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Wednesday, June 27, 2007

Money Center Banks: Overview

As of early 2007, commercial banks in the US had total assets of $9,700 billion, and total liabilities of $8,900 billion. Almost 90% of each were due to domestically-chartered institutions.The ten largest banks control assets of $4,900 billion, $3,700 billion being domestic assets. With the exception of HSBC, all of the top ten are entirely US-owned institutions.2006 saw feverish M&A activity in the US, with a total deal value of $1,500 billion; activity in Europe was also intense. While private equity firms are increasingly involved, money center banks are still generating substantial revenues through these deals. The regulatory framework for large banks is due to change, with Basel II compliance likely to demand greater capital reserves, and increase costs. As banks grow larger, the requirement that none should hold more than 10% of the nation's deposits is being seen as restrictive. The fate of this federal cap on deposits may affect banks' organic and inorganic growth.Citigroup, Deutsche Bank, Bank of America, and HBSC Holdings are all leading players in this sector. They are continuing to adjust their financial product portfolio to client demand, with asset-based loans, for example, showing a rapid increase in popularity. M&A is a common strategy for players to expand, especially into lucrative overseas growth markets.

Tuesday, June 19, 2007

Consumer Financial Services: Overview

At the end of 2006, outstanding consumer credit (excluding loans secured on real estate) in the US amounted to $2,390 billion, an increase of 2.6% on the previous year. This marked a slowdown from the annual growth rates for consumer during the 2001-2004 period. The main creditors were commercial banks, who lent 30% of these funds, while finance companies accounted for a further 22%.In 2006, home mortgages outstanding exceeded $10,000 billion, up by 10% on 2005. Home ownership rates are currently historically high in the US, although there has been a slight downturn in 2005 and 2006 since the peak of 2004, and by late 2006, hitherto soaring house prices were beginning to slow down their rate of increase.At the end of 2006, outstanding consumer credit (excluding loans secured on real estate) in the US amounted to $2,390 billion, an increase of 2.6% on the previous year. This marked a slowdown from the annual growth rates for consumer during the 2001-2004 period. The main creditors were commercial banks, who lent 30% of these funds, while finance companies accounted for a further 22%.In 2006, home mortgages outstanding exceeded $10,000 billion, up by 10% on 2005. Home ownership rates are currently historically high in the US, although there has been a slight downturn in 2005 and 2006 since the peak of 2004, and by late 2006, hitherto soaring house prices were beginning to slow down their rate of increase. A strong stock market performance is encouraging the growth of margin loans, secured on investments rather than real estate. During the 2005-2006 period, the prime rate of interest was increasing, which in principle should dampen demand for consumer credit. More stringent legislation introduced in 2005 has greatly reduced the number of individuals having recourse to bankruptcy to deal with unsustainable debt. Leading players in the industry include Fannie Mae, Freddie Mac, American Express, and Countrywide Financial. The US has a large number of banks and related institutions when compared to Japan or Europe, and a long-term trend for consolidation persisted in 2006. Mortgage facilitators such as Fannie Mae are committed to extending home ownership among lower income- and minority groups in the US through the development and marketing of appropriate financial products. For credit card providers, a focus of investment has been the upgrading of transaction security, and the offering of innovative hardware, such as RFID-enabled cards.