Derivatives and Hedging Activities

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We use derivative financial instruments to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rates and foreign exchange rates, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of our market risk management. We do not transact in derivatives for trading purposes.

A majority of our derivative assets and liabilities as of September 30, 2023 and December 31, 2022 are subject to master netting agreements with our derivative counterparties. Accordingly, where appropriate, we have elected to present derivative assets and liabilities with the same counterparty on a net basis in the Consolidated Balance Sheets.

In relation to our credit risk, certain of our bilateral derivative agreements include provisions that allow our counterparties to terminate the relevant agreement in the event of a downgrade of our debt credit rating below investment grade and settle the outstanding net liability position. As of September 30, 2023, these derivatives were not in a material net liability position. Based on our assessment of the credit risk of our derivative counterparties and our own credit risk as of September 30, 2023 and December 31, 2022, no credit risk adjustment to the derivative portfolio was required.

The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of September 30, 2023 and December 31, 2022:


	Other Assets Fair Value				Other Liabilities Fair Value
(Millions)	2023		2022		2023		2022
Derivatives designated as hedging instruments:
Fair value hedges - Interest rate contracts (a)	$	—	$	—	$	157	$	211
Net investment hedges - Foreign exchange contracts	176		350		81		251
Total derivatives designated as hedging instruments	176		350		238		462
Derivatives not designated as hedging instruments:
Foreign exchange contracts and other	418		171		63		339

Total derivatives, gross	594		521		301		801
Derivative asset and derivative liability netting (b)	(91)		(257)		(91)		(257)
Cash collateral netting (c)	(7)		(11)		(157)		(212)
Total derivatives, net	$	496	$	253	$	53	$	332

(a)For our centrally cleared derivatives, variation margin payments are legally characterized as settlement payments as opposed to collateral.

(b)Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement.

(c)Represents the offsetting of the fair value of bilateral interest rate contracts and certain foreign exchange contracts with the right to cash collateral held from the counterparty or cash collateral posted with the counterparty.

We posted $137 million and $8 million as of September 30, 2023 and December 31, 2022, respectively, as initial margin on our centrally cleared interest rate swaps; such amounts are recorded within Other assets on the Consolidated Balance Sheets and are not netted against the derivative balances.

Fair Value Hedges

We are exposed to interest rate risk associated with our fixed-rate debt obligations. At the time of issuance, certain fixed-rate long-term debt obligations are designated in fair value hedging relationships, using interest rate swaps, to economically convert the fixed interest rate to a floating interest rate. We had $9.5 billion and $8.1 billion of fixed-rate debt obligations designated in fair value hedging relationships as of September 30, 2023 and December 31, 2022, respectively.

The following table presents the gains and losses recognized in Interest expense on the Consolidated Statements of Income associated with the fair value hedges of our fixed-rate long-term debt for the three and nine months ended September 30:


	Gains (losses)
	Three Months Ended September 30,				Nine Months Ended September 30,
(Millions)	2023		2022		2023		2022
Fixed-rate long-term debt	$	52	$	121	$	14	$	485
Derivatives designated as hedging instruments	(52)		(121)		(15)		(488)
Total	$	—	$	—	$	(1)	$	(3)

The carrying values of the hedged liabilities, recorded within Long-term debt on the Consolidated Balance Sheets, were $9.2 billion and $7.8 billion as of September 30, 2023 and December 31, 2022, respectively, including the cumulative amount of fair value hedging adjustments of $(250) million and $(236) million for the respective periods.

We recognized in Interest expense on Long-term debt net increases of $47 million and $3 million for the three months ended September 30, 2023 and 2022, respectively, and a net increase of $130 million and a net decrease of $88 million for the nine months ended September 30, 2023 and 2022, respectively, primarily related to the net settlements including interest accruals on our interest rate derivatives designated as fair value hedges.

Net Investment Hedges

We primarily designate foreign currency derivatives as net investment hedges to reduce our exposure to changes in currency exchange rates on our investments in non-U.S. subsidiaries. We had notional amounts of approximately $13.1 billion and $12.5 billion of foreign currency derivatives designated as net investment hedges as of September 30, 2023 and December 31, 2022, respectively. The gain or loss on net investment hedges, net of taxes, recorded in Accumulated other comprehensive income (loss) (AOCI) as part of the cumulative translation adjustment, were gains of $244 million and $520 million for the three months ended September 30, 2023 and 2022, respectively, and a loss of $261 million and a gain of $728 million for the nine months ended September 30, 2023 and 2022, respectively. Net investment hedge reclassifications out of AOCI into the Consolidated Statements of Income were not significant for any of the three and nine months ended September 30, 2023 and 2022.

Derivatives Not Designated as Hedges

The changes in the fair value of derivatives that are not designated as hedges are intended to offset the related foreign exchange gains or losses of the underlying foreign currency exposures. We had notional amounts of approximately $22.3 billion and $21.7 billion as of September 30, 2023 and December 31, 2022, respectively. The changes in the fair value of the derivatives and the related underlying foreign currency exposures resulted in net gains of $26 million and $23 million for the three months ended September 30, 2023 and 2022, respectively, and net gains of $56 million and $10 million for the nine months ended September 30, 2023 and 2022, respectively, that are recognized in Other, net expenses in the Consolidated Statements of Income.

Our embedded derivative related to seller earnout shares granted to us upon the completion of a business combination in the second quarter of 2022 between our equity method investee, American Express Global Business Travel, and Apollo Strategic Growth Capital had a notional amount of $78 million as of both September 30, 2023 and December 31, 2022. The changes in the fair value of the embedded derivative resulted in losses of $12 million and nil for the three months ended September 30, 2023 and 2022, respectively, and losses of $12 million and $4 million for the nine months ended September 30, 2023 and 2022, respectively, which were recognized in Service fees and other revenue in the Consolidated Statements of Income.