Industry Analysis Financial Services Overview The financial services industry is one of the most widespread and established industries in the global economy. All companies who have sales from the management of money for either individuals or institutions are included under this umbrella. In the United States alone, according to the Census Bureau 2007 industry report, it included 503,1 56 establishments, had approximately 6. 6 million employees, and had revenues of 3. 6 billion dollars.
Financial services used to be a safe haven for conservative investors who thought the stocks provided higher than normal dividend lied, stable performance and revenues and some defense against volatility. Within the last decade however, the collapse of global financial economy due to the sublime market and derivatives market falling apart has led to more careful involvement in this industry. Moreover, greater regulation in both the U. S. And overseas has led to more controlled administration of many companies in this industry.
This industry is also extremely susceptible to the waves of the economic cycle. The most opportune time to buy is during economic recessions since financial service companies tend to rise out of recession rather fast because interest rates are usually relatively low. Financial investments are typically undervalued during recession when stock prices are low. Collapse of the Market Although once considered a conservatives market 2008 and 2009 saw a shift in this thinking due to major issues arising in the financial services industry.
Although a long-standing crisis of almost a decade, the collapse of the global economies came when in June 2007 Bear Stearns announced to the world that two of its major hedge funds, totaling in over three billion dollars, were failing. The disaster of these companies arose because they were cripplingly invested in the derivatives market eased on the US sublime mortgage market. Additionally in September of 2008 Lehman Brothers, a U. S. Investment bank, folded as well.
Their meltdown gave headway to the issue of how interlocked and intertwined debt had become in this industry. Liquidity and credit quickly froze globally. Since that market crash international governments have focused on trying to regularity the financial system by putting money into the economy and bailing out banks. Since the crash banks and financial institutions have had more difficulty raising money and higher quality capitol. Furthermore, a important detail of the crash had to o with global trade imbalance, those of which are a key feature of the global economy.
The emerging economies of rising countries such as China and India helped to finance the credit and housing bubbles that emerged in the United States and Europe. Since these countries continue to expand and grow they bring with them large capitol inflows into western economies. Another issue that the crash brought to light was the scandals from the financial institutions themselves. Goldman Cash was accused of defrauding investors by failing to disclose conflicts of interest between Goldman Cash Industry Report By strengthener portfolio.
Goldman Cash was not the only financial services company to be caught up in scandal however, the sovereign debt crisis in Europe threatened the European banking system and over shadowed the gossip of companies within this industry. Industry Trends Near Sourcing Outsourcing has been one a fast growing trend in the market within the last decade. However, apprehensions about data and security issues, increasing and hidden costs, and revived interest in American employment and quality are leading companies back to the United States.
Many firms, especially within the financial revises industry, are reverting back to operating in the U. S. This should quickly increase in 2013. Operating Excellence Cross line-of-business service models can grow a company many benefits however operating structures have been put on the back burner because of the pace of business strategy and regulatory change. Very few companies have shifted from coordination to standardization, which may lead them higher profits. Since many company structures are very set, it is complex to change the architecture of a company quickly.
However since companies are getting used to government exultation after the crash, they can now focus on open source thinking and operating structures to increase revenues. The Experience economy Costumer experience is quickly becoming a key component to differentiation for financial services companies. Technology and business models are constantly changing to customer demand and now these same companies are coming to terms with the fact that the product is no longer the key differentiator. The sustainable competitive advantage comes from customer experience.
Companies are expanding both their technology and their company culture to give consumers better access to retreat experience. Increasing Yield A strategy that has been implemented by central bankers in recent years is to add money into capitol markets to keep interest rates low and garner interest from riskier investors focused on yields. This increases Junk and frontier bonds. Nevertheless well-established firms will stick with their well tested strategies and high performance instead of going after high and risky returns.
Look for Jump start companies in the financial services industry to take higher risk propositions and reputable companies to maintain their status quo. IETF In the beginning of 2013 there were less than 100 IETF. However, because the SEC removed regulation obstacles, money managers are making plans to get their IETF to the market as soon as possible. Giving buyers more choices and then potentially lowering costs and finding more flexible solutions are positive consequences of this increase in IETF. Regulation Since the near collapse of global markets within the last 5 or so years, regulation has been at an all time high.
In the United States, the consumer financial protection mortgages and loans. Since many governments feel that regulation has helped get he global economy back on its feet, there is no indication that there will be much if any deregulation in sight. Competitors Overview Although there are many companies in the financial services industry, Goldman Cash has only a few direct competitors that can plausibly contest their industry lead standing. JP Morgan Chase & Co. , and Morgan Stanley are two of their toughest competitors in the United States.
Both companies beat market estimates easily. Morgan Stanley has started to focus more on wealth management rather than investment banking. Although many analysts believe that currently the only banking sector doing well is investment banking. Additionally, underwriting has gone up almost 30% and mergers and acquisitions have gone up more than 20%, both of which hurt companies such as Morgan Stanley, Schwab, and Merrill Lynch. Furthermore, due to the slowing of mortgage financing and limited demand for loans, there is a decrease in revenue for major mortgage banks including JP Morgan.