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The financial crisis 10 years after: What has changed?
Ten years ago, a financial crisis reverberated around the world, shaking financial institutions from Wall Street to Main Street. Since that time, financial institutions have recovered, and banks and insurers have regained their strength. But the global composition of the largest financial institutions has changed, with China gaining market share in both categories.
There has been plenty of coverage this week of the 10th anniversary of the financial crisis. I well remember where I was when events began to snowball. Sibos, the international banking conference, was kicking off on the morning of September 15, 2008 in Vienna, and I remember seeing the headlines as I left my hotel for the conference center, not quite believing what I was reading. Failures, acquisitions...the world was turning upside down.
The conference went on as planned, although many speakers had to be replaced because they had to return to their offices over the weekend to sort out the huge volumes of transactions that had no counterparty due to those failures. There were lots of discussions in real time about what just happened, how it happened, and what the attendees needed to do next.
As we now know, a lot was done to shore up the financial services industry over the next few years. And the results suggest that some fundamental changes have occurred. For example, banks are now much more well-capitalized, and much less reliant on short-term borrowing, than they were prior to 2008.1
This got me thinking about how the largest financial services companies today rank in comparison to their counterparts in other industries. How much revenue and profit do they produce? How do the markets value their businesses? And how much has changed in the past 10 years? Fortunately, Forbes produces an annual list of the largest public companies,2 so I did some analysis of its lists from 2018 and 2008 to find out.
First, a disclaimer about the Forbes method. Forbes ranks companies based on four statistics: Revenue, profit, assets, and market capitalization. These are then weighted and assigned points to render a final score, and the companies are ranked based on that aggregated score.
Digging into the data
With that taken care of, let's turn to the data. At first glance, one might be tempted to say that not much has changed at all. When looking at sector representation, banks and insurance companies were the only kinds of financial services companies to make the top 100 lists in both years, and in each, the sectors' share is pretty similar: 43 firms in 2008, and 40 in 2018. Other sectors saw similar consistency. There were 16 energy companies on the top 100 list in 2008, and 13 in 2018; technology companies (6 vs. 9), telecoms (7 vs. 7) and automotive (5 vs. 8) also kept pace. What's undeniable is that the financial services industry has maintained its overall dominance on this list. This is more apparent when I looked at the share of total assets held by the top 100. In 2008, banks held a 69.7 percent share and insurance companies about 15 percent, and in 2018 it was 69.4 percent and 9.9 percent, respectively.
Digging a bit deeper is where the changes start to appear. When I focused in on the top 10 across all sectors, I found that in 2008, there were three banks and one insurance company. Further, the top 10 in total was represented by companies headquartered in the United Kingdom (2), the Netherlands (2), Japan (1), and the United States (5). By 2018, the banks had doubled to six out of the 10, with one insurance company as well. And of the top 10, five were headquartered in the United States and five in China.
The rise of Chinese firms is also seen in their increased representation among the banking and insurance sectors. In 2008, there were three Chinese banks among the 33 banks overall, and they had about 6 percent share of the total banking assets among the top 100. Banks from the United States and the United Kingdom were the dominant players, with 11 of the top 20 banks between them. In 2008, there were no Chinese companies on the insurance list, which was led by the Netherlands, Germany, and again, the United States. By 2018, though, there are 11 Chinese banks among the total of 31, accounting for 44.6 percent of total banking assets among the top 100, and only two from the UK. There are now two Chinese insurers among the nine on the 2018 list, accounting for 21.6 percent of assets and 36.6 percent of market capitalization.
Financial Services industry emerges strong
Speaking of market cap, there are interesting trends in these numbers related to how these companies are valued. In 2008, for example, banks among the top 100 accounted for 22.7 percent of the market capitalization for all companies on the list, while insurance companies were at 5.2 percent. For context, at that time it was the energy sector that led the way, with a 26.9 percent share. This year, both banks (23.1 percent) and insurance carriers (4.7 percent) have held their ground, but the energy sector (11.8 percent) has been replaced by technology companies, which account for 27 percent of the total market capitalization of the top 100. Indeed, technology companies now account for six of the 10 highest-valued companies on the list.
Bottom line? It would appear that the financial services industry has emerged from the financial crisis as strong—or stronger—than it was in 2007. Financial services institutions still hold a significant share of assets (especially banks), revenue, profits, and market capitalization. Yet the landscape of players has shifted within these sectors, especially with the ascendancy of the Chinese financial services companies. It wouldn't surprise me to see the industry continue to shift toward the emerging markets going forward, given the growth of their economies and the middle-class populations who live there.
It would appear that the financial services industry has emerged from the financial crisis as strong—or stronger—than it was in 2007.
What do you think?
Will the geographic makeup of the industry's largest players continue to shift? Which other countries might be next to emerge on the scene, similar to what’s happened in China over the past 10 years? Join the conversation on Twitter at @DeloitteFinSvcs.
1 Peter Eavis and Keith Collins, "The Banks Changed. Except for All the Ways They're the Same," The New York Times, September 12, 2018.
2 Halah Touryalai, Kristin Stoller, and Andrea Murphy, "Global 2000: The World's Largest Public Companies," Forbes, June 6, 2018.
QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.