danforth Barney, then president of Wells Fargo. Barney’s new company, United States Express Co., then acquired the Erie express rights from Drew and split the lucrative midwestern business with American Express.

American Express’s first decade saw two other noteworthy accomplishments. In 1857, American Express launched the Overland Mail Co. as a joint venture with Wells Fargo, Adams Express Co., and United States Express Co. The Overland Mail Co. (later controlled by Wells Fargo) won the first transcontinental mail contract from the United States Postal Service, which led to its involvement with the Pony Express. Also, James C. Fargo, William’s younger brother, proposed the establishment of a fast, bulk freight express service for merchants. Merchants Dispatch, created in 1858, proved immediately successful.

The Civil War was enormously profitable for American Express, as it was for the express industry generally. American Express shipped supplies to army depots, took election ballots to soldiers, and delivered parcels to parts of the Confederacy taken by Union forces. During this period, American Express distributed huge dividends to its shareholders.

After the war, the express industry attracted the attention of financial raiders. The first raid, by National Bankers Express Co. in 1866, was thwarted at relatively low cost. American Express quickly reached an agreement with Adams Express and United States Express to neutralize the threat by giving National Bankers Express shares of the established companies and a seat on the American Express board of directors.

The second raid had much more serious consequences. Late in 1866, a group of New York merchants established Merchants Union Express Co., to both get into the express business and destroy the three largest express lines—Adams, American, and United States. Merchants Union first hired away the older companies’ experienced agents and then invaded their territories. American Express suffered such losses in 1867 that for the first and only time in its history it failed to pay a dividend. On December 21, 1868, the four express companies reached a peace agreement, dividing the express and fast-freight business and pooling and distributing net earnings. American Express got the worst of the deal; Merchants Union acquired rights on railways that had been its bread-and-butter lines (the Hudson River and New York Central railroads) and lost its supremacy in the express business. In 1868, American Express was forced to merge with Merchants Union to form the American Merchants Union Express Company (shortened in 1873 back to the American Express Company). Also in 1868 Wells retired and was replaced as president by William G. Fargo.

Fargo’s tenure saw the beginning of two trends that would later prove significant. First, Fargo’s brother, James, expanded Merchants Dispatch operations to Europe. Soon Merchants Dispatch was transporting more than half the first-class tonnage from New York City to over a dozen European cities, making international operations a lucrative sideline for American Express. Second, high express rates set after the Panic of 1873 created public demand for a government operated parcel post. In 1874, the U.S. Postal Service began to deliver packages at a new, low rate. The following year, Congress set the parcel rate at a half-cent per ounce, far below cost. This cut deeply into express company profits. Express industry lobbying and the post office’s substantial operating loss soon persuaded Congress to raise rates to a more reasonable level, but the precedent for governmental involvement in the express business had been established.

William Fargo’s death in 1881 and James’s succession to the presidency began a new era for American Express. Although James Fargo was often described as autocratic, aloof, and old-fashioned, he was also remarkably innovative. During his term of office, American Express first diversified into the financial services industry with the introduction of two instruments—the American Express Money Order in 1882 and the American Express Travelers Cheque in 1891.

The post office first introduced the postal money order in 1864. This immediately threatened the express industry because it reduced the demand by banks and merchants for the transport of money and other valuables. The postal money order, however, had a serious flaw: its face value could be altered without detection. Although American Express directors had discussed introducing a money order since the end of the Civil War, it took James Fargo to galvanize the company into action. At his direction Marcellus Berry, an American Express employee, designed a safer money order. American Express’s money order was an immediate hit; it could be used to settle charges on express shipments, was more readily available than the postal money order, and was simpler, cheaper, and easier to negotiate. Not only did the money order provide a new source of revenue (over 250,000 were issued the first year), but for the first time American Express had a credit balance (or “float”—funds from instruments that had been paid for but were not yet cashed) that could be safely invested to bring in additional income.

The traveler’s check filled a similar financial niche. Before 1891, tourists and business travelers could transfer funds from the United States to Europe only via a letter of credit, a time-consuming and cumbersome method: only specified correspondents of the issuing United States bank could negotiate letters of credit, and then only during banking hours and after an appreciable delay. Fargo, annoyed by his own experience with the procedure, again directed Marcellus Berry to find a solution. The American Express Travelers Cheque was a marked improvement over the letter of credit in several respects: its simple signature and countersignature provision made the instrument very secure; it could easily be converted into foreign currency at any American Express freight office; and, if lost or stolen, American Express would refund the owner’s money. The value and convenience of the traveler’s check was recognized at once, and its popularity again provided American Express with additional revenues and float.

After the traveler’s check was introduced in 1891, travelers began making American Express freight offices their informal headquarters—places to convert funds, to seek information about hotels and travel arrangements, and simply to congregate. American Express officers saw the opportunities offered by the travel industry and urged diversification in that direction. James Fargo, however, was absolutely opposed to the idea. He allowed American Express agents to offer travel information purely as a service to customers, but drew the line there. American Express’s official entry into the travel industry, which became one of its best-known and most lucrative businesses, was delayed until after Fargo’s retirement in 1914.

After the turn of the century, the express industry came under attack from a number of quarters. The railroads had steadily eroded express profits by raising their rates from 40 percent of gross receipts to more than 55 percent by 1910. Also in 1910, long-overdue government regulation of the express industry began with passage of the Mann-Elkins Act, which made express companies common carriers subject to the scrutiny of the Interstate Commerce Commission (ICC). In 1912, New York express company drivers and their helpers went on strike for higher wages and fewer working hours (they were underpaid and overworked, even in an era of low pay and long hours), exciting highly unfavorable press and public reaction. In 1913, the U.S. Post Office again expanded parcel delivery services at reduced rates, while the ICC set express rates that the industry feared were prohibitively low.

When George C. Taylor, a longtime American Express employee, was elected the company’s fourth president after Fargo’s retirement in 1914, the end of the laissez-faire express industry was in sight. Taylor’s first actions, to expand foreign remittance operations and to officially inaugurate travel services by opening a travel department in 1915, saved the company when its domestic express division was nationalized in 1918 and became part of the American Railway Express Co. as a wartime measure. Another of Taylor’s accomplishments was to establish the American Express Co. This wholly owned subsidiary was created in 1919 primarily to expand international banking operations (which had been conducted sporadically through foreign remittance offices since 1904). Although American Express was slow to gain a foothold in Europe, its international banking operations flourished in Asia during the 1920s and 1930s, especially in Hong Kong and Shanghai.

In the late 1920s, American Express again changed hands. The express industry was targeted for takeovers during this period because most express companies had been organized prior to antitrust legislation, raising the possibility of their exemption from antitrust regulations. American Express was especially attractive because its net income had more than doubled in the six years ending in 1928. In 1927 Albert H. Wiggin, chairman of the Chase National Bank, started buying American Express stock through dummies. By July, Wiggin had acquired two seats on the board and 42 percent of the stock, at a bargain price. In 1929, Chase Securities Corp., an affiliate of Chase National Bank, acquired control of American Express in a stock exchange and Wiggin was elected first chairman of the American Express board.

In May of 1930 Chase National merged with the giant Equitable Trust Co. to become the largest bank in the world. John D. Rockefeller supplanted Wiggin as largest shareholder and Winthrop W. Aldrich, Rockefeller’s brother-in-law, became chairman of both the Chase Securities and the American Express boards.

This was a difficult time for American Express management, headed by Frederick P. Small (who became president on Taylor’s death in 1923). Not only were the directors preoccupied with their power struggles, but the financial climate was steadily worsening. Then the Great Depression hit. Between 1930 and 1932, roughly a third of all American banks failed. In early 1933, President Franklin D. Roosevelt announced a national bank holiday to allow banks to recover from the panic. The bank holiday brought commerce to a virtual standstill. During this period American Express, since it was not a bank and thus not required to close, enjoyed a tremendous advantage: it remained open and redeemed traveler’s checks, providing the only financial services available to individuals and merchants while the nation’s assets were frozen. The traveler’s check business ultimately allowed American Express to remain profitable throughout the Depression and World War II.

In 1944 Ralph T. Reed replaced Small as president. Under Reed’s management, the late 1940s and the 1950s were a period of expansion, primarily in the booming travel industry. Within seven years the number of American Express offices increased by 400 percent and international operations surpassed their prewar level.

When Diners Club introduced the first credit card in the mid-1950s, American Express executives proposed investigating this new line of business. Reed, who thought the company should improve existing business and feared a credit card would threaten its traveler’s check business, opposed the proposal. In 1958, Reed reversed himself and the American Express travel-and-entertainment card (the American Express green card) was introduced virtually overnight. The company had 250,000 to 300,000 applications for cards on hand the day the card went on the market, and 500,000 cardmembers within three months. Introduction of the green card began an era of unprecedented growth: earnings rose from $8.4 million in 1959 to $85 million in 1970.

A new era of management began when Howard L. Clark was elected president and CEO on April 26, 1960. Clark transformed American Express from a renowned but fairly small company to a corporate giant with diverse interests. Clark’s goal was to establish a balanced earnings base dependent on multiple sources and thus more resistant to economic fluctuations. His strategy was to expand American Express’s business within its areas of expertise—travel and financial services.

But before Clark could put his plan in operation, the company had to be streamlined and modernized. Management had long been centralized and the chain of command obscure. Clark gave each division room to innovate and made each directly responsible for its own performance. Also, the company had no uniform identity. The now famous “blue box” logo was developed at Clark’s direction and adopted by all the divisions.

Next, the company’s accounting system had to be overhauled, since the system then in place was obsolete and unable to handle the high volume of charge card transactions. Moreover, the travel division (the glue that held the various divisions together and gave the company its identity) had to improve its profitability. By the time the jet airline industry made an impact on commercial travel, American Express was ready.

Also, the charge card had yet to show a profit, in large part because American Express had no experience dealing directly with merchants and consumers or with credit controls. Clark brought in George Waters, formerly of IBM and the Colonial Stores supermarket chain, to put the charge card division on a sounder footing. Waters used two simple strategies: first, he raised the card fee and merchant discount; next, he persuaded merchants to think of American Express as their marketing partner by dedicating .05 percent of gross sales to retail advertising. By the end of 1962 more than 900,000 cards had been issued, and by the end of 1963 the card division had shown a profit.

Finally, marginal operations had to be divested. Ridding the company of one subsidiary, American Express Field Warehousing Co., proved to be a nightmare. When the field warehousing division was sold to Lawrence Warehouse Co. in 1963, Clark withheld the two most profitable accounts, Allied Crude Vegetable Oil Refining Co. and Freezer House (both owned by Anthony “Tino” De Angelis), pending an investigation of other field warehousing opportunities. Late that year, Clark decided to sell the two accounts to Lawrence Warehouse. An independent audit conducted prior to closing revealed that about 800 million tons of vegetable oil was missing. Holders of some $150 million in security interests and notes (some forged by De Angelis) were understandably upset. The American Express board realized the company’s reputation was at stake and quickly issued a statement to the effect that American Express assumed moral responsibility for the losses caused by its subsidiary. American Express’s assurances did little to appease those defrauded. The “salad oil swindle,” as it was dubbed by the press, involved American Express in complex and protracted litigation that was settled in 1965 (although a final case lingered until 1970) at a cost to American Express of $60 million, excluding attorneys’ fees.

With the salad oil episode behind it and reorganization of the divisions completed, the late 1960s and early 1970s were good years for American Express. Consolidated net income grew steadily, and Clark concentrated on expanding the company’s financial services. In 1966, American Express acquired W. H. Morton & Co., an investment banking house with an excellent reputation for underwriting municipal and government bonds. And in 1968, American Express made the most important purchase yet in its diversification strategy: the Fireman’s Fund Insurance Company, one of the largest property and casualty insurers in the nation.

Even the international monetary crisis of 1971, culminating in the devaluation of the dollar and the suspension of almost all dollar transactions, did not phase American Express. The company honored its traveler’s checks at the exchange rate posted before trading was suspended and its card continued to be accepted internationally. American Express extended emergency funds to thousands of tourists caught short abroad, and its international banking subsidiary advised corporate clients on how to protect their foreign assets and import-export payments during the crisis.

During the late 1970s, however, American Express seemed to lose its direction, and its integrity and soundness were challenged on many fronts. In 1975, the Washington Post suggested that American Express was successful only because it was not regulated as banks and other financial institutions were. When Visa and MasterCard started competing in the traveler’s check market, Citicorp, a major issuer of bank credit cards, took out a full-page advertisement accusing American Express of false and deceptive advertising of its traveler’s checks. American Express also received unfavorable publicity when four acquisition attempts in a row failed.

The last of these attempts, a bid for the McGraw-Hill Publishing Co. in 1979, produced the worst repercussions. Roger Morley (who had replaced James D. Robinson III to become American Express’s tenth president when Clark resigned in 1977 and Robinson became chairman and CEO) was a member of the McGraw-Hill board at the time. After American Express bid for the publisher, McGraw-Hill sued the company and Morley, accusing them of breach of trust and corporate immorality.

But in 1981 American Express made the big acquisition it had been looking for when it bought Shearson Loeb Rhoades Inc., one of the nation’s leading brokerage houses, which became an independently operated subsidiary. Shearson in short order acquired Robinson-Humphrey, an Atlanta-based brokerage firm; Foster & Marshall, a well-respected securities firm; and Balcor, Inc., the largest real estate syndicator in the United States.

In 1982, American Express was reorganized under a holding company called American Express Corp.; its travel services became a wholly owned subsidiary, American Express Travel Related Services.

Sanford I. Weill, formerly of Shearson Loeb Rhoades Inc., was elected the twelfth president of American Express in early 1983. Under Weill, American Express continued to expand. That same year, American Express acquired Ayco Corp., a financial counseling firm, and in 1984 it bought Allegheny Corporation’s principal subsidiary, the financial planning company Investors Diversified Services, Inc. (IDS). Also in 1984, Shearson acquired Lehman Bros. Kuhn Loeb, one of the most respected Wall Street brokerage firms, to form Shearson Lehman Brothers Holdings Inc.

In 1985 American Express announced that it would spin off Fireman’s Fund Insurance Company, the property and casualty insurer it had purchased in 1968. Stiff competition in the insurance industry during the early 1980s had led to price wars, and the subsidiary’s profits had been declining since 1983. In addition, in 1983 and 1984, American Express had to spend $430 million strengthening Fireman’s reserves. The first public offering of Fireman’s Fund stock was made in October, 1985; by December, 1987, American Express retained only 31 percent of the company. In 1988 its holding was reduced to 20 percent and American Express formally exited the insurance business.

Also in 1985 the American Express International Banking Corp., established in 1919 to help American Express expand internationally, became simply American Express Bank, Ltd. In the mid-1990s, American Express was a thoroughly international company; its bank, with a presence in more than 40 countries, completed the range of financial services the company offered, focusing on private banking for wealthy individuals.

1987 was a dramatic—and difficult—year at most financial companies, and American Express was no exception. The stock market crash in October shook Shearson Lehman, and fears about Third World debt forced American Express Bank to add nearly $1 billion to its loan-loss reserves. But American Express’s core business, Travel Related Services continued to prosper. That year it introduced its Optima Card, American Express’s first credit card (regular American Express cards are charge cards; the balance must be paid in full each month). By late 1989, Optima had garnered some 2.5 million members.

In the 1980s, as competition in the card industry intensified, American Express pursued both an increased customer and increased merchant base. At the beginning of the decade, American Express had 10 million cardmembers who had roughly 400,000 places to use their cards. By the end of the decade those numbers had grown to 33 million cardholders around the world whose cards were accepted at 2.7 million places. But sheer size was not the objective: American Express emphatically positions its services as “premium”—its card costs much more than credit cards, like Visa and MasterCard, offered by banks, and it charges merchants a higher percentage of the bills charged to the card than its competitors do. These higher fees to merchants are warranted, the company tells them, by the business its generally high-income cardmembers generate; the higher card dues buy better services. Nevertheless, American Express has run into heavy competition, especially abroad, where its greatest hopes for expansion lie.

At the beginning of 1988, Shearson made another dramatic acquisition when it bought E. F. Hutton and became Shearson Lehman Hutton. Such growth in so short a time added up to a second year of decreased earnings—a 5 percent drop on top of 1987’s 70 percent drop. At the end of 1989 Shearson was still struggling to cut costs and raise profits. American Express announced plans, in December of 1989, to pump an additional $900 million into its ailing subsidiary. The recapitalization included $350 million of American Express’s own money. The rest was to come from notes.

American Express toppled from its perch as the preeminent charge card due to a number of serious problems in the early 1990s. The flagship charge card suffered fading customer loyalty, intense competition from lower-priced bank cards, and loss of service establishments accepting the card because of high fees to the merchants. Some observers blamed advertising for a public relations fiasco that damaged the company’s image. But the company’s 1991 revelation that its Optima revolving credit card—which analysts and investors had previously regarded as one of American Express’s biggest successes—lost $300 million in write-offs, also eroded its credibility. At the same time, the Travel Related Services unit was battered by competition from no-fee bank cards and debit cards. As a recession deepened, merchants dropped the high-fee American Express card in droves. Profits dropped from $1.16 billion in 1989 to $461 million in 1992.

In 1993, Harvey Golub advanced to American Express’s chief executive office upon the resignation of Robinson, who had served in that capacity since 1977. He instituted several recovery strategies at the firm, including retrenchment to core businesses, new product launches, cost-cutting, and brand-building.

Part of American Express’s recovery strategy involved aggressive brand promotion, launching what were derisively called “guerrilla” or “ambush” marketing campaigns. In response to a Visa advertising campaign tied to the 1988 Olympic Games, American Express engaged in a campaign in which it ran television and space ads featuring those cities where the Olymplcs were held, trying to affiliate itself with the games without directly sponsoring them. American Express also launched a legal battle with Visa, claiming that the rival’s “But they don’t take American Express” commercials implied broader exclusivity than existed. Visa retorted that its ad claims were valid, and that American Express was simply using legal maneuvers, public relations, and newspaper ads to blunt its advertising effectiveness. Early in 1994, Gary Levin, of Advertising Age, declared that “neither is entirely blameless, and both are unlikely to surrender.” In 1994, American Express’s promotional efforts were extended internationally, with a global advertising campaign targeting Italy, Germany, Japan, and the United Kingdom. The company planned to take sixty new ads to thirty countries around the world.

American Express’s new products included Cheques for Two, introduced in 1992; a Senior Member card featuring special services and benefits; and a corporate purchasing card. American Express hoped to capture a significant share of the prospective $300 billion market segment, only 1 percent of which had been put on plastic by 1994. In 1993, American Express won the federal government’s travel and transportation payment system contract—the largest corporate card account in the world. Some industry analysts interpreted the introduction of these new products as a sign of “renewed vigor” at American Express.

Golub aimed to cut $1 billion in costs by 1995, and planned to use those savings to finance the rate cutting necessary to attract the nearly 200,000 new merchant locations he expected to sign up. He also made several divestments that brought funds to the company and helped refocus on core businesses. Early in 1993, American Express sold its Shearson brokerage operations to Primerica Corp.’s Smith Barney, Inc. for $859 million in cash and about $275 million in Primerica stock. American Express netted $1.1 billion on the 1993 sale of 32 million shares of First Data Corp. to the public. And in January of 1994, American Express announced that it would contribute over $1 billion to Lehman Brothers, then spin the subsidiary off to shareholders. The capital injection enabled Lehman Brothers to sustain an “A” credit rating as an independent venture.

Credit Card Management magazine named American Express its “1993 Turnaround of the Year,” praising Golub’s recovery plan. That year, American Express’s worldwide charge volume increased 5.5 percent to $117.5 billion, discount revenues from merchants increased 3.2 percent and merchant locations grew 4.5 percent. American Express’s net income made a dramatic comeback as well, tripling from $461 million to $1.48 billion.

Principal Subsidiaries:

American Express Travel Related Services; Investors Diversified Services, Inc.; IDS Financial Corp.; Leo Aircraft Leasing Ltd.; Broadgate International Fund Management Co.; American Express Bank, Ltd.; American Express Bank S.A. (France); AMEX Gestion S.A.; American Express Bank International; American Express Leasing Ltd. (UK); AMEX Asia Ltd.; American Express Middle East Development Company S.A.L.; AMEX Nominees Private Ltd.; American Express Nominee Ltd.; Argentamax S.A.; AMEX do Brasil Emprindimentos e Participacoes Ltd.; INAF, Inc.; AMEX Capital Investments Ltd. (UK); AMEXNET Ltd.; A.E.B. plc (UK); AMEX Nominees Pte Ltd. (S); A.E.B. Asset Management A.G.; AMEX Bank Nominee Hong Kong Ltd.; American Express Ltd. (Poland); Sociedad Gestinver de Fundos de Pensiones; Far East Leasing Ltd.; Geneva Nominees Ltd.; J.O.S. Leasing; American Express Bank S.A.; Acuma Financial Products Ltd.; Ainwick Corp.; Alair Holdings Inc.; American Express Asset Management Holdings, Inc.; American Express Cable Franchise, Inc.; American Express Corp.; American Express Receivables Financing Corp.; Amexco Risk Financing Holding Co.; Brighton Corp.; National Express Co., Inc.; Re-xport, Inc.; Ava Co.; Umpawaug I Corp.; Umpawaug II Corp.; Umpawaug III Corp.; Umpawaug IV Corp.; WGT Leasing Corp.

Further Reading:

Burrough, Bryan, Vendetta: American Express and the Smearing of Edmond Safra, New York: HarperCollins, 1992.

Carrington, Tim, The Year They Sold Wall Street, Boston: Houghton Mifflin, 1985.

Friedman, Jon, House of Cards: Inside the Troubled Empire of American Express, New York: Putnam, 1992.

Grossman, Peter Z., American Express: The Unofficial History of the People Who Built the Great Financial Empire, New York: Crown, 1987.

Hatch, Alden, American Express: A Century of Sen’ice, Garden City, New York: Doubleday, 1950.

Promises to Pay, New York: American Express Company, 1977.

Reed, Ralph Thomas, American Express: Its Origin and Growth, New York: Newcomen Society in North America, 1952.

—updated by April Dougal Gasbarre

American Express

90 Hudson Street
Jersey City, NJ 07302
(212) 640-2000 www.americanexpress.com

American Express was originally a shipping outfit founded in New York by Henry Wells and William G. Fargo (1818-1881) in 1850. Within a few short years, the company became one of the most trusted and reliable names for safely transporting valuables in the United States. Wells and Fargo went on to form other companies, both together and separately, and were responsible for advances in the shipping, banking, and telecommunications industries.

Today, American Express is the world's number-one travel service organization, serving customers from over eighteen hundred offices around the globe. The company is best known for its popular and distinguished charge cards and Travelers Cheques. With American Express charge cards, you can go anywhere in the world and spend money without actually carrying a single dollar in your pocket.

Conquering the Shipping Industry

Henry Wells and William Fargo both found their way into the shipping business by the early 1840s. Wells had dabbled in various fields, but found he enjoyed shipping and messenger services the best. He first worked for Harnden Express Company, which was the first express company in the United States. An express company was responsible for safely transporting money and other valuable goods.

In 1841, Wells struck out on his own to form Wells & Company, with partner Crawford Livingston. William Fargo worked for the company as a messenger. The two men had similar ambitions and by 1850, along with several competing businessmen, they organized the American Express Company. With an initial investment of only $150,000, Wells and Fargo immediately made bold plans to capture the express shipping business along the eastern seaboard of the United States. Wells served as the company's first president; Fargo was vice present.

Since American Express was established in New York City, right on the waterways of the Hudson River and Long Island Sound, it was a prime location for shipping goods by steamer (larger ship) or barge (smaller, flat-bottomed boat). Wells and Fargo, however, did not intend to ship goods only on the waterways; they also made agreements to use the steadily growing rail system in New York and the Midwest. Other companies had the same idea, so in order to remain on top, American Express bought small competing firms, adding their contracts and travel lines to its own. One of the firm's chief rivals was Adams & Company. Adams became such a business threat that the two companies agreed not to invade each other's territory and to expand in separate directions.

American Express at a Glance

• Employees: 89,000
• CEO: Kenneth I. Chenault
• Subsidiaries: American Express Bank; American Express Financial Corporation; American Express Publishing; American Express Sharepeople; American Express Tax and Business Services; SierraCities.com
• Major Competitors: Bank One; Citigroup; John Hancock Financial Services; MasterCard; Merrill Lynch; Visa

Looking West

American Express believed one way to stay ahead of its rivals was to provide more services to its customer. The company expanded by offering a variety of financial and banking services in addition to its express shipping. Although they were rapidly becoming successful, Wells and Fargo wanted more. Their dream was to turn American Express into a national business. To do so, they looked to the West, especially California. California had recently joined the union in 1848, and gold had been discovered. Americans were flocking westward to stake claims and get rich. Wells and Fargo knew these prospectors would need the kinds of services offered by American Express.

Timeline

1850:

Henry Wells and William Fargo form the American Express Company.

1852:

Wells and Fargo create Wells, Fargo & Company.

1868:

American Express and Merchants Union Express merge.

1891:

First Travelers Cheques are offered.

1933:

While hundreds of banks fail during the Depression, American Express stays open.

1958:

American Express personal charge card is launched.

1966:

America Express Gold Card is introduced.

1970:

American Express card for companies is launched.

1987:

Optima card is introduced to challenge MasterCard and Visa.

1998:

Company purchases France's largest travel service, Havas Voyages.

1999:

Blue card with the Smart Chip for security is introduced.

2000:

New offices open in Beijing, China.

2001:

Company suffers losses during the World Trade Center attacks; temporarily moves headquarters to New Jersey.

2002:

Increases focus on financial services.

Unfortunately for Wells and Fargo, their American Express business partners disagreed and did not want to extend so far so quickly. Convinced of the urgent need for express shipping and banking services in the West, and determined not to let competitors like Adams & Company get the jump on them, Wells and Fargo raised $300,000 to form another company, independent of American Express. In 1852, Wells, Fargo & Company was established and began offering the same services as American Express but on the West Coast. Although American Express was only two years old at the time, it had already become a major force in the express shipping trade and Wells, Fargo & Company hoped to duplicate this success.

New Partnerships

Trouble arose in 1854 when the Lake Erie & Western Railroad felt that American Express was taking away its light freight business without any sort of separate contract. (The Lake Erie railroad was American Express's connection from the East to the Midwest.) In response, the company formed an affiliate shipping firm, the United States Express Company, to compete in the freight market. An affiliate company is one that is separate from, but still keeps close ties with, the original company. United States Express made an agreement with the railroad, which allowed American Express to hold on to its valuable railroad connection throughout the Midwest.

In 1857, American Express continued to expand when it formed a partnership with Wells Fargo, United Express, and old rival Adams & Company to create a mail delivery service called Overland Mail Company. This new firm secured a contract with the United States Postal Service to deliver mail across the country, getting Wells and Fargo involved with the legendary Pony Express. The Pony Express was created in 1860 to provide fast mail service across the western United States. Deliveries were made through a series of horses and riders. It was a short-lived service that ended in 1861 when an expanded national railway system made deliveries faster and more economical.

The first symbol to represent American Express was a white bulldog sitting on top of a freight trunk. The guard dog illustrated the company's commitment to protecting the shipments of its customers.

When the United States became divided during the Civil War (1861-65), American Express and all its sibling companies soon became heavily involved in shipping documents, supplies, and funds to soldiers throughout the nation. The company did not choose sides, instead they did business with both the North and South. After the war ended, competition in express shipping reached an all-time high, and companies were aggressively cutting in on the contracts and territories held by American Express. Some intruders were bought off or persuaded to back down, but others had the money of powerful men behind them. Merchants Union Express Company out of New York posed a grave threat to American Express, sister company United Express, and Adams & Company. Yet American Express was the most vulnerable, and after suffering losses in 1867 it merged with Merchants to form American Merchants Union Express Company in 1868.

When American Express and Merchants combined their businesses, Henry Wells decided to retire after serving as president for eighteen years. William Fargo, his longtime friend and business partner, took over running the new firm, which later changed its name back to the simpler American Express Company in 1873.

The Legend of Wells Fargo

By the late 1800s, Wells, Fargo & Company had become an established part of American culture. Wells Fargo messengers carried letters into remote areas of the West where the U.S. mail could not reach. They also gained a reputation for safe and dependable delivery. Messengers used every means of transportation—steamers, river boats, railroad cars, freight wagons, mule trains, and Pony Express. Some messengers even traveled on skis to deliver mail. But it was stagecoach delivery that made Wells Fargo a legend of the American West. Because Wells Fargo messengers were known to deliver valuables, including gold, their stagecoaches were frequently robbed by such infamous outlaws as Black Bart and Rattlesnake Dick.

The bravery of Wells Fargo deliverymen, and the perils they faced on treks across the plains and through the Wild West, created a lasting legacy. In the twentieth century, the exploits of Wells Fargo messengers were portrayed in movies, on television, and even on the stage. A movie called Wells Fargo was released in 1937; a popular television series, Tales of Wells Fargo, aired from 1957 until 1962; and the song, "Wells Fargo Wagon," was featured in the 1957 Broadway show The Music Man.

A New Era

While Fargo was busy running American Express, his younger brother, James, was making a name for himself in shipping as well. James had founded a company for freight, or large shipments, which was called Merchants Dispatch. Merchants Dispatch had no connection to Merchants Union Express Company. In the early 1870s, James decided to expand his shipping services to Europe, which led American Express to do the same. Beginning service to Europe was a bold step for American Express, but a necessary one, if it wanted to remain a leader in the shipping industry.

When William Fargo died in 1881, James took over as president. In 1891, James took the company another step into the future by introducing American Express Travelers Cheques. With Travelers Cheques, clients could travel without worry. If they lost the specially designed checks, the company replaced them quickly, usually within a day. Travelers were also protected against theft: the signature on the cashed check had to match the signature of the person who originally bought them. This protected both the owner of the check as well as the American Express Company from losses.

As the years passed, American Express began to concentrate on its financial services and left the express shipping to its sister companies like Wells, Fargo & Company (shortened to Wells Fargo Company), which had become a legend throughout the West. It continued to grow, and remained successful even in the midst of the Great Depression of the early 1930s. Millions of people lost their jobs and their money when the stock market crashed and many financial institutions failed. Yet American Express remained solid in these dark days, with its doors open and business proceeding as usual. For its customers, this was a miracle as banks and businesses failed all around them.

President Franklin Delano Roosevelt (1882-1945) was able to rally the country through his New Deal (1932) economic policies, which put many Americans back to work. Then came the beginning of World War II (1939-45), which sent men to war and women into the factories to make weapons and planes. By the 1950s, the United States was experiencing an economic boom and Americans were buying. In 1958, since American Express had been highly successful with its Travelers Cheques, it started offering its customers a new form of non-cash funds with a small green plastic card.

Charge It!

The American Express personal charge card could be used at stores, restaurants, and hotels, and was the same as cash. Each individual client was assigned a credit limit, stating how much they could charge in a thirty-day period. Each month they received a monthly statement detailing their purchases. Spending was as simple as signing your name on small charge slips and paying your balance in full upon receiving your statement. Such was the birth of the American Express card—another ingenious way to spend money without actually carrying any. The American Express card soon became the charge card of choice among the wealthy and famous.

The popularity of the American Express card led to several different kinds of cards, including the Gold Card in 1966, which was very prestigious and for wealthier clients. Not just anyone could get a Gold Card, which made it the charge card everyone wanted. The corporate or business charge card was added in 1970, followed later by the platinum and the mysterious "black" card, which had no set spending limit, and was available to only the most elite clients.

In 1987, American Express launched its first credit card, called Optima, to compete with rivals MasterCard and Visa. The Optima was not a charge card. The balance of a charge card must be paid off each month. It was a credit card, which means that customers could pay off their balance over time; they are charged an extra fee, called interest, for borrowing the money. The fee is usually a percentage of the unpaid balance.

Don't Leave Home Without It

Beginning in 1974, American Express began advertising its charge card using celebrities who asked, "Do you know me?" The commercials, which were creative and often very funny, profiled famous people whose names were more familiar than their faces, or the opposite, where everyone knew their face but not their name. The first ad featured actor Norman Fell (1925-1998) from the television series Three's Company. Over the years, other famous faces included former Speaker of the House of Representatives Thomas "Tip" O'Neill (1912-1994), English comedian John Cleese (1939-), writer Stephen King (1944-), playwright Beth Henley (1952-), and hot tub designer Roy Jacuzzi (1903-1986). The successful ads always ended with the same line, one that became forever connected to American Express credit cards: "Don't leave home without it."

Building a Travel Empire

During the 1980s, American Express built up its travel services through a buying spree, gobbling up big travel agencies throughout the United States. There was Lakewood Travel (Colorado), BPF Travel (New Jersey), Commerce Travel (Pennsylvania), Corporate Travel International (Georgia), and further expansion into North America with HBC Travel in Canada. These purchases amounted to more than $400 million and added to the company's expanding empire.

In the 1990s American Express made the news with several high profile travel agency purchases in countries around the world, including Australia, Brazil, France, Germany, and the United Kingdom. In 1994, American Express acquired two businesses from one of the world's oldest travel agencies, Thomas Cook, paying $375 million for the two Cook units. The transaction was the largest ever in the travel agency industry.

American Express joined the cyber revolution by creating a Web site in 1995, offering its credit card users an Internet site with many travel and financial services at their fingertips. Called ExpressNet, the new service was available through America Online, the fastest Internet-based provider in the United States at the time. By 1997, American Express realized just how much travel business was done via the Internet and increased its presence through a new deal with the Travel Channel Online, part of the cable television organization. The new partnership offered a wide range of travel services, including airline and hotel reservations, to all of the Travel Channel's twenty million customers at the American Express Web site.

A New Century

At the end of the twentieth century, American Express introduced another charge card called Blue, with a "Smart Chip" to protect its users from fraud or unauthorized use. This new technology also keeps track of user's purchasing likes and dislikes, and makes purchasing, whether at stores or on-line, simple, fast, and private. By offering clients simplicity and privacy, American Express soon had another hit on its hands.

In September 2001, tragedy struck American Express and many other companies with offices in or near the World Trade Center in New York City. When terrorists attacked the World Trade Center, many lives were lost and businesses destroyed. American Express had offices directly across from the two World Trade Center towers, but was extremely fortunate that the majority of its six thousand employees in the area survived. The firm temporarily moved its offices and workforce across the Hudson River to the New Jersey shore, but planned to return to lower Manhattan in mid2002. Yet losing its offices was not the company's biggest problem; since its primary business was travel, American Express lost millions when airline travel was suspended and Americans were too frightened to resume travel for many months after the attacks. Americans did, however, return to the skies and business resumed within the year.

By 2000, American Express was 150 years old and had grown from a small express shipping company to an enormous worldwide travel and financial services company bringing in over $22 billion in revenues annually.

American Express was a company formed to ship valuables and funds within a set period of time for a prearranged price. It promised safety and security to its customers, and it always delivered. In the twenty-first century, American Express is still about securing its clients' trust—just through different means. Barges, railroads, stagecoaches, and men on horseback have been replaced by FedEx (see entry) package delivery and most of all, the high speed of the Internet, which American Express uses every second of every day to deliver services to its millions of global customers.