Companies in Financials industry provide the financial services. It consists of commercial banks, insurance companies, asset managers, brokerage firms and many other types of financial institutions. They provide transactions, investing, mortgages, insurance and other services.One of the areas of activity in this industry is to provide loans to businesses. Loans let businesses to expand through the capital projects and investments. This leads to the economic growth. So stability of the Financials industry is one of the crucial factors for the stability of the whole economy. Because of that governments regulate the industry, usually through their central banks.
Current low interest rate environment is favorable for the expansion of businesses. If interest rates rise, banks and other financial institutions can earn more, but credits become more expensive to their customers. At the same time when long term rates go down, banks earn less since they usually borrow at short term rates and lend at longer term rates. In addition, lower long term rates go along with slowing economic growth and lower loan demands.
Financial industry is under major transformation. There is an increasing pressure for the structural changes driven by the new technology. In recent years fintech companies are cherry picking profitable activities and, thus, reducing profit margins of the established financial institutions. Also big technology companies are entering the financial services field. This happens, for example, in the areas like payments, consumer finance, asset management and insurance. In response to it, the financial institutions invest heavily in technology and productivity, improving the customer experience, simplifying processes and reducing overcapacity. They invest in incubation and accelerator platforms. But in many cases the progress in slow and the results unpredictable. Successful companies have clear vision how business in the future will shape and what will be the main sources of profitability.
Larger companies in this industry pay and regularly increase their dividends.
Sectors of the Industry
According to the Industry Classification Benchmark (ICB), Financials industry consists of the following sectors.
|Full Line Insurance
Property & Casualty Insurance
|Life Insurance||Life Insurance|
|Real Estate Investment & Services||Real Estate Holding & Development
Real Estate Services
|Real Estate Investment Trusts
|Industrial & Office, Retail, Residential, Diversified, Specialty,Mortgage, Hotel & Lodging REITs|
|Financial Services||Financial Services||Asset Managers
|Investment Instruments||Equity Investment Instruments||Equity Investment Instruments|
|Nonequity Investment Instruments||Nonequity Investment Instruments|