financial services

Financial services is the largest industry (or category of industries) in the world in terms of earnings (contraryinvestor.com - 20% of market cap in the S&P 500 in 2004). Financial services is a term used to refer to the services provided by the finance industry. Banks, insurance companies, investment banks, and brokerages, are examples of the types of firms forming this industry: They provide money and investment and related services.

USA: Gramm-Leach-Bliley Act - The term ''financial services'' became more prevalent in the United StatesUS partly as a result of the Gramm-Leach-Bliley Act of the late 1990s which enabled different types of companies in the US financial services industry to merge. Critics of this act say the term ''financial services'' attempts to make the unison of these operations sound natural, ignoring the possible problems from combining them, such as conflicts of interest and monopolization. Others, noting that many of the restrictions abolished by the Gramm-Leach-Bliley Act had never existed in other countries or had been abolished earlier than in the USA, say the term ''financial services'' is a natural one in long term use which means nothing more than its constituent words.In the USA almost every company now which previously described themselves as a bank, insurance company, or brokerage house, now describes themselves in some way as a financial services institution. Allstate Insurance, for example, now provides certificates of depositCDs and investment brokerage services. Bank of America offers full featured brokerage products, while E-trade has expanded into offering bank accounts and loans. Companies usually have two distinct approaches to this new type of business. One approach would be a bank which simply buys an insurance company or an investment bank; keeps their original brands; and adds it to its holding company simply to diversify its earnings. Outside the United States, for example in Japan, it is also permitted to have non-financial services companies within the holding company. In this scenario, each company still looks independent, and has its own customers, etc. This is essentially the style of Citigroup and JP Morgan Chase. In the other style, a bank would simply create its own brokerage division or insurance division and attempt to sell those products to its own existing customers, with incentives for combining all things with one company. This is the style of Washington Mutual and Wells Fargo.

Market - Financial services is the largest group of companies in the world in terms of earnings and equity market cap. It is not the largest category in terms of revenue or number of employees. Financial services, while as a whole industry is slow growing, is also extremely fragmented, with the largest company (Citigroup), only having a 3 percent US market share. See page 11, "The Opportunity: Small Global Market Share", of citigroup.com - Sanford C. Bernstein & Co. Strategic Decisions Conference - 6/02/04 for the 2003 market shares of Citigroup.In contrast, the largest home improvement store in the US, Home Depot, has a 30 percent market share, and the largest coffee house Starbucks has a 32 percent market share, etc. Despite this fragmentation, these companies are as a group by far the most profitable in the world, and if any grew to the same market share percentages as any other retail industry, the potential profit would be enormous.

2004 - S&P 500 index (500 large american companies) market cap 2004 ( streetauthority.com)

Financial Services: 20.30%

(Computer hardware & software: 15.30%) (as comparison to 1999)

Healthcare: 13.40%

Industrial Materials: 12.20%

Hardware (computer hardware): 10.80%

Consumer Goods: 9.70%

Consumer Services: 8.80%

Energy: 6.50%

Software: 4.50%

Business Services: 3.90%

Media: 3.90%

1999 - S&P 500 index (500 large american companies) market cap in 1999 (contraryinvestor.com)

Technology (hardware, software): 29.8%

Financial: 13.1

Consumer Staples: 11

Consumer Cyclicals: 9.2

Healthcare: 9

Capital Goods: 8.4

Communication Services: 8

Energy : 5.5

Basic Materials: 3.00%

Utilities: 2.3

Transportation: 0.7

Industries - "Industries" in the "industry". Product set of financial services firms. The core products are transaction services (customers are consumer and corporate), trading and derivatives (consumer and corporate), debt & equity structuring (structured finance) (corporate), asset management (consumer and corporate), financing (debt & equity) (consumer debt, corporate debt & equity), advisory (on M&A and integrated in other products, for example structured finance and derivatives) (corporate), insurance (consumer and corporate).

Asset Management - Asset managment is the term usually given to describe companies which run mutual funds. The largest are those who provide passive, ETF, or index funds.

Barclays Global Investors

Fidelity Investments

Vanguard

Capital Group Companies (American Funds)

Putnam

Janus Capital GroupJanus

Merrill Lynch

MFS

Prudential

TIAA-CREF

State Street CorporationState Street Global

Barclays Bank

Deutsche Bank

JP Morgan

Fleming

Morgan Stanley

Northern Trust

Citigroup

Hedge fundHedge Fund Managers -

Cargill

Soros Fund Management

Mellon Financial Corporation

Citadel Investment Group

BlackRock, Inc.

Pequot Capital Management

RAB Capital

UBS AGUBS Investment Bank

Andor Capital Management

Greenlight Capital

Mizuho Holdings

Commercial bankCommercial banks - A commercial bank is what is normally considered a "bank". The term "commercial" is used to distinguish it from an "investment bank", which is an entity which instead of lending money directly to a business helps that business raise money from others in the form of bonds (debt) or stock (equity)

Citibank

Bank of America

HSBC

Deutsche Bank

ANZ Bank

ABN AMRO

Bank of New York

Royal Bank of Scotland

Wells Fargo

Golden West Financial

Chinatrust Commercial Bank, incorporated in Taipei, Taiwan

Bank of China

Washington Mutual

WachoviaWachovia Corporation

Fifth Third Bank

BB&T Corporation

National City Corporation

U.S. Bancorp

PNC Financial Services

SunTrust Banks

Regions Financial

AEGON N.V.

BNP Paribas

National Australia Bank

Commonwealth Bank of Australia

Toronto-Dominion Bank

Royal Bank of Canada

Bank of Montreal

Canadian Imperial Bank of CommerceCanadian Imperial Bank of Commerce (CIBC)

Bank of Nova Scotia

National Bank of Canada

IGM Financial

Credit Suisse

Banco Santander Central Hispano

Grupo Financiero Banamex

Grupo Financiero BBVA Bancomer

Banco do Brasil

Standard Chartered

Credicorp Ltd.

Banco Santander Santiago

Banco Bradesco

Carlisle Holdings Limited

Private bank - The term ''private bank'' is simply a marketing term for a bank or a division of a financial services company targetted towards wealthy individuals. Often it is used to describe specifically the lending services targetted towards this group, such as large margin loans.

Insurance Brokerage - Insurance Brokers shop for insurance (generally corporate property and casualty insurance) for customers.

Aon

Marsh

Acordia Wells Fargo

Wachovia

Willis

Insurance Underwriting - These companies actually underwrite insurance, which is often sold through agents, insurance brokers, and stock brokers. Activities include insurance and annuities. Life insurance, retirement insurance, health insurance, property & casualty insurance.

American International GroupAIG

AXA

Allstate

Geico

Zurich Financial Services

Allianz

Scor

Chubb Corporation

CGNU

Berkshire Hathaway

MetLife

Reinsurance - Reinsurance is insurance sold to insurance companies to protect them from mega catastrophic losses.

Swiss Re

Munich Re

Lloyd's of London

General Re Berkshire Hathaway

Investment BankInvestment Banks - Investment banks (capital market banks) underwrite debt and equity. Assist on company deals (advisory services, underwriting and advisory fees). Structure debt in to structured finance products.

Goldman Sachs

Lehman Brothers

Bear Stearns

Morgan Stanley

Credit Suisse First Boston

Lazard

Nomura

UBS

JPMorgan Chase

ING''see also: Mergers & acquisitions''''see also: Underwriting''

Stock Brokers (private client services) and Discount Brokers - These companies assist people in investing, online only companies are called "discount brokerages", companies with a branch presence are called "full service brokerages" or "private client services".

Merrill Lynch

Morgan Stanley

Smith Barney

Charles Schwab

E*TRADE

Ameritrade

Edward Jones (brokerage firm)Edward Jones

Freetrade - a non-advertised subsidiary of AmeritradeOther low cost brokerages that function in a similar way to a dividend reinvestment program are

Sharebuilder

FOLIOfn

BUYandHOLD

Cards Issuers - Credit and debit cards ("bank cards"). Citigroup is the largest issuer with 150 million cards at the end of 2004.

American Express

MBNA

Capital One

Credit Card machine services and networks - Companies which provide credit card machine and payment networks call themselves "merchant card providers".

Nova US Bank

First Data

Custody services - Custody services and securities processing is a kind of "back-office" administration for financial services. Assets under custody in the world was estimated to $65 trillion at the end of 2004 (globalcustody.net, cm1.prusec.com).

Bank of New York

JP Morgan Chase

State Street

Mellon

Miscellanious -

General Electric (GE is one of the largest financial companies)

Brand equity - Each year, ''BusinessWeek'' publishes its 100 Best Global Brands study, ranking the brand equityfinancial value of brands. Following are the financial services companies in this list, ranked by this study for 2005.

Glossary - Glossary for reading financial services reports

Asset sensitive - A financial institution that has a negative duration of equity may also be described as having a positive gap or as being asset sensitive. (? americanbanker.com - American Banker Magazine glossary)

Liability sensitive - The inverse of asset sensitive.

Charge-offs - written off debt.

Cost of funds - the cost of loan capital, the cost of funding assets. The best things in life are free, the same goes for liabilites, free liabilities include interest free checking accounts.

Negative operating leverage - simply strength of earnings, the formula is sometimes the operating income as a percentage of gross income which measures how large or small the fixed costs are.

Acronyms -

NCL - net credit losses - cost of charge-offs, written off debt (cardreport.com)

NCL rate - net credit loss rate - the percentage of the lending portfolio that is not expected to be repaid (thestreet.com)

NII - net interest income - interest income less interest cost

NIM - net interest margin - margin between interest income and interest cost

NPA - non performing assets - interest bearing assets not paying interest

See also -

Government sponsored enterprise

Thomson Financial League Tables

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