Financial servicesFinancial Services is a neologism created by banks, insurance companies, investment banks, and brokerages, to describe what they see should be an industry which all those companies are fully integrated. This term arose around and because of the Gramm-Leach-Billey act of the late 1990s, which allowed these companies to merge. Critics say this is a term, which attempts to make the unison of these operations sound natural, ignoring the possible problems from combining them such as monopolization.
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 CDs, 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 kind 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, its also permitted to have non financial services companies within the holding company. In this scenario, each company still looks indepedant, 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.
Financial Services, while as a whole industry is slow growing, is also extremely diversified, with the largest company (Citigroup), only having a 3 percent market share. In contrast, the largest home improvement store Home Depot has a 30 percent market share, the largest coffee house Starbucks has a 32 percent market share, etc. Even with this small market share, 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. To illustrate this, look at the top 25 companies in the world, ranked by a balanced mixture of profit (tecnically income) revenues, market capitalization, and assets, by forbes magazine:
Guide: Company name (industry)
1 Citigroup (financial services)
2 General Electric (holding company, but has large financial services division)
3 American International Group (financial services)
4 ExxonMobil (oil)
5 Bank of America (financial services)
6 Royal Dutch/Shell Group (oil)
7 BP (oil)
8 Fannie Mae (financial services)
9 HSBC Group (financial services)
10 Toyota Motor (cars and financial services (owns a bank))
11 Verizon Communications (telecommunications)
11 Wal-Mart (retail stores)
13 ING Group (financial services)
14 Royal Bank of Scotland (financial services)
15 Berkshire Hathaway (holding company, main division is financial services)
15 BNP Paribas (financial services)
17 International Business Machines (computers)
18 Altria Group (argicultural and brand name holding company)
19 General Motors (cars and financial services, it makes twice as much profit from financial services then it does cars)
20 Total (oil)
21 Freddie Mac (financial services)
22 UBS (financial services)
23 JP Morgan Chase & Co (financial services)
24 Wells Fargo (financial services)
25 DaimlerChrysler (cars)
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