A License to Print Money

Almost every U.S. tourist overseas knows that the place to change money, pick up the mail from home and meet fellow travelers is American Express. Famed as they are, however, the American Express offices in Paris, Rome, Tokyo and just about every other capital have never been the company's big profit makers. For many years, Amexco was really not much more than a bank with a tourist front. Lately it has branched into two dozen other areas of business, to become a sort of department store of financial and travel-related services.

The prime mover of the diversification is Chairman Howard L. Clark, 53, a lawyer and accountant who joined Amexco in 1945 as assistant to the president and became chief executive in 1960. The company then was taking in revenue of $75 million annually, primarily from arranging tours and selling traveler's checks, but these activities contributed little directly to net income. Most of that came from investing the "float" of money paid for traveler's checks that had not been cashed. Clark saw that the traveler's-check business, in effect, was a license to print money. Investing the float, which now bulges to $750 million, gave Amexco experience that would be useful in running other financial services. Clark also saw that the immediate recognition Amexco's name had won from tourists would help sell many more services to them. By last year, his diversification had given Amexco so many sources of income that its revenues soared to more than $1 billion and its profits to $64 million.

Teacher and Publisher. Almost half of the earnings came from casualty, life and property insurance, mostly sold by companies that Amexco had recently acquired. Amexco has become a force in the mutual-fund business. Last year it took over the Commonwealth Group of four funds, and this spring it started two more, including an "offshore" fund for foreigners. The acquisition of W. H. Morton & Co. and Equitable Securities has given Amexco a strong position in stock and bond underwriting. The company is a major factor in international currency transactions. Every working day the American Express International Banking Corp. buys and sells $100 million in foreign currencies for corporations and individual customers.

The tour business, Clark admits, still earns only enough to pay for the upkeep of the American Express offices abroad. But it has won customers for such other ventures as the teaching of foreign languages and the publication of Travel & Camera magazine, which Amexco established by purchasing and redesigning U.S. Camera and Travel magazine. In June, the company began a computerized service that can provide almost instantaneous reservations at some 250,000 hotel and motel rooms between Boston and Honolulu.

Amexco has also bought a 15% share of Club Mediterrannee, a chain of sea and ski resorts for the budget-minded, and it hopes to acquire a larger interest.

Unlike some executives who take a paternal pride in diversification moves. Clark has not hesitated to shed businesses as well--including some that made money but not as much as he would have liked. Amexco acquired the Uni-card credit business in 1965 and expanded it, but sold it last January--for a $16.6 million profit. Early last month, it agreed to sell its freight operations to Pacific Intermountain Express.

On the other hand, Clark has been willing to suffer through initial disappointment with a business that gives signs of eventually becoming a major profit maker. He nursed the American Express credit-card operation through years of losses while Amexco was spending heavily to promote it. The company now has 3,000,000 cardholders, who charge purchases of $1.3 billion a year, and is by far the biggest factor in the field, though it is being increasingly challenged by the many cards issued by banks.

Amexco's growth enabled it to survive a blow that might have shattered another company. In 1963, an obscure subsidiary, American Express Warehousing, was duped into issuing warehouse receipts for the nonexistent salad oil of Speculator Anthony De Angelis. American Express in 1967 agreed to pay $60 million to settle creditors' claims, half immediately, the rest in annual installments of $5,000,000 each year through 1973. The payments do not reduce Amexco's current reported profits because they are charged against earnings retained from prior years, and the company's growth has given it enough earnings to provide cash for new adventures.

The growth has created an unusual demand for young executives, and Clark has developed an equally unusual method of training them. Every year Amexco assigns six or seven new graduate-school alumni to be management consultants within Amexco. Each one studies a particular new business opportunity or competitive threat and develops a program to deal with it. By the time they are through, says Clark, "they know the company inside out," and are usually enthused about it and ready for major operating responsibility. Meanwhile they save American Express a consultant's fee.

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