Every week brings news of another financial services acquisition in the United States. Such events act as a reminder, if one were needed, that this massive and diverse industry is undergoing unprecedented consolidation. Consider these facts:
? In 1980, the 25 biggest banks generated a third of the industry's net income. Today, they generate more than half.
? In 1990, the top 25 mortgage originators did 26 percent of the business. Today, they do 45 percent.
? A decade ago, the top 10 credit card companies held 45 percent of all outstandings. Today, they hold 57 percent.
? The top 10 mutual fund companies currently control 47 percent of all assets.
? The top 15 home and auto insurers write roughly two-thirds of all policies.
And so it goes for every sector of the financial services industry.
Sweeping though the consolidation has been, this is only the beginning. In fact, enough excess capital remains in banking alone to fund up to $1 trillion in future deals. If a company's stock (or acquisition currency) is highly valued, it is often cheaper for it to acquire another company to gain access to valuable customers, a choice distribution network, and market-tested skills, rather than build these things from scratch. So the deals will keep coming.
There are three key points to bear in mind as the financial services industry consolidates. First, the national endgame is closer than it may seem. Second, the constant need for revenue growth, productivity improvements, and cost efficiencies is the force that is driving consolidation and transforming industry economics. Finally, any serious player must adopt an exp ...