Bank profits show companies are choosing to spend money cautiously

As banks reported earnings this month, Wall Street focused on earnings per share, investment banking revenue and the state of capital and credit buffers.

At PYMNTS, we dig behind executive commentary and documents to learn more about the state of consumer spending.

By analyzing these materials, PYMNTS also sheds some light on the state of corporate spending and credit, which can be helpful in understanding how they view their own business prospects (and interact with their supply chains) as well as the state of commercial credit.

Broadly speaking, like consumers, businesses are still using their cards to get what they need, although spending has been somewhat muted. PYMNTS Intelligence data has detailed in recent months that Main Street businesses have seen growth outpacing GDP growth this year for the first time in two years.

Moderate growth in spending

American Express said in an earnings report last week that its commercial-settled business — a measure of spending and cash advances — rose 2% year over year in the June quarter, to $132 billion. Spending by larger companies was flat, while smaller businesses spent 2% more on their cards than they did last year. Spending on goods and services was up 1% year over year. And, as you might expect from the much-hyped return of business travel, spending on travel and entertainment rose 3%.

CFO Christophe Le Caillec said on the call that spending by small and medium-sized businesses was “modest.” International card services grew 13%.

“We continue to see double-digit spending growth… from international SMEs and large corporate clients, as well as double-digit growth across all regions,” the CFO said on a conference call with analysts.

CEO Steve Squeri said on the call that spending by small businesses and commercial enterprises within the international group rose 14%. The filing showed that the business net charge-off rate was 0.6%, similar to last year and up 0.5% in the first quarter.

“We are happy with where we are now,” Squeri said.

Citigroup documents show that corporate deposits at the bank averaged $830 billion in the latest quarter, unchanged from the previous quarter and down 1% from a year ago. The financial supplement noted that commercial card spending volumes totaled $18 billion in the latest quarter, up 7% from the first quarter and up 4% from a year ago.

CEO Jane Fraser noted on the call that the company’s treasury and trade solutions segment loans rose 3% to $81 billion from a year ago, driven by “increased activity in cross-border payments and commercial cards. Average loans increased 3%, primarily due to solid demand for export and agency financing, particularly in Asia, as well as working capital loans to corporate clients in Latin America and Asia.”

Referring to CitiDirect, she said: “We move about $5 trillion a day to customers around the world.”

JPMorgan’s commercial and banking payments revenue was $4.5 billion, an increase of approximately $80 million compared with the prior quarter.

CFO Jeremy Barnum said on the call that “new loan demand remains subdued as mid-market and large-market corporate clients remain somewhat cautious given the economic environment and revolver utilization remains below pre-pandemic levels. Additionally, capital markets are open and providing an alternative to traditional bank lending for these clients,” as average client deposits rose 2% year over year and were relatively flat sequentially.

Goldman Sachs CEO David Solomon noted on a conference call with analysts that in the lending business, leveraged finance is being combined with “a powerful platform of direct private credit from Goldman Sachs… the size and scope of companies that need to be refinanced, recapitalized, sold, changed hands… bodes well for the next three to five years.”

The supplements show that transaction banking revenues generated by the Platform Solutions segment were $70 million, down 15% on lower average deposit balances.

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