Financial Services is a neologism created by banks, insurance companies, investment banks, and brokerages, to describe the industry in which companies providing all those services are fully integrated. This term arose around and because of the US 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 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 independant, 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 is the largest and most profitable industry in the world. Financial Services, while as a whole industry is slow growing, is also extremely fragmented, 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.
Biggest financial services companies
These (according to Forbes magazine) are the top 25 financial services companies in the world, ranked by a balanced mixture of profits (income) revenues, market capitalization, and assets:
- Citigroup (bank)
- JP Morgan Chase & Co (bank)
- General Electric (insurance, credit, through four subsidiaries ([1]))
- American International Group (insurance)
- Bank of America (bank)
- Fannie Mae (credit)
- HSBC Group (bank)
- Toyota Motor (credit)
- ING Group (insurance, bank)
- Royal Bank of Scotland (bank)
- Berkshire Hathaway (insurance)
- BNP Paribas (bank)
- General Motors (credit through GMAC)
- Freddie Mac (credit)
- UBS AG (bank)
- Wells Fargo (bank)
- DaimlerChrysler (credit)