Financial Services
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Wikipedia-Article "Financial Services"
Financial services is a term used to refer to the services provided by the finance industry. Financial services is also the term used to describe organizations that deal with the management of money. Banks, investment banks, insurance companies, credit card companies and stock brokerages, are examples of the types of firms comprising the industry, which provides a variety of money and investment and related services. Financial services is the largest industry (or industry category) in the world, in terms of earnings; as of 2004, the industry represents 20% of the market capitalization of the S&P 500.[1]
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History of financial services
United States: Gramm-Leach-Bliley Act
The term financial services became more prevalent in the United States 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 history of problems that have arisen 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 US, 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 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 approach would be a bank which simply buys an insurance company or an investment bank, keeps the original brands of the acquired firm, and adds the acquisition to its holding company simply to diversify its earnings. Outside the US, e.g., in Japan, non-financial services companies are permitted 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.
Banking Services: What do banks do?
The primary operations of banks include:
- Keeping money safe while also allowing withdrawals when needed
- Issuance of checkbooks so that bills can be paid and other kinds of payments can be delivered by post
- Provision of loans and mortgages (typically loans to purchase a home, property or business)
- Issuance of credit cards
- Allow financial transactions at branches or by using Automatic Teller Machines (ATMs)
- Facilitation of standing orders and direct debits, so payments for bills can be made automatically
Virtual banking
Banking from home is called virtual banking, because it allows transactions that bypass branches and ATMs; in the case of Internet banking, there is no need to contact a bank staff member. Virtual banking has changed the way people bank in many ways. In the past, people opened a bank account when they first started work and stayed with that bank for their whole lives; now, it much easier to move an account, mortgage or loan from one banking institution to another. Many customers look at what other banks are offering and change their account if they find a better deal, so banks now have fewer loyal customers. It is common for credit card companies to entice new customers with offers such as zero per cent interest for the first six months.
Commercial bank
A commercial bank is what is commonly considered a 'bank'. The term 'commercial' is used to distinguish it from an 'investment bank', a type of financial services entity which, instead of lending money directly to a business, helps businesses raise money from other firms in the form of bonds (debt) or stock (equity). Major commercial banks include:
- ABN AMRO
- AEGON N.V.
- ANZ Bank
- Banco Bradesco
- Banco do Brasil
- Banco Santander Central Hispano
- Banco Santander Santiago
- Carlisle Holdings Limited
- Bank of America
- Bank of China
- Bank of Montreal
- Bank of New York
- Bank of Nova Scotia
- BB&T Corporation
- BNP Paribas
- Canadian Imperial Bank of Commerce (CIBC)
- China Construction Bank Corporation
- Chinatrust Commercial Bank, incorporated in Taipei, Taiwan
- Citibank
- Commonwealth Bank of Australia
- Credicorp Ltd.
- Credit Suisse
- Deutsche Bank
- Fifth Third Bank
- Golden West Financial
- Grupo Financiero Banamex
- Grupo Financiero BBVA Bancomer
- HSBC
- IGM Financial
- National Australia Bank
- National Bank of Canada
- National City Corporation
- PNC Financial Services
- Regions Financial
- Royal Bank of Canada
- Royal Bank of Scotland
- Standard Chartered
- SunTrust Banks
- Toronto-Dominion Bank
- U.S. Bancorp
- Wachovia Corporation
- Washington Mutual
- Wells Fargo
Private banking
The term private bank is simply a marketing term for a bank or a division of a financial services company targeted towards wealthy individuals. Often it is used to describe specifically the lending services targeted towards this group, such as large margin loans.
Investment Banks
Investment banks (capital market banks) underwrite debt and equity, assist company deals (advisory services, underwriting and advisory fees), and restructure debt into structured finance products. Prominent investment banks include:
- Bear Stearns
- Citigroup Global Markets (formerly Salomon Brothers)
- Credit Suisse First Boston
- Goldman Sachs
- JPMorgan Chase
- ING
- Lazard
- Lehman Brothers
- Morgan Stanley
- Nomura
- UBS
see also: Mergers & acquisitions
Bank cards
Bank cards include both credit cards and debit cards. Citigroup is the largest issuer of bank cards, with 150 million cards issued at the end of 2004. Issuers include
Credit card machine services and networks
Companies which provide credit card machine and payment networks call themselves "merchant card providers". These include:
Investment Services
Asset Management
Asset management is the term usually given to describe companies which run mutual funds. The largest are those who provide passive, ETF, or index funds. Asset managers include:
- Barclays Bank
- Barclays Global Investors
- Capital Group Companies (American Funds)
- Citigroup
- Deutsche Bank
- Fidelity Investments* Fleming
- Janus
- Merrill Lynch
- MFS
- JP Morgan
- Morgan Stanley
- Northern Trust
- Prudential
- Putnam
- State Street Global
- TIAA-CREF
- Vanguard
Hedge Fund Managers
- Andor Capital Management
- BlackRock, Inc.
- Cargill
- Citadel Investment Group
- Greenlight Capital
- Mellon Financial Corporation
- Mizuho Holdings
- Pequot Capital Management
- RAB Capital
- Renaissance Technologies
- Soros Fund Management
- UBS Investment Bank
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.[2] [3] Firms engaged in custody services include:
Insurance related
Insurance Brokerage
Insurance brokers shop for insurance (generally corporate property and casualty insurance) on behalf of customers. Significant companies in this sector of the financial services market include:
Insurance Underwriting
Personal lines insurance underwriters actually underwrite insurance for individuals, a service still offered primarily through agents, insurance brokers, and stock brokers. Underwriters may also offer similar commercial lines of coverage for businesses. Activities include insurance and annuities, life insurance, retirement insurance, health insurance, and property & casualty insurance. Some well known insurers include:
- Allianz
- Allied Insurance
- Allstate
- AIG
- AXA
- Berkshire Hathaway
- Chubb Corporation
- CGNU
- Independent Order of Foresters
- Geico
- MetLife
- Safeco
- Scor
- State Farm
- Zurich Financial Services
Reinsurance
Reinsurance is insurance sold to insurers themselves, to protect them from mega catastrophic losses. Firms in this sector include:
see also: Underwriting
Intermediation or advisory services
Stock brokers (private client services) and discount brokers
Stock brokers 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. Some of these are:
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- Freetrade - a non-advertised subsidiary of Ameritrade
Other low-cost brokerages that function in a similar way to a dividend reinvestment program include:
- BUYandHOLD
- Edgar, Dunn & Company (Edgar, Dunn & Company is a financial services consultancy)
- FOLIOfn
- General Electric (GE is one of the largest financial companies)
- Sharebuilder
Market share
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 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.