Company History:
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 services, 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.
Westward Expansion in 19th-Century America
Henry Wells began his expressman career 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&mdashø 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 Midwestern 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.
Competition After the Civil War
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.
International Growth Between the Wars
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.
The Card Revolution of the 1950s
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.
Diversification in the 1960s
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.
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.
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.
