American Express sees an opening to do more small-business finance if the banking crisis and corresponding economic downturn nudge banks away from the sector.
"Small businesses could be an opportunity for us, provided the credit of the small business is good," Steve Squeri, CEO of American Express, said during a conference call Thursday to discuss first-quarter earnings.
A combination of threats could cool bank lending in the quarters ahead. The
And the broader fallout from the shutdown of
"With this tightening you could see some small businesses having harder access to working capital," Squeri said.
Amex specializes in providing financial services to small businesses via American Express Business Blueprint, which stems from the Kabbage acquisition in 2020. Those products have given Amex the chance to incrementally add
For the quarter ending March 31, American Express reported earnings per share of $2.40, down from $2.73 in 2022's first quarter, and $0.26 less than the FactSet analyst estimate of $2.66. Revenue was $14.38 billion, up from $11.74 billion the prior year; that beat the analysts' estimate of $13.98 billion. Amex projects full-year earnings per share of between $11 and $11.40. The analysts' consensus for its full-year earnings is $10.43 per share.
Merchant services are about 6% of Amex's overall business. "We may not be the lender of first resort for these small businesses," Squeri said. "So there is an opportunity for us."
Amex's existing small-business unit is growing, though at a slower pace than consumer spending, Squeri said. Consumer spending in the U.S. grew 15% in the first quarter, in line with the prior year's growth. At the same time, U.S. small-business card spending at Amex grew 6% in the first quarter, compared with 8% growth the prior year.
"Our consumer business is not representative of the entire economy, given our high-end consumer base," Squeri said. "What happened with small businesses is you can only grow spending based on what you bring in."
There is a slowdown in advertising spending among small businesses, putting the segment in line with other parts of the economy, Squeri said. Amex's own advertising budget remains the same in 2023 as in 2022, at about $5.5 billion. "What you do is you make your advertising and marketing more efficient," the CEO said.
Most companies are trying to get their employees to travel more to industry events and to meet clients, Squeri said. U.S. corporate travel spending increased 34% in the first quarter over the prior year, but is still below pre-pandemic levels, he said.
Layoffs at corporations could slow consumer spending, Squeri said, adding that consumer spending thus far is resilient in the face of a slower economy — a theme Amex's executives noted several times during the earnings call.
An analyst report from
"Amex's quarter reflected consistent trends in loan growth, combined with normalizing credit trends and higher operating expenses," said Jefferies analysts in a note, which emphasized that Amex management's reiteration of guidance is a positive sign for the company.
Billed business growth remains encouraging, especially travel-and-expense spending among millennials, Jeffries analysts said.
Millennials now make up 30% of Amex's billings, up from 20% before the pandemic. And millennials account for 60% of Amex's new card accounts this year.
Under analyst questioning on Amex's potential exposure to younger consumers with a shorter track record, Squeri said Amex's new arrivals are spending more and thus adding more revenue. Amex's new consumers are also spending more than in the past — 2022's new customers are spending 50% more in 2023 than 2018's new customers spent in 2019, Squeri said.
"Our focus is on generational relevance and making sure our products are attractive across an entire cohort," Squeri said, adding that millennials' credit quality and credit histories are in line with other short-tenure consumers.
Inflation and a slower economy are putting some credit-quality pressure on Amex. Its total provision for loan losses in the first quarter was $1.1 billion, compared with a release of $33 million in the first quarter of 2022. The provision covered higher write-offs and a net reserve build of $320 million, according to Amex.
While continuing to rise, reserves are still below pre-pandemic levels and should remain below those levels through the end of 2023, Amex reported.
Amex is additionally reporting higher charge-offs. The company in January reported net charge-offs grew to 1.5% in January from 1.2% in December. Charge-offs are also below pre-pandemic levels, Amex said.
"Consumer spending has remained strong and has not been significantly impacted by slower economic growth and inflation," Squeri said.
