US Commercial Banking industry analysis
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52211CommercialBankingintheUSIndustryReport.pdf
US INDUSTRY (NAICS) REPORT 52211
Commercial Banking in the US
Secure assets: An expected improvement in the post-pandemic economy will aid industry revenue Anthony Gambardella | April 2020
IBISWorld.com +1-800-330-3772 [email protected]
Contents
About This Industry...........................................5
Industry Definition..........................................................5 Major Players................................................................. 5 Main Activities................................................................5 Supply Chain...................................................................6 Similar Industries........................................................... 6 Related International Industries....................................6
Industry at a Glance.......................................... 7
Executive Summary....................................................... 9
Industry Performance..................................... 10
Key External Drivers.....................................................10 Current Performance...................................................11
Industry Outlook............................................. 15
Outlook......................................................................... 15 Performance Outlook Data......................................... 17 Industry Life Cycle....................................................... 17
Products and Markets..................................... 20
Supply Chain................................................................ 20 Products and Services.................................................20 Demand Determinants................................................ 23 Major Markets..............................................................24 International Trade.......................................................25 Business Locations..................................................... 25
Competitive Landscape...................................28
Market Share Concentration....................................... 28 Key Success Factors................................................... 28 Cost Structure Benchmarks........................................ 29 Basis of Competition................................................... 33 Barriers to Entry........................................................... 34 Industry Globalization..................................................34
Major Companies............................................36
Major Players............................................................... 36 Other Players................................................................40
Operating Conditions...................................... 41
Capital Intensity........................................................... 41 Technology And Systems........................................... 42 Revenue Volatility........................................................ 44 Regulation & Policy......................................................45 Industry Assistance..................................................... 47
Key Statistics..................................................49
Industry Data................................................................49 Annual Change.............................................................49 Key Ratios.................................................................... 49 Industry Financial Ratios.............................................50
Additional Resources...................................... 51
Additional Resources.................................................. 51 Industry Jargon............................................................51 Glossary Terms............................................................51
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About IBISWorld IBISWorld specializes in industry research with coverage on thousands of global industries. Our comprehensive data and in-depth analysis help businesses of all types gain quick and actionable insights on industries around the world. Busy professionals can spend less time researching and preparing for meetings, and more time focused on making strategic business decisions that benefit you,your company and your clients. We offer research on industries in the US, Canada, Australia, New Zealand, Germany, the UK, Ireland, China and Mexico, as well as industries that are truly global in nature.
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Covid-19 Coronavirus Impact Update
IBISWorld's analysts constantly monitor the industry impacts of current events in real-time – here is an update of how this industry is likely to be impacted as a result of the global COVID-19 pandemic:
· In 2020, industry operators are expected to be negatively affected by the coronavirus pandemic as the Federal Reserve decreases the FFR to the zero-bound in an attempt to support the economy, leading to lower interest income generated by operators.
· Operators have begun working with clients to help remedy specific financial woes clients have. This includes waiving bank overdraft fees and refunding late fees for various payments. While this will help consumers current financial struggles as a result of the spread of the virus, it will also lead industry operators to generate less non-interest income in 2020.
· While profitability is expected to expand over the five years to 2020, profitability is expected to decline in 2020 as a result of the spread of coronavirus leading to lower revenue generated by industry operators.
Note: The content in this report is currently being updated to reflect the trends outlined above.
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About This Industry Industry Definition The Commercial Banking industry comprises banks that provide financial services
to retail and business clients in the form of commercial, industrial and consumer loans. Banks accept deposits from customers, which are used as sources of funding for loans. Banks in this industry are regulated by the Office of the Comptroller of the Currency.
Major Players JPMorgan Chase & Co.
Wells Fargo & Company
Bank of America Corporation
Main Activities The primary activities of this industry: Receiving deposits from customers
Issuing consumer, commercial and industrial loans
The major products and services in this industry:
Depository services and other noninterest-income generating products
Real estate loans
Loans to individuals excluding credit cards
Commercial and industrial loans
Credit card loans
Other
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Supply Chain
SIMILAR INDUSTRIES
Savings Banks & Thrifts in the US
Credit Unions in the US Industrial Banks in the US Credit Card Issuing in the US
Auto Leasing, Loans & Sales Financing in the US
Real Estate Loans & Collateralized Debt in the US
Loan Brokers in the US
RELATED INTERNATIONAL INDUSTRIES
Global Commercial Banks National and Regional Commercial Banks in Australia
Foreign Banks in Australia Commercial Banks in China
Banks in the UK Financial Technology in the UK
Commercial Banking in Canada
Banking in New Zealand
Banks in Ireland
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Industry at a Glance Key Statistics
$681.6bn Revenue
Annual Growth Annual Growth Annual Growth
2015-2020 2020-2025 2015-2025
3.8% 2.3%
$165.6bn Profit
Annual Growth Annual Growth 2015-2020 2015-2025
5.3%
24.3% Profit Margin
Annual Growth Annual Growth 2015-2020 2015-2025
1.6%
4,553 Businesses
Annual Growth Annual Growth Annual Growth
2015-2020 2020-2025 2015-2025
-3.1% -0.6%
2m Employment
Annual Growth Annual Growth Annual Growth
2015-2020 2020-2025 2015-2025
0.3% 1.4%
$210.4bn Wages
Annual Growth Annual Growth Annual Growth
2015-2020 2020-2025 2015-2025
1.3% 1.6%
Key External Drivers % = 2015-2020 Annual Growth
-4.2% Corporate profit
0.8% Aggregate household debt
1.2% Prime rate
N/A External competition for the Commercial Banking industry
N/A Regulation for the Banking sector
Industry Structure
POSITIVE IMPACT
Capital Intensity Low
Industry Assistance High
Concentration Low
Globalization Low
MIXED IMPACT
Life Cycle Mature
Revenue Volatility Medium
Technology Change Medium
Barriers to Entry Medium
NEGATIVE IMPACT
Regulation Heavy
Competition High
Key Trends
The industry has been consolidating Operators are expected to experience material effects to
both interest and noninterest incomes due to the pandemic
New government regulation has both helped and hurt the industry
Competition will intensify as new entrants target commercial banking
Bank lending is anticipated to rise in line with gradually improving macroeconomic conditions
Competition will intensify as new entrants target commercial banking
Government regulation and technology-driven competition are forecast to change the business model that commercial banks use
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Products & Services Segmentation
Depository services and other noninterest-income generating products
27.3%
Real estate loans
32.0%
Loans to individuals excluding credit cards
11.7%
Commercial and industrial loans
14.0%
Credit card loans
6.0%
Other
9.0%
Commercial Banking Source: IBISWorld
Major Players % = share of industry revenue SWOT
STRENGTHS
Low Imports Low Product/Service Concentration Low Capital Requirements
WEAKNESSES
High & Decreasing Level of Assistance High Competition Low Profit vs. Sector Average High Customer Class Concentration Low Revenue per Employee
OPPORTUNITIES
High Revenue Growth (2015-2020) High Revenue Growth (2020-2025) High Performance Drivers External competition for the Commercial Banking industry
THREATS
Low Revenue Growth (2005-2020) Low Outlier Growth Corporate profit
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Executive Summary
The Commercial Banking industry is composed of banks regulated by the Office of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC).
Banks generate the majority of their revenue by accepting customer deposits and then lending these deposits out to individuals and businesses at a certain interest rate, which is influenced by different factors, including the federal funds rate, the prime rate and the debtor's creditworthiness.
Industry revenue finally returned to growth in 2015 after declining in each year since 2008. The Federal Reserve's gradual process of interest rate normalization between 2015 and 2018 lead to eight increases of the federal funds rate (FFR). This helped interest rates economy-wide rise during the period. Overall, between 2015 and 2019, interest income generated by commercial banks increased an annualized 10.2%. However, in 2020, industry operators are expected to be afflicted by several effects of the COVID-19 (coronavirus) pandemic, including the Federal Reserve decreasing the FFR to the zero-bound to support the economy. This leads to operators generating lower interest income, but these countervailing trends are expected to lead industry revenue to increase an annualized 3.8% over the five years to 2020 to $681.6 billion. As a result of declining interest rates and lower demand for industry operators, industry revenue is expected to decrease 9.8% in 2020. Additionally, industry profitability is expected to decline in 2020 as a result of declining revenue and increased expenses associated with certain write-offs.
Over the five years to 2025, government regulation and technology-driven competition are forecast to change the business model that commercial banks use. As macroeconomic conditions improve, the Federal Reserve is expected to once again gradually raise the FFR. This is expected to benefit industry operators since their products will bear higher interest rates. Industry consolidation will likely lead to banks better scaling their operations to provide a more competitive and wider array of products and services. As a result, revenue is expected to increase an annualized 2.3% to $763.0 billion over the five years to 2025.
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Industry Performance
Key External Drivers
Prime rate The prime rate is the interest rate banks charge their largest and most-creditworthy corporate customers. Industry revenue comes from the spread between the federal funds rate and the prime rate, along with the interest rates that banks charge the rest of their customers. While a low prime rate usually boosts loan demand under nonrecessionary conditions, a higher prime rate causes banks to realize higher net interest income and revenue. The prime rate is expected to decrease in 2020, posing a potential threat to the industry.
Aggregate household debt Aggregate household debt includes all outstanding credit market debt consumers hold, including credit card debt, mortgages, personal loans and other debt. Industry interest revenue increases when consumers choose to borrow more money from banks and hold higher debt levels. Aggregate household debt is also highly correlated with consumer confidence, which affects the level of debt consumers choose to hold and has a strong positive influence on private consumption. Aggregate household debt is expected to increase in 2020, presenting a potential opportunity to the industry.
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Corporate profit Businesses are the largest customer group for commercial banks. Business sentiment and corporate profit determine demand for credit, the quality of lending portfolios and the level of financing transactions. An increase in corporate profit will positively affect commercial banks by boosting commercial loan demand and transaction fees. Corporate profit is expected to increase in 2020.
External competition for the Commercial Banking industry Competition is high in the banking industry and can come from thrifts, credit unions, government agencies, mortgage brokers and other nonbank organizations that offer financial services. External competition for the Commercial Banking industry is expected to remain steady in 2020.
Regulation for the Banking sector The US banking system depends on consumers' trust in banking institutions and the Commercial Banking industry is highly regulated. New legislation has been introduced that places limits on banking fees, places new regulatory oversight and forces banks to hold higher capital reserves. New oversight increases compliance costs, negatively affecting revenue and profit. Regulation is expected to remain high in 2020.
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Current Performance
The Commercial Banking industry has benefited from improving business sentiment and rising interest rates for a majority of the five years to 2020.
Commercial banks earn most of their revenue through the interest spread between customer deposits and loaned money. Banks accept deposits and place them in savings accounts and products like certificates of deposit, where funds cannot be withdrawn for a certain period of time. Banks pay interest to the depositor on this money and loan out these deposits at higher interest rates as mortgages, auto loans, personal loans or small business loans. Revenue is generally calculated as the spread between interest-bearing accounts and loans, combined with noninterest revenue, such as debit card fees and overdraft fees. The primary factors driving revenue growth are the prime rate (i.e. the minimum bank loan interest rate) and retail and commercial loan demand, which are represented by aggregate household debt and corporate profit.
Revenue for the Commercial Banking industry is expected to increase at an annualized rate of 3.8% to $681.6 billion over the five years to 2020. Industry revenue rapidly expanded early in the period as a result of the Federal Reserve's gradual process of interest rate normalization through periodic increases in the Federal Funds Rate (FFR). Overall, the Federal Reserve has increased the FFR eight times in between 2015 and 2018. This normalization helped industry operators' interest income increase alongside economy-wide rising interest rates. However, since then, weakening global macroeconomic conditions, particularly in 2020 as a result of COVID-19, has led the Federal Reserve to lower the FFR to spur economic activity. Industry operators have therefore provided products to consumers at lower interest rates, contributing to industry revenue declining in 2020.
Return to growth
After years of continuous declines, industry revenue finally picked up in 2015 as the US economy strengthened and the Federal Reserve increased interest rates.
The industry's return to growth was due to increased borrowing activity, with net loans and leases growing 2.5% in 2015. Often, before interest rates increase further, consumers and businesses will try to lock in lower rates on loans. This trend was evident in 2017, when total loans and leases increased 4.5%, despite the Federal Reserve raising the FFR three times within the year. These borrowers did not mind borrowing funds at slightly higher interest rates in 2017 as a result of rate hikes by the Federal Reserve because they were still locking borrowing agreements well below the historic average. Furthermore, an increase in interest rates generates higher income for industry operators by increasing the spread between the rate the banks pay on deposits and the rates at which they lend money.
Improvements in economic conditions also led to the releasing pent-up demand for other credit products. Auto loans are on the rise, and access to credit increased 7.8% in both 2015 and 2016 and 8.7% in 2019. These were the highest year-over- year increases over the five years to 2020. A growing credit market helped to boost the industry's interest and noninterest income as banks earned more revenue in fees due to a greater volume of loan origination. However, the Federal Reserve reduced the FFR three times in 2019.
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As the economy has grown and incomes have risen from 2015 to 2019, an increasing number of consumers put money into banks or government treasuries. According to the FDIC, industry deposits have grown at an annualized rate of 4.3% to $14.5 trillion over the five years to 2020.
Coronavirus' effect of the industry
In 2020, industry operators are expected to experience material effects to both interest income and noninterest income as a result of the coronavirus pandemic.
Due to the current circumstances, industry operators must not only take care of the financial well-being of clients and employees, but also their physical well-being, as banks have been deemed an essential service. To assure the safety of workers and clients, industry operators are taking extreme measures to assure office cleanliness. Additionally, operators have begun working with clients to help remedy specific financial woes, including waiving bank overdraft fees and refunding late fees for various payments. While this will help consumers' current financial struggles during the pandemic, it will also lead industry operators to generate less noninterest income in 2020.
Similarly, revenue generated by industry operators from interest income is expected to be negatively affected, namely from the actions of the Federal Reserve. In March 2020, the central bank decided to lower the FRR to the zero-bound range in an attempt to stimulate economic activity. Due to this, interest rates of a variety of products provided by industry operators have declined in 2020. As unemployment increases and per capita disposable income and consumer spending decrease in 2020, demand for products from industry operators is expected to decline as well. Notably, demand for credit card loans has already begun declining in March. Several of the largest commercial banks have experienced declining purchasing volumes at brick-and-mortar stores, excluding supermarkets. This is a result of nonessential businesses being closed as well as declining disposable income. These trends combined are expected to lead operators to generate lower interest income in 2020. Overall, industry revenue is expected to decline 9.8% in 2020 as a result of lower interest and noninterest revenue generated by industry operators.
A change in landscape
The Commercial Banking industry has been consolidating since the financial crisis and has continued to do so over the five years to 2020, partly due to regulatory changes that made larger banks more competitive.
Additionally, well-capitalized operators have found opportunities to acquire competitors that enable them to enter new markets, diversify product offerings and increase economies of scale. For example, in 2019, industry operators SunTrust Banks Inc. and BB&T Company completed a merger to create the sixth-largest domestic commercial bank. As a result of these persisting trends, the number of industry operators has decreased an annualized 3.1% to 4,553 enterprises over the five years to 2020. Nonetheless, the industry's demand for labor has persisted as
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operators aim to attract top talent. Consequently, industry wages are expected to grow at an annualized rate of 1.3% to $210.4 billion over the five years to 2020.
Government regulation
In response to the subprime mortgage crisis, new government regulation has both helped and hurt the industry.
In 2008, in an effort to increase consumer confidence, the FDIC's board of directors voted to temporarily increase deposit insurance from $100,000 to $250,000 by December 2013. This increase came in response to the accelerating trend of consumers diversifying their deposits in multiple banks to qualify for the previous insurance limit of $100,000. While this effort did bolster consumer confidence due to higher guaranteed insurance, an increase in deposit insurance has put stress on smaller banks. Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010, made the insured deposit limit of $250,000 a permanent amount that was previously set to expire at the end of 2013. Overall, increased government regulation has increased operational expenses for industry operators during the five-year period. Despite these trends toward higher operational expenses, industry profit, measured as earnings before interest and taxes, has increased from 22.7% of industry revenue in 2015 to 24.3% in 2020 as a result strong revenue growth outpacing expense growth early in the period. While profitability is expected to expand during the five-year period to 2020, profitability is expected to decline in 2020 as a result of the spread of coronavirus leading to lower revenue generated by industry operators, along with higher write-offs on existing loans.
Historical Performance Data Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic
Demand Prime Rate
($m) ($m) (Units) (Units) (People) ($m) ($m) ($m) ($m) (%) 2011 617,563 299,061 82,651 6,268 1,936,841 N/A N/A 191,335 N/A 3.30 2012 587,166 316,682 83,060 6,077 1,946,067 N/A N/A 197,790 N/A 3.30 2013 563,877 323,608 82,252 5,840 1,909,864 N/A N/A 196,618 N/A 3.30 2014 556,437 318,188 81,542 5,599 1,896,114 N/A N/A 195,584 N/A 3.30 2015 564,611 330,693 81,124 5,339 1,891,107 N/A N/A 197,292 N/A 3.30 2016 600,846 341,113 79,691 5,106 1,910,155 N/A N/A 201,553 N/A 3.50 2017 653,249 346,291 78,418 4,910 1,937,578 N/A N/A 208,773 N/A 4.10 2018 727,353 405,018 77,647 4,709 1,929,064 N/A N/A 212,023 N/A 4.90 2019 755,944 420,817 77,564 4,686 1,973,947 N/A N/A 217,637 N/A 5.30 2020 681,601 382,072 75,436 4,553 1,915,132 N/A N/A 210,406 N/A 4.40
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Industry Outlook Outlook Over the five years to 2025, IBISWorld expects operators in the
Commercial Banking industry to experience steadily improving operating conditions.
As the economy begins to recover from the aftermath of the coronavirus pandemic, macroeconomic conditions will begin to gradually improve. Operators will once again begin to benefit from improvements in the broader macroeconomic landscape. Commercial banks will continue to benefit from government support, albeit with continued oversight. Too- big-to-fail banks will grow their deposits at a faster rate than smaller savings institutions, whose reputations were damaged due to bank failures that occurred during the financial crisis. Over the five years to 2025, the industry landscape will also change significantly due to continued government oversight and competition from nontraditional financiers.
As macroeconomic conditions improve over the five years to 2025, the Federal Reserve will begin to regain the confidence needed to raise the Federal Funds Rate (FFR) from the zero-bound range it was reduced to in 2020 to stimulate economic activity. As interest rates economy-wide rise as a result of this, industry operators are expected to generate gradually increasing interest income. One such area operators will specifically benefit from is growth in the prime rate, which is an interest rate that is extended to the most creditworthy consumers. Operators are most likely to lend to creditworthy borrowers at first as economic uncertainties begin to dissipate. Accordingly, in the early portion of the period, as demand from these types of borrowers increases, industry operators will benefit from the prime rate rising from 4.4% in 2020 to 5.1% In 2022.
Additionally, as broader macroeconomic conditions improve during the period, consumers' financial stability is once again expected to gradually improve. This will be seen through per capita disposable income increasing an annualized 2.1% over the five years to 2025. As incomes generated by consumers gradually rise, their demand for a wide variety of products provided by industry operators such as mortgages, auto loans and credit cards will steadily rise as well. While these trends will help interest income improve during the period, they also cause an increase in account activity from consumers that will help noninterest income increase.
Industry revenue is expected to grow as the economy improves, the prime rate increases and demand for loans rises. Over the next five years, the unemployment rate is projected to remain low and per capita disposable income is expected to
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grow. Consequently, increased income and a relatively high personal savings rate will result in higher demand for the ability to invest cash into checking, savings and other cash accounts. This demand will enable banks to keep low interest payments on these accounts. As financial health of consumers improves during the period, businesses are also expected to gradually regain confidence in their outlooks. As business sentiment increases an annualized 2.6% over the five years to 2025, companies will have more confidence to expand their operations in a variety of ways. This trend will lead commercial and industrial loans provided by industry operators increase during the period as well.
However, the industry's regulatory environment has the potential to change significantly over the next five years. At this time, the Trump administration has not clearly stated its intentions regarding regulation; however, the administration has hinted that it may dismantle large parts of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). IBISWorld makes its forecasts based on the current regulatory environment. As changes are made to Dodd-Frank, forecasts are subject to change.
Commercial banks gain on savings banks
Bank lending is anticipated to rise in line with gradually improving macroeconomic conditions and slowly rising interest rates.
With a greater volume of deposit inflows and lending outflows, industry revenue is forecast to grow at an annualized rate of 2.3% to $763.0 billion over the five years to 2025. Additionally, industry profit margins, measured as earnings before interest and taxes, are also expected to increase from 24.3% of industry revenue in 2020 to 25.2% in 2025. Operational efficiencies stemming from investments made by operators coupled with rising interest rates helping improve banks' net interest margins will aid profit growth during the period.
Over the five years to 2025, commercial banks' deposits will grow faster than those of smaller savings institutions. Larger commercial banks will continue to use their range of products and services, such as wealth management, to attract retail depositors. Commercial banks such as Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company and Citigroup Inc. will also have more potential clients for these services due to the merger and acquisition activity that took place prior to the current five-year period. Savings institutions will find it difficult to effectively compete and will be more susceptible to failure or acquisition.
Technology and regulation
If Dodd-Frank remains intact, it is expected to continue to negatively affect the industry, stymying profit margins through fee reductions, higher compliance costs and increased reserve requirements.
Costs are expected to remain high as banks strive to meet regulations; however, banks are expected to pass on these rising costs to customers in the form of fees.
Competition will intensify as new entrants target commercial banking. Nontraditional competitors include some of the world's largest corporations and the best-funded venture-backed start-ups. These operators use new technology, such
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as online banking, which attracts customers to their new methods and business models. The continued evolution of mobile banking will have a dramatic effect on client growth and retention. Many Americans rely heavily on mobile phones for paying bills and making deposits, a trend that is expected to increase over the five years to 2025. Companies with well-developed mobile platforms will be able to attract more young adults, ensuring their future deposit growth and lending capabilities. Finally, microfinance loans and prepaid debit cards, such as those that large companies like Walmart Inc. offer, enable customers to engage in banking activities outside of the traditional banking network, posing a potential threat to the industry.
Increased competition and lower distribution costs due to technology will play significant roles in pressuring the industry to consolidate further. IBISWorld expects the number of industry establishments to decline at an annualized rate of 0.3% to 74,139 locations over the five years to 2025, while the number of banks will decrease an annualized 0.6% to 4,428 enterprises during the same period. Nonetheless, steady revenue growth, coupled with rising demand, will increase the industry's demand for labor. Therefore, employment is expected to grow at an annualized rate of 1.4% to 2.1 million workers over the five years to 2025, with most new jobs focusing on commercial banking technologies, online platform maintenance, data security and data management. As a result of the high-paying nature of these jobs, total industry wages are expected to increase at an annualized rate of 1.6% to $227.7 billion over the five years to 2025. The average wage paid out by industry operators is also expected to increase to $110,801 in 2025, as industry operators compete to hire and retain top talent. An increase in the popularity and convenience of online and mobile banking is expected to fuel establishment declines. For example, in a recent investor presentation, Bank of America disclosed that since 2011, there has been a 115.0% growth in its active mobile banking accounts and a 12.0% decrease in its banking centers' accounts. This trend will likely continue and be adopted by the industry at large.
Performance Outlook Data Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic
Demand Prime Rate
($m) ($m) (Units) (Units) (People) ($m) ($m) ($m) ($m) (%) 2020 681,601 382,072 75,436 4,553 1,915,132 N/A N/A 210,406 N/A 4.40 2021 697,329 390,619 75,008 4,514 1,939,677 N/A N/A 213,534 N/A 4.60 2022 741,406 414,936 75,180 4,509 2,015,440 N/A N/A 222,906 N/A 5.10 2023 747,927 418,459 74,734 4,475 2,027,450 N/A N/A 224,361 N/A 5.10 2024 755,133 422,409 74,403 4,449 2,040,924 N/A N/A 225,986 N/A 5.10 2025 763,013 426,563 74,139 4,428 2,055,379 N/A N/A 227,738 N/A 5.10
Industry Life Cycle The life cycle stage of this industry is Mature
LIFE CYCLE REASONS
The industry offers well-defined products that have gained consumer acceptance
Industry consolidation is increasing
The number of employees is stabilizing
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The Commercial Banking industry is in the mature phase of its life cycle, which is characterized by mergers and acquisitions, steady growth, more regulation, a smaller number of banks, market saturation and intense product competition. Over the 10 years to 2025, industry value added (IVA), which measures the industry's contribution to the overall economy, is expected to grow at an annualized rate of 2.6%, compared with annualized growth of 1.8% expected for US GDP during the same period.
Despite being mature, the industry continues to undergo restructuring in the wake of the subprime mortgage crisis. This factor has enabled some major commercial banks to make large acquisitions, increasing industry consolidation. These acquisitions and the general trend toward consolidation of services within financial markets have brought an increasing number of activities under the commercial banking umbrella. Consequently, the lines between various banking activities are expected to continue to blur over the coming years.
Rising consumer internet access has also given customers the ability to easily compare features and pricing across banking products, which has led to intense pricing competition on fairly standardized industry products, causing profit growth to remain strained. Despite greater competition, the increase in products offered and the rapid rise in the mobile and online banking platforms have caused usage rates to drive revenue; they will continue to provide year-over-year revenue growth over the five years to 2025.
The maturity of the US Commercial Banking industry contrasts with the growth expected from opening financial services operations in emerging countries. However, some US banks are currently retreating from operations abroad to conserve scarce capital for the domestic market. Also, the European sovereign debt crisis has made many banks wary of their European operations. Despite this, banks are expected to expand their networks in emerging economies in accordance with
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the economic recovery. Revenue growth in these countries is expected to be higher than in the US market over the next five years; such expansion will provide an additional stream of capital for US banking operations.
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Products and Markets Supply Chain KEY BUYING INDUSTRIES
1st Tier Consumers in the US
Construction in the US
Mining in the US
Professional, Scientific and Technical Services in the US
Utilities in the US
Manufacturing in the US
KEY SELLING INDUSTRIES
1st Tier Land Leasing in the US
Computer Stores in the US
Office Supply Stores in the US
Internet Service Providers in the US
Wired Telecommunications Carriers in the US
2nd Tier Communication Equipment Manufacturing in the US
Computer Manufacturing in the US
Telecommunication Networking Equipment Manufacturing in the US
Computer & Packaged Software Wholesaling in the US
Office Stationery Wholesaling in the US
Products and Services
The Commercial Banking industry earns interest revenue from loan products and noninterest revenue from fees and other services.
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In 2020, 72.7% of industry revenue is expected to come from interest income from loans, while the remaining 27.3% will come from depository service fees and other noninterest sources such as gain on securities.
Real estate loans
This category includes all mortgage products for retail consumers, including loans secured by refinancing activity and lease financing and receivables.
Real estate loans are expected to account for an estimated 32.0% of commercial banking revenue in 2020, which is a slight improvement since 2015.
Mortgage product offerings are for home purchasing and refinancing needs and have fixed or variable rates. Commercial banks manage these mortgage portfolios for asset and liability management purposes, or they repackage and sell them to investors (i.e. collateralized debt obligation and securitization) while retaining the relationship with the customer.
The mortgage business includes the origination, fulfillment, sale and servicing of first mortgage loan products. Servicing activities primarily include collecting cash for principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors and escrow payments to third parties. Servicing income includes ancillary income derived in connection with these activities, such as late fees. Mortgage products are typically available to customers through a commercial bank's retail network, geographic branch centers and sales-account executives and sales-force personnel, who offer customers direct telephone and online assistance and access to products. Operators also serve customers through partnerships they may have with various mortgage brokers.
Depository services and related fees
This product segment provides a comprehensive range of services and products to consumers and small businesses and accounts for an estimated 27.3% of commercial banking revenue in 2020.
Banks provide a depository service to consumers by safely holding their money and paying out interest on deposits. Depository products include traditional savings accounts, money market deposit accounts, certificates of deposit, individual retirement accounts and regular and interest-accumulating checking accounts.
Deposit products provide a relatively stable source of funding and liquidity for commercial banks. Banks earn interest revenue from investing deposits in assets through client lending and asset and liability management activities. Deposits also generate various account fees, such as insufficient-fund fees, overdraft charges and account-service fees. More than any other service, deposits are the lifeblood of lending for an organization. Commercial banks pay interest on customer deposits and then lend these deposits to borrowers at a higher rate, profiting on the interest spread. While this segment has increased during the period, the segment has grown at a slower rate than other segments over the five years to 2020, leading its portion of industry revenue to decrease. Additionally, this segment is expected to
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experience declining revenue in 2020 as a result of panics waiving various account fees to help consumers stabilize their finances during the spread of the coronavirus.
Loans to individuals
In general, individual loans are the fastest-growing loan segment and include indirect consumer loans that enable operators in the commercial banking industry to offer financing through automotive, marine, motorcycle and recreational vehicle dealerships across the country.
This segment represents the greatest opportunity for industry growth over the next five years as the economy recovers; but competition will be fierce, coming from nontraditional players like Walmart. It is expected to account for 11.7% of revenue in 2020. This segment's share of revenue increased over the past five years.
Commercial and industrial loans
Although the commercial client base is smaller than the individual consumer base, revenue from loans to commercial clients is anticipated to account for an estimated 14.0% of industry revenue in 2020, a definite improvement compared with 2015.
This category is broadly termed business lending and includes lending to commercial, agricultural and industrial enterprises.
Business lending includes a range of products and services that are primarily offered to customers via client-relationship teams and product partners associated with the banks. Products include commercial and corporate bank loans and commitment facilities that will cover business banking clients, middle-market commercial clients and large multinational corporate clients. Real estate lending products are generally issued to public and private developers, home builders and commercial real estate companies.
Credit card loans
Credit card loans and associated fees are expected to generate 6.0% of revenue in 2020.
Their share of revenue has remained relatively stable over the past five years because of virtually unchanged interest rates on purchases made. Additionally, an increase in credit worthiness of borrowers and a decline in delinquencies has kept commercial banks from raising interest on credit card loans for the majority of the period. However, this this segment is expected to experience a decline in 2020 as a result of lower consumer spending and per capita disposable income in the year.
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Other
Other products include consumer-related business activities in this industry, including forms of insurance, some card services (though this area is primarily specific to the Credit Card Issuing industry, IBISWorld report 52221) and the allocation of interest income from loan activities not elsewhere classified.
Also included are loans to various federal, state and local government agencies and loans between depository banks. IBISWorld estimates that this segment accounts for 9.0% of industry revenue in 2020 and has increased over the past five years.
Demand Determinants
A variety of factors affect demand for bank deposits, especially the real after-tax return on deposits relative to alternative investments and consumer confidence.
Commercial banks set the after-tax return on deposits in accordance with the volatility of equity markets, as well as consumer confidence in the economy, which determines demand levels for savings, checking and money market accounts. In bull markets (markets that are expected to grow), there is low demand for savings- type products and banks have to raise rates to compete with the increased flow of funds into equity investments. Given their low-risk (albeit low-return) profile, commercial banks experience an increase in the flow of funds into bank deposits in bear markets. Consumer confidence is also an important demand determinant for the level of deposits. The more people fear equity markets, the greater propensity they have to put money in the bank.
Loans
Demand for loans is determined by the real after-tax cost of debt relative to the cost of equity.
Demand for debt financing typically falls as the real cost of such financing increases. Commercial and industrial (C&I) loans depend on investment spending by businesses on equipment and other capital goods, as well as financing related to mergers and acquisitions. C&I loans tend to be cyclical and fall as general economic activity slows and increase when the economy recovers again.
Commercial real estate loans are largely determined by investment in nonresidential structures, such as multifamily housing, construction and land development. Multifamily housing investments tend to be more volatile.
Demand for consumer loans largely depends on consumer expenditure and, in particular, durable goods expenditure. Demand for mortgage lending depends on conditions including mortgage rates, house price movements and employment levels. Lending standards and the criteria for eligibility for a loan will also affect demand.
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The level of interest rates, which represents the cost to borrow, will also affect demand for loans. Low interest rate levels encourage households and businesses to take on more debt because the relative cost of consumption through borrowing falls alongside interest rates.
Major Markets
Commercial bank customers include two major markets: retail customers and corporate clients. One-time transactions are categorized under other customers.
Retail customers
The retail customer market segment is expected to account for the largest part of a commercial bank's customer base. Although these customers mainly deal in small transaction sizes, the sheer proportion of customer numbers makes this market segment more significant. IBISWorld estimates retail customers represent 51.3% of the commercial banking revenue in 2020, up slightly as a portion of industry revenue over the past five years as a result of increased borrowing for the majority of the period. The segment's growth will likely slow in 2020, as industry operators waive a variety of fees for consumers as a result of the fallout of the spread of COVID-19.
Consumer and retail customers provide a substantial amount of deposits for commercial banks, where account-keeping fees and investments made on the deposits make these customers highly profitable. Furthermore, with the high degree of competition in the Commercial Banking industry, the ability to attract and retain these customers is essential. If a commercial bank has a satisfied base of retail customers, it can then market various other products and services to customers at minimal cost. Enticing customers to branch out from their primary banking activities (deposits) and purchase mortgage products, fund management services, credit cards and other banking sectors offered by that specific company is another way commercial banks cross-sell products and bolster revenue.
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Corporate clients
Unlike retail customers, small businesses, corporations and institutional clients deal in a much larger scale of transaction value. Although there may be fewer clients in this category, their dollar value of dealings is substantially larger. Corporate clients require large forms of business lending and they too deposit cash into commercial banking accounts. IBISWorld estimates that corporate clients account for 45.7% of the industry. Industry revenue from consumer has grown at a slightly faster pace than corporations over the five years to 2020, leading this segment's share of industry revenue to slightly decrease.
Generally, larger corporations and institutional clients deal with commercial banks whose assets are greater than $1.0 billion. According to data from the FDIC, commercial banks with assets in excess of $1.0 billion had a greater exposure to commercial, industrial and credit card loans; however, commercial banking institutions with less than $1.0 billion in assets had a greater exposure to residential mortgages, commercial real estate and agriculture loans.
Commercial banks in this industry also provide loans to and accept deposits from government institutions. Loans will vary across regions and government departments, but tend to be similar to other market segments. They can include various government-type loans as well as real estate lending, personal loans and auto loans.
Other clients
Other customers hold a small market share and generally involve a one-time, niche- type transactional service. These customers can be involved in student loan services, retirement services, auto finance and other forms of commercial real estate. This segment accounts for 3.0% of the commercial banking revenue in 2020.
International Trade
Exports in this industry are Low and Steady
Imports in this industry are Low and Steady
There are no imports or exports in this industry.
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Business Locations
Business Concentration in the United States
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0 3 6 9
Percentage of Establishments (%)
Commercial Banking in the US Source: IBISWorld
The geographic spread of commercial banking establishments across the United States is vast. Unlike many other industries, there is no single state that holds a large market share of establishments. The location trend of the industry closely follows population since banking is still predominantly done at the bank as opposed to online. However, as online banking becomes more popular, the geographic location of banks will become less important.
Southeast
In terms of geographic spread by region, the Southeast has the largest proportion of establishments, estimated at 28.4% in 2020. This region includes some major economic states, such as Florida (6.1% of establishments), North Carolina (3.3%) and Georgia (3.1%). Comprising 12 states, the Southeast is the largest region by size and population, which somewhat reflects the number of establishments there.
Great Lakes
This region is expected to account for 16.1% of the industry establishments in 2020, which is slightly higher than the 14.4% of the population held by this region.
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However, this region includes Illinois, which is home to Chicago, arguably the second-largest financial hub in the United States. Illinois is expected to account for 4.8% of industry establishments. Furthermore, this area is characterized by several small regional banks that serve local communities, which also increases the proportion of establishments held by this region.
Mid-Atlantic
Although the Mid-Atlantic region is estimated to hold the third-largest percentage of establishments at 14.5%. The Mid-Atlantic region holds the largest financial state, New York, which is expected to be home to 5.4% of the total industry establishments in 2020. As the New York region headquarters the majority of the largest banking institutions, the subprime mortgage crisis severely affected this region. Many employees lost jobs in this region because large financial corporations cut costs to maintain their bottom lines. Despite this trend, the region continues to generate the greatest amount of income and will remain the financial hub of the United States into the future.
Other major commercial banking areas throughout the United States include the West region (comprising 13.0% of establishments), with California accounting for an estimated 8.8% of total establishments in 2020.
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Competitive Landscape Market Share Concentration
Concentration in this industry is Low
The subprime mortgage crisis has caused large-scale merger and acquisition activity in the banking sector. Within the commercial banking sector, four out of the top five commercial banks have either merged or acquired banks struggling with losses associated with the crisis. This activity resulted in an increase in market share concentration within the industry prior to the period. Over the five years to 2020, while consolidation in the Commercial Banking industry has continued, it has mostly been between mid-sized operators looking to spread increased operational expenses from increased regulation across their business. As a result, the top four operators, who's operations are already vast in size, did not partake in massive mergers and acquisitions during the period. Ultimately, market share concentration amongst the four largest operators slightly decreased over the five years to 2020, as the lack of revenue growth from acquisitions led the four largest operators to grow at a slower pace than the industry as a whole. In 2020, the four largest operators are expected to account for 27.4% of industry revenue, corresponding to a low level of market share concentration.
Furthermore, over the five years to 2025, market share concentration in the industry is expected to remain low. The four largest operators in the industry are not expected to make major pushes to increase their market share concentration though mergers, but rather try to organically grow their already mature commercial banking business organically. Concentration amongst mid-sized operators is expected to continue during this period, as long as regulatory expenses from Dodd- Frank remain in place.
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Key Success Factors
IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
Having a good reputation: A company's reputation is crucial to attracting new customers and retaining existing customers. Also, the effects of the recession have made a company's
reputation even more important.
Membership of joint marketing/distribution operations: Revenue models for commercial banks are based on selling a multitude of bank products to customers.
Superior financial management and debt management: Commercial banks need good processes for managing interest rates, foreign exchanges and operational risks because
they must maintain a rigorous and conservative risk-management approach. Customer
perception of credit worthiness is also important.
Ability to raise revenue from additional sources: Commercial banks need to be able to cope with slower lending growth by increasing noninterest income. Banks may need to
make an aggressive push to nontraditional products by providing other financial services.
Economies of scale: Reducing unit cost is a key driver of profitability. This has increased as more banks reach economies of scale through increased merger and acquisition activity.
Easy access for clients: Having a strong branch presence throughout the United States makes it easier and more appealing for customers to conduct business with a particular
bank. This creates more opportunities for banks to sell loans and other bank products.
Cost Structure Benchmarks
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Profit
The average industry profit margin, measured as earnings before interest and taxes, is expected to account for 24.3% of revenue in 2020, representing a slight increase from the 22.7% it represented in 2015. While industry revenue has increases steadily in the early portion of the period as a result higher interest rates due to continued rate hikes by the Federal Reserve, industry operators also experienced increased regulatory scrutiny from government agencies as well. The passage of Dodd-Frank has led industry operators to experience increased regulatory expense during the period to fully assure they are in compliance with federal banking laws. These regulatory changes are the somewhat stifled profit margin growth during the period. Over the five years to 2025, profit margins are expected to continue to slightly increase, as industry operators are expected to be better able to manage regulatory expenses, while also benefiting from rate hikes by the Federal Reserve. Overall, industry profit margins are expected to increase from 24.3% of industry revenue in 2020 to 25.2% in 2025.
Wages
Labor costs are another significant expense item for commercial banks. Wages share of industry revenue is estimated to decline from 34.9% of industry revenue in 2015 to 30.9% of industry revenue in 2020. This decline has been a result of industry revenue outpacing wage growth during the period. The profitability of a commercial bank is directly related to the quality of service that their employees deliver to customers. A successful bank or branch requires well-trained, knowledgeable staff that can provide excellent customer service. This need is unlikely to change over the coming years; thus, wages will continue to make up a significant portion of banks' expenses. Despite industry operators continuing to hire highly skilled workers, especially those with technology backgrounds needed to provide mobile banking services, over the five years to 2025, wages share of revenue is expected to decline from 30.9% of industry revenue in 2020 to 29.8% in 2025. This will largely be a result of revenue growth continuing to outpace wage growth during the period.
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Purchases
In order to function on a day-to-day basis, industry operators require administrative and clerical supplies. However, beyond these, few other materials are required to operate a bank. As a result, purchase expenses only account for 1.0% of industry revenue in 2020, similar to what it accounted for in 2015.
Depreciation
Industry operators require very few capital assets in order to conduct operations. As a result of this, depreciation expenses only account for 0.9% of industry revenue in 2020.
Marketing
In order to attract new business, industry operators rely on marketing heavily. Accordingly, marketing expenses account for 1.7% of industry revenue in 2020.
Rent
A key to succeeding in the industry is to have an easily accessible branch network that spans regions heavily populated with customers. With a focus on decreasing the capital intensity of the industry, banks continue to opt for leasing premises rather than owning them outright. Consequently, rent expenses are estimated to only account for 0.9% of industry revenue in 2020.
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Utilities
Similarly, utilities are expected to only account for 0.1% of industry revenue in 2020, as relatively little is required to heat and cool the locations operators conduct business out of.
Other Costs
The other expenses category, the industry's largest cost segment, has risen slightly as a share of revenue over the past five years. This segment, making up 40.2% of the industry revenue in 2020, includes interest expenses, noninterest expenses, loan and lease loss provisions and miscellaneous costs. Miscellaneous expenses make up 1.9% of the industry's cost structure and include general administrative costs, data processing and technology and telecommunication fees. Noninterest expense from deposits is also expected to account for 16.9% of industry revenue in 2020.
Interest expense is expected to account for 21.4% of industry revenue in 2020. Interest expense is determined by the amount, type and maturity of liabilities, market interest-rate conditions and competition in lending markets. For banks, the most significant item contributing to an interest expense is the interest charged on domestic deposits. Banks rely heavily on customer deposits as a means of funding their interest payments to depositors; this reliance has somewhat shielded the industry from the increasing cost of funds through capital
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markets that other financial institutions have encountered. The credit crisis has raised the cost of acquiring funds through securitization and capital markets, causing investors who are reluctant to lend in turbulent times to exit the market. Banks that were active participants in capital markets were also affected by this trend. Other types of funding that incur interest costs are deposits made by foreign investors, federal funds purchased, trading liabilities and subordinated notes and debentures.
Basis of Competition
Competition in this industry is High and Increasing
The Commercial Banking industry is highly competitive.
Generally, the markets this industry serves involve competition with banks, thrifts, credit unions, government agencies, mortgage brokers and other nonbank organizations offering financial services. This industry competes with nonbank organizations, such as brokerage houses and commercial and manufacturing companies that offer financial services to facilitate their customers' purchases. Additionally, these nonbank institutions experience fewer regulatory constraints and, thus, are able to have lower operating costs. Operators in this industry will also compete against banks and thrifts owned by nonregulated diversified corporations and other entities that offer financial services through alternative delivery channels, such as the internet. Competition is based on customer service, interest rates on loans and deposits, quality and variety of products and services, lending limits and customer convenience (e.g. locations of branches). Despite the large decline in the number of commercial banks and the explosion in the number of ATMs, growth in the number of banking offices has continued, highlighting the need for convenient locations for customers. Transaction execution, innovation, technology, reputation and price are also factors on which operators compete in this industry.
Competitive conditions are likely to continue to intensify as merger activity in the financial services industry produces larger, better-capitalized and more geographically diverse companies capable of offering a wider array of financial products and services at more competitive prices. Competition for retail deposits is also expected to intensify as banks seek to reduce their reliance on wholesale markets for funding. There are also new entrants joining in the competition. In 2008,
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both Goldman Sachs and Morgan Stanley converted from investment bank status into bank holding companies to increase their access to retail deposits. Additionally, as technology continues to progress, the importance of a depository institution and a financial intermediary for transferring funds may diminish.
Barriers to Entry Barriers to entry in this industry are Medium and Steady
An organization must receive prior approval from the Board of Governors of the Federal Reserve System to operate as a commercial bank in the United States. It is then subject to the supervision of and regular inspections by the Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and other federal and state regulatory agencies. Banks are restricted in their range of activities, including in acquisitions of other banks and in interstate banking activities. Furthermore, commercial banks are subject to capital and operational requirements based on risk and leverage.
Another barrier to entry is industry competition, which may deter new operators from entering. Large operators, such as Bank of America, Wells Fargo, JPMorgan Chase and Citigroup, are major players in the commercial banking industry; therefore, these companies have an increased advantage to secure customers. Major companies have many locations throughout the United States and offer a wide range of services, making it difficult for new entrants to compete. However, as technology continues to advance, the geographic location of operators will matter less to consumers.
Barriers to entry checklist Competition High
Concentration Low
Life Cycle Stage Mature
Technology Change Medium
Regulation & Policy Heavy
Industry Assistance High
Industry Globalization
Globalization in this industry Low and Increasing
Commercial bank operations are predominantly focused in the United States, but banking is increasingly becoming global in nature. The deregulation of financial markets in a rising number of countries has facilitated this shift. Furthermore, to make it easier for international banking organizations to gain access to a specific country's banking market, the industry has started unifying regulation. International capital standards, outlined in the Basel II Capital Accord, imply that very little adjustment to a bank's operational and capital standard is required to enter banking markets of participating countries. All of the industry's largest players have global operations and have offices set up in many countries.
The subprime mortgage crisis caused several banks to reduce their level of participation in foreign markets, concentrating instead on their domestic operations and on regaining capital strength. According to the International Monetary Fund, cross-border assets, which are held on banks' balance sheets as a proportion of total assets, fell in 2008, as cross-border lending declined at a faster rate than
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overall credit. This situation will likely reverse as the Commercial Banking industry recovers and banks continue expanding into foreign markets.
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Major Companies
Major Players JPMORGAN CHASE & CO.
Market Share: 9.2%
JPMorgan Chase & Co. (JPMorgan) is one of the largest financial institutions in the world and the largest bank in the United States, with $2.7 trillion in assets. JPMorgan's activities are organized into four business segments: consumer and community banking; corporate and investment banking; commercial banking; and asset management. The company conducts industry-relevant operations through its community banking and commercial banking segments. Commercial banking is a small but strong component of JPMorgan's business, with more than $220.5 billion in assets. This division provides a range of services to corporations, government agencies, nonprofits and other financial institutions. In the consumer and community banking segment, the company's card services operation is one of the largest in the nation, with $168.9 billion in loans. In total, the company operates in the United States with about 5,000 branches and an estimated 16,850 ATMs. JPMorgan generated total sales of $115.6 billion in 2019 from this wide range of products and services.
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As a result of its strong financial position, JPMorgan was one of the first financial institutions able to repay its $25.0 billion in Troubled Asset Relief Program funds after the recession. On September 25, 2008, JPMorgan acquired Washington Mutual (WaMu) for $1.9 billion from the Federal Deposit Insurance Corp. The WaMu acquisition gave JPMorgan its first significant presence in the West, which is expected to help boost revenue in the future. Beyond this transaction, the company has not made any sizable acquisitions in recent years.
Financial performance
Over the five years to 2020, JPMorgan's industry-specific revenue is anticipated to increase at an annualized rate of 4.3% to $62.6 billion. The bank endured its fair share of challenges early in the five-year period, posting year-over-year declines in revenue in 2014 and 2015. Nevertheless, the company's industry-specific revenue returned to growth in 2016, increasing 3.2%. In each subsequent year through 2019, the company has experienced industry revenue growth as a result of higher interest income stemming from higher interest rates. However, lower interest income as a result of the Federal Reverse lowering rates and increased loss reserves are expected to lead to lower industry-relevant revenue and profitability in 2020.
JPMorgan Chase & Co. (US industry-specific segment) - financial performance* Year Revenue Growth Operating Income Growth
($m) (% change) ($m) (% change) 2015 50705.0 N/C 22915.0 N/C 2016 52350.0 3.2 24529.0 7.0 2017 55090.0 5.2 25701.0 4.8 2018 61138.0 11.0 29917.0 16.4 2019 64867.0 6.1 32471.0 8.5
2020* 62607.3 -3.5 29242.2 -9.9 Source: Annual report and IBISWorld Note: *Estimates
WELLS FARGO & COMPANY
Market Share: 8.7%
Headquartered in San Francisco, Wells Fargo & Company (Wells Fargo) is a diversified financial services company that provides banking, insurance, investment, mortgage and consumer finance services. The company separates its businesses into three main segments: community banking; wholesale banking; and wealth, brokerage and retirement. Wells Fargo has an estimated 5,400 retail branches, 13,000 ATMs and over 250,000 employees and serves more than 70.0 million customers. In 2019, the company generated $85.1 billion in sales globally.
Community banking is the company's largest business segment, generating slightly more than 50.0% of company revenue. It serves small-business clients, retail customers and high-net-worth individuals. The company's community banking
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segment provides a range of products, from home mortgages and debit cards to personal trusts. Commercial banking activities for wholesale banking are also included in Wells Fargo's industry-specific revenue.
As with many of the other major players, Wells Fargo's revenue growth has been bolstered by acquisitions. In 2008, Wells Fargo acquired Wachovia and, as a result, became the nation's largest mortgage lender and the second-largest diversified services company in terms of deposits in the United States.
In 2016, an account fraud scandal negatively affected Wells Fargo; between 2011 and 2016, the bank opened more than 3.0 million checking and savings accounts and more than 500,000 credit cards in clients' names without their consent. As a result, the company has been forced to pay an estimated $185.0 million in fines and will contend with multiple civil and criminal suits over the coming years. In 2017, the bank admitted that it charged more than 100,000 customers additional mortgage fees that were not warranted. The following year, Wells Fargo admitted it also charged over customers that they provided an auto loan to with additional car insurance that they did not consent to, which ultimately led some of the customers to have their vehicles foreclosed on. While fees from these scandals will only amount to a small portion of the company's total revenue, the scandals have more meaningfully hurt consumers' confidence in the bank and could have negative effects on future client retention and business generation.
Financial performance
Over the five years to 2020, Wells Fargo's industry-specific revenue is expected to decrease at an annualized rate of 4.7% to $59.3 billion. A considerable part of the company's decline in industry-relevant revenue is due to declining net interest income during the period. IBISWorld estimates that Wells Fargo's pretax income has declined at an annualized rate of 12.0% over the past five years, likely as a result of regulatory fines and expenses incurred from its recent scandal, coupled with lower net interest margins. Over the five years to 2025, Wells Fargo will be in a good position to pick up market share as a result of the scalability of its operations, especially as more commercial banking services are provided digitally.
Wells Fargo & Company (US industry-specific segment) - financial performance* Year Revenue Growth Operating Income Growth
($m) (% change) ($m) (% change) 2015 75245.0 N/C 31694.0 N/C 2016 77560.0 3.1 30240.0 -4.6 2017 77018.0 -0.7 25243.0 -16.5 2018 75619.0 -1.8 27246.0 7.9 2019 72993.0 -3.5 22248.0 -18.3
2020* 59262.1 -18.8 16715.9 -24.9 Source: Annual report and IBISWorld Note: *Estimates
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BANK OF AMERICA CORPORATION
Market Share: 6.4%
Bank of America Corporation (BofA), headquartered in Charlotte, NC, is the second- largest holding-backed company in terms of revenue. After a 2009 reorganization following its merger with Merrill Lynch, the company now operates through five business segments: consumer and business banking; consumer real estate services; global banking; global markets; and global wealth and investment management. The company's retail banking operations count 66.0 million customers across all 50 states, with an estimated 4,300 banking centers, 16,900 ATMs and 208,00 employees. In 2019, the company generated $91.2 billion in total revenue globally.
BofA conducts commercial and retail banking activities primarily through its consumer and business banking segment and its consumer real estate services segment. Estimates also include corporate lending through its global banking division. Deposit products include traditional savings accounts, money market savings accounts, certificates of deposit and individual retirement accounts, checking accounts and debit cards. Deposits provide a stable source of funding and liquidity. The company earns net interest revenue from investing this liability in interest-earning assets. The bank also generates revenue through various account fees, such as insufficient fund fees, overdraft charges, account service fees and interchange fees from debit cards. Loan payments from businesses, credit cards and home loans make up the largest share of commercial banking revenue.
Financial performance
Over the five years to 2020, BofA's industry-specific revenue is expected to increase an annualized 2.8% to $43.8 billion. Industry-relevant revenue growth has been aided during the period by growing total deposits, which allows the bank to make more loans that generate interest income for the company. Overall, as the economy continued to grow, residential mortgages originated by the company in 2018 increased 2.3%, helping industry revenue increase 7.3% in that year alone (latest data available). While the company benefitted from rising interest rates for the majority of the period, industry-relevant profitability is expected to decline over the five years to 2020 as a result of increased losses incurred in 2020 as a result of the coronavirus.
Bank of America Corporation (US industry-specific segment) - financial performance*
Year Revenue Growth Operating Income Growth ($m) (% change) ($m) (% change)
2015 38126.0 N/C 10609.0 N/C 2016 38588.0 1.2 11362.0 7.1 2017 41818.0 8.4 13209.0 16.3 2018 45294.0 8.3 16282.0 23.3 2019 46218.0 2.0 17197.0 5.6
2020* 43804.4 -5.2 9522.3 -44.6 Source: Annual report and IBISWorld
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Note: *Estimates
Other Players CITIGROUP INC.
Citigroup Inc. (Citigroup) has the world's largest financial services network. Based on deposits, Citibank is the fourth-largest retail bank in the United States. Citigroup operates four business segments: global consumer banking, institutional clients group, corporate and Citi Holdings. The global consumer banking segment is most relevant to this industry and includes the retail bank of Citigroup's global branch network, branded Citibank. Additionally, revenue from local consumer lending under the Citi Holdings segment is relevant to this industry. As of December 2018, the company employed 200,000 workers that helped it generate $74.3 billion in sales globally.
The company incurred huge losses during the economic crisis and was rescued by a massive US government bailout in 2008. Since the government took an ownership stake in the company, it demanded that Citigroup downsize. As a result, the company reorganized its primary banking businesses into Citicorp, while the rest of its businesses were placed in Citi Holdings, which will be sold in the future. Citigroup's downfall was due to its enormous exposure to collateralized debt obligations. The company used risk models to examine mortgages in particular areas; however, it never included the possibility of a national housing downturn. In 2020, the company is expected to generate $21.3 billion in industry-specific revenue.
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Operating Conditions
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Capital Intensity The level of capital intensity is Low
The Commercial Banking industry is highly competitive, requiring banks to continually achieve cost savings and other efficiencies to maintain customer satisfaction and retain their business. This requires investment in an extensive branch and ATM network to have a presence in regions that are conveniently located near a bank's customer base.
Beyond this, banks must invest heavily in technology and communication infrastructure, which is necessary to remain competitive in today's dynamic environment. These and other investments impose capital investment requirements on banks, which are represented by depreciation. The Commercial Banking industry is expected spend $0.03 on capital for every dollar spent on labor in 2020, the same amount it accounted for in 2015.
In an attempt to reduce capital intensity, banks have opted to rent and lease premises as opposed to owning them outright. This trend has caused some institutions to sell property where branches were located and to rent new locations. As a result, the Commercial Banking industry in the United States has a moderate level of capital intensity.
Labor continues to be the biggest investment that banks have to make due to the heavy reliance on human capital in the industry's activities. The provision of banking services requires staff that are well educated, professional and able to deliver services to clients in a satisfactory manner. The investment in branch networks is further driving up the investment in labor. With each additional branch, banks must hire employees to serve the customers that they acquire and retain.
Technology And Systems
Potential Disruptive Innovation: Factors Driving Threat of Change
Level Factor Disruption Description
High Innovation Concentration
Likely
A measure for the mix of patent classes assigned to the industry. A greater concentration of patents in one area increases the likelihood of technological disruption of incumbent operators.
High Market Concentration
Likely
A ranked measure of the largest core market for the industry. Concentrated core markets present a low-end market or new market entry point for disruptive technologies to capture market share.
Moderate Ease of Entry Potential A qualitative measure of barriers to entry.Fewer barriers to entry increases the
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Level Factor Disruption Description
likelihood that new entrants can disrupt incumbents by putting new technologies to use.
Very Low Rate of Innovation
Very Unlikely
A ranked measure for the number of patents assigned to an industry. A faster rate of new patent additions to the industry increases the likelihood of a disruptive innovation occurring.
Very Low Rate of Entry Very Unlikely
Annualized growth in the number of enterprises in the industry, ranked against all other industries. A greater intensity of companies entering an industry increases the pool of potential disruptors.
The rate of new patent technologies entering the industry is low, which limits the potential for innovations. A low rate does not mean that innovations cannot occur, just that the likelihood of some innovation materializing as a threat is lower. However, the concentration of technologies is high in this industry. This suggests that industry operators have exposure to potentially unforeseen areas of innovation.
Industry operators are exposed to a low rate of new entrants and a moderate level of entry barriers. This combination of factors creates an environment where entry trends are not a key threat of disruption.
The major markets for this industry are highly concentrated, which implies that the market has a focus on key customer segments. This presents an opportunity for strategic entrance into lower-end markets or unserved markets for innovations to take on a disruptive trajectory.
There has been little technological disruption in the Commercial Banking industry.
This biggest disruption of late has been the from Social Finance Inc., which provides banking services solely through the company's website and mobile app. Aside from this company, the overwhelming majority of commercial banking services are still provided in brick-and-mortar locations. This severely limits the level of disruption technology can cause in the industry.
The level of technology change is Medium
Commercial banks operate in an increasingly competitive environment as merger and acquisition (M&A) activity continues to define the industry.
M&A activity produces larger, better-capitalized companies capable of offering a wider array of financial products and services at more competitive prices. The technological advances and the growth of e-commerce have made it possible for many nondepository institutions to offer products and services that were traditionally banking products. Financial institutions are also competing with
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technology companies in providing electronic and internet-based financial solutions.
In addition, technology has significantly changed the Commercial Banking industry by lowering the cost of storing, processing and accessing data through the growth of low-cost communications equipment. Technology will continue to contribute to significant changes in retail payments systems and financial services distribution channels, bank risk management and data assessment.
More than ever, banks are being forced to develop new technology to retain and persuade customers to continue to use their services. Over the past two years, banks have been focusing on improving the ease and timeliness of banking procedures through the development of banking apps for smartphones. In 2011, JPMorgan introduced QuickDeposit and QuickPay, which enable their customers to cash checks and transfer funds between unaffiliated accounts on their smartphones. The technology greatly reduces JPMorgan's day-to-day operating costs, thus increasing profit. Notably, banks like JPMorgan do not profit directly off these activities, but rather indirectly through strategically assessed account fees. Major players Bank of America and Wells Fargo also offer mobile banking applications that enable customers to conduct all of their banking needs, most notably bill payments. Mobile banking effectively decreases operating costs while replacing revenue from the check cashing and money transmission segments of this industry.
Since the increasing need for technological empowerment and continuous improvement of equipment, new pricing structures and distribution channels have emerged. It is expected that these developments will encourage customers to adapt to these new, low-cost distribution channels instead of more costly alternatives. Access to the internet, restricted internal intranets and the increasingly secure transmission of information is expected to accelerate the use of networks as a means to reduce costs.
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Revenue Volatility The level of volatility is Medium
Note: Revenue growth and decline reflective of 5-year annualized trend. Y-axis is in logarithmic scale. Y-axis crosses at long-run GDP. X-axis crosses at high volatility threshold.
IBISWorld estimates that industry revenue has exhibited a moderate level of volatility over the five years to 2020.
Volatility primarily depends on any aggregate changes in the origination of customer and business loans and the spread between interest rates offered to consumers and garnered by these loan products. The current level of revenue volatility is in-line with the industry's historic norms. The majority of revenue volatility occurred in the latter portion of the period as a result of the Federal Reserve lowering rates and the economic slowdown caused by the spread of the coronavirus. Over the five years to 2025, industry revenue volatility is expected to slightly decrease as interest rates rise at a slower pace. Industry operators are expected to see stable revenue growth in line with the Federal Reserve's gradual process of interest rate increases as economic conditions improve during the period.
Regulation & Policy
The level of regulation is Heavy and is Increasing
Federal Reserve System
The Federal Reserve is the federal supervisor and regulator for all US banks and bank holding companies, including financial holding companies formed under the authority of the Gramm-Leach-Bliley Act of 1999 and of state-chartered commercial banks that are members of the Federal Reserve System.
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In overseeing these organizations, the Federal Reserve seeks to promote the organizations' sound operation and compliance with laws and regulations.
The Federal Reserve exercises important regulatory influence over entry into the US banking system and the structure of the system through its administration of the Bank Holding Company Act, the Bank Merger Act (with regard to state member banks), the Change in Bank Control Act (with regard to bank holding companies and state member banks) and the International Banking Act. In carrying out its responsibilities, the Federal Reserve coordinates its supervisory activities with other federal banking agencies, state agencies, functional regulators and the bank regulatory agencies of other nations.
Bank Holding Company Act
Under the Bank Holding Company Act, a corporation or similar organization must obtain the Federal Reserve's approval before forming a bank holding company through the acquisition of one or more banks in the United States.
Once formed, a bank holding company must receive approval from the Federal Reserve before acquiring or establishing additional banks. Bank holding companies generally only engage in activities that the Board of Governors of the Federal Reserve System has determined to be closely related to banking. Since 1996, this act has provided an expedited prior notice procedure for certain permissible nonbanking activities and for acquisitions of small banks and nonbank entities.
Bank Merger Act
The Bank Merger Act requires that the appropriate federal banking agency acts on all proposals involving the merger of insured depository.
If the surviving bank is a state member bank, the Federal Reserve has primary jurisdiction. Before acting on a merger proposal, the Federal Reserve considers: financial and managerial resources of the applicant; the future prospects of the existing and combined institutions; the convenience and need of the community to be served; and the competitive effects of the proposed merger.
Change in Bank Control Act
The Change in Bank Control Act requires individuals seeking control of a US bank or bank holding company to obtain approval from the appropriate federal banking agency before completing the transaction.
The Federal Reserve is responsible for reviewing changes in the control of state member banks and bank holding companies. In its review, the Federal Reserve considers: the financial position, competence, experience and integrity of the acquiring party; the effect of the proposed change on the financial condition of the bank or bank holding company being acquired; the effect of the proposed change on competition in any relevant market; the completeness of information submitted
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by the acquiring person; and whether the proposed change would have an adverse effect on the federal deposit insurance funds.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
Signed into law in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) implements financial regulatory reform upon nearly every aspect of the financial services industry.
Once the act was passed, the Financial Stability Oversight Council was created to oversee and coordinate the efforts of the primary US financial regulatory agencies in establishing regulations to address financial stability concerns. Of specific importance to the Commercial Banking industry, Dodd-Frank included the Consumer Financial Protection Act of 2010, which targets banks, card issuers and card network operators with new, increased regulations. These regulations focus mainly on enforcing consumer rights and increasing the security of financial information. As a result, industry participants are forced to develop and implement new technologies that adhere to the regulations, which, in turn, increase costs. To keep up with an ever-changing complex set of compliance issues, many companies had to increase their workforces.
Overall, these regulations decrease profit as they increase compliance costs. Dodd- Frank also gave the Federal Deposit Insurance Corporation greater discretion to manage the Deposit Insurance Fund, which backs commercial banks' deposits. The legislation raised the minimum reserve ratio required for a commercial bank to 1.35%. Additionally, Dodd-Frank increases transparency and puts limits on proprietary trading, which hurts both profit and revenue for the industry.
Dodd-Frank regulations have a potential of being rolled back significantly for smaller banks over the coming year. If Bill S.2155 is passed, many smaller banks and credit unions will experience a much lower level of regulatory scrutiny, leading to increased revenue and profitability.
Industry Assistance
The level of industry assistance is High and is Decreasing
The Commercial Banking industry does not receive any protection by way of direct or indirect tariffs.
However, given the instability that the global financial crisis brought upon the financial sector in the United States, the government has stepped in to stabilize conditions through the introduction of the Troubled Asset Relief Program (TARP). TARP enables the US Treasury Department to purchase assets and equity from those financial institutions deemed too important to fail to strengthen the financial sector; it permits the purchase of up to $475.0 billion of troubled assets. The Treasury was given $250.0 billion immediately following the creation of the fund as the Emergency Economic Stabilization Act of 2008. An additional $100.0 billion was
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distributed later, followed by a final distribution of $125.0 billion at Congress' discretion.
Under TARP, the Treasury is permitted to purchase illiquid, difficult-to-value assets from banks and other financial institutions. The Treasury purchased assets, which included collateralized debt obligations sold in the booming market prior to the subprime mortgage crisis, obligations that resulted in widespread foreclosures on the underlying loans. By buying these troubled assets, TARP is intended to improve the liquidity of these assets to enable participating companies to stabilize their balance sheets, strengthen their capital and avoid further losses. Ultimately, TARP was established to stabilize the financial sector and free up capital markets by encouraging banks to resume their lending activity to levels seen before the financial crisis, both to each other and to consumers and businesses. Bank of America and Citibank received $45.0 billion in TARP support, while Wells Fargo and JP Morgan Chase received $25.0 billion.
Furthermore, the institutions that opted to receive government assistance under TARP are required to issue equity warrants or equity debt securities to the Treasury as consideration for the arrangement, a practice beneficial for both taxpayers and institutions. The Treasury's ownership stakes enable it to profit from the company regaining financial strength when it sells its equity in the company. The financial institutions benefit from the financial support provided because it gives them the capital strength to improve their balance sheets and return to profitability.
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Key Statistics Industry Data
Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic Demand
Prime Rate
($m) ($m) (Units) (Units) (People) ($m) ($m) ($m) ($m) (%) 2011 617,563 299,061 82,651 6,268 1,936,841 N/A N/A 191,335 N/A 3.30 2012 587,166 316,682 83,060 6,077 1,946,067 N/A N/A 197,790 N/A 3.30 2013 563,877 323,608 82,252 5,840 1,909,864 N/A N/A 196,618 N/A 3.30 2014 556,437 318,188 81,542 5,599 1,896,114 N/A N/A 195,584 N/A 3.30 2015 564,611 330,693 81,124 5,339 1,891,107 N/A N/A 197,292 N/A 3.30 2016 600,846 341,113 79,691 5,106 1,910,155 N/A N/A 201,553 N/A 3.50 2017 653,249 346,291 78,418 4,910 1,937,578 N/A N/A 208,773 N/A 4.10 2018 727,353 405,018 77,647 4,709 1,929,064 N/A N/A 212,023 N/A 4.90 2019 755,944 420,817 77,564 4,686 1,973,947 N/A N/A 217,637 N/A 5.30 2020 681,601 382,072 75,436 4,553 1,915,132 N/A N/A 210,406 N/A 4.40 2021 697,329 390,619 75,008 4,514 1,939,677 N/A N/A 213,534 N/A 4.60 2022 741,406 414,936 75,180 4,509 2,015,440 N/A N/A 222,906 N/A 5.10 2023 747,927 418,459 74,734 4,475 2,027,450 N/A N/A 224,361 N/A 5.10 2024 755,133 422,409 74,403 4,449 2,040,924 N/A N/A 225,986 N/A 5.10 2025 763,013 426,563 74,139 4,428 2,055,379 N/A N/A 227,738 N/A 5.10
Annual Change Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic
Demand Prime Rate
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%) 2011 -7.52 12.1 1 -4 2 N/A N/A 3.03 N/A 0.00 2012 -4.93 5.89 0 -3 0 N/A N/A 3.37 N/A 0.00 2013 -3.97 2.18 -1 -4 -2 N/A N/A -0.60 N/A 0.00 2014 -1.32 -1.68 -1 -4 -1 N/A N/A -0.53 N/A 0.00 2015 1.46 3.92 -1 -5 -0 N/A N/A 0.87 N/A 0.00 2016 6.41 3.15 -2 -4 1 N/A N/A 2.15 N/A 6.06 2017 8.72 1.51 -2 -4 1 N/A N/A 3.58 N/A 17.1 2018 11.3 17.0 -1 -4 -0 N/A N/A 1.55 N/A 19.5 2019 3.93 3.90 -0 -0 2 N/A N/A 2.64 N/A 8.16 2020 -9.84 -9.21 -3 -3 -3 N/A N/A -3.33 N/A -17.0 2021 2.30 2.23 -1 -1 1 N/A N/A 1.48 N/A 4.54 2022 6.32 6.22 0 -0 4 N/A N/A 4.38 N/A 10.9 2023 0.87 0.84 -1 -1 1 N/A N/A 0.65 N/A 0.00 2024 0.96 0.94 -0 -1 1 N/A N/A 0.72 N/A 0.00 2025 1.04 0.98 -0 -0 1 N/A N/A 0.77 N/A 0.00
Key Ratios Year IVA/Revenue Imports/Demand Exports/Revenue Revenue per
Employee Wages/Revenue Employees per
estab. Average Wage
(%) (%) (%) ($'000) (%) 2011 48.4 N/A N/A 319 31.0 23.4 98,787 2012 53.9 N/A N/A 302 33.7 23.4 101,636 2013 57.4 N/A N/A 295 34.9 23.2 102,949 2014 57.2 N/A N/A 293 35.1 23.3 103,150 2015 58.6 N/A N/A 299 34.9 23.3 104,326 2016 56.8 N/A N/A 315 33.5 24.0 105,517 2017 53.0 N/A N/A 337 32.0 24.7 107,750 2018 55.7 N/A N/A 377 29.1 24.8 109,910 2019 55.7 N/A N/A 383 28.8 25.4 110,255 2020 56.1 N/A N/A 356 30.9 25.4 109,865 2021 56.0 N/A N/A 360 30.6 25.9 110,087 2022 56.0 N/A N/A 368 30.1 26.8 110,599 2023 55.9 N/A N/A 369 30.0 27.1 110,661 2024 55.9 N/A N/A 370 29.9 27.4 110,727 2025 55.9 N/A N/A 371 29.8 27.7 110,801
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Industry Financial Ratios April 2018 - March 2019 by company revenue Liquidity Ratios April 2015 -
March 2016 April 2016 - March 2017
April 2017 - March 2018
April 2018 - March 2019
Small (< $10m)
Medium ($10m-50m)
Large (> $50m)
Current Ratio 1.3 1.4 1.4 1.4 1.7 1.2 1.1 Quick Ratio 1.2 1.2 1.1 1.1 1.4 0.6 0.4 Sales / Receivables (Trade Receivables Turnover) 8.9 8.4 12.8 16.8 17.4 15.8 18.0 Days' Receivables 41.0 43.5 28.5 Cost of Sales / Inventory (Inventory Turnover) Days' Inventory Cost of Sales / Payables (Payables Turnover) Days' Payables Sales / Working Capital 2.4 2.5 2.4 2.8 1.4 3.6 8.4
Coverage Ratios Earnings Before Interest & Taxes (EBIT) / Interest 3.7 3.5 3.2 2.3 3.2 1.8 1.7 Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt
5.6 3.4 4.6 2.9 3.7 2.9 1.7
Leverage Ratios Fixed Assets / Net Worth 0.0 0.0 0.0 0.0 0.0 0.0 0.1 Debt / Net Worth 3.3 3.1 2.8 3.0 1.9 3.8 5.2 Tangible Net Worth 27.9 29.4 29.4 31.0 36.1 26.9 18.0
Operating Ratios Profit before Taxes / Net Worth, % 21.0 20.7 14.6 11.5 13.0 10.0 11.2 Profit before Taxes / Total Assets, % 4.7 5.1 3.8 3.1 3.5 2.4 2.8 Sales / Net Fixed Assets 57.2 69.8 64.5 65.6 99.8 53.0 44.3 Sales / Total Assets (Asset Turnover) 0.4 0.4 0.3 0.4 0.3 0.5 0.7
Cash Flow & Debt Service Ratios (% of sales) Cash from Trading Cash after Operations 16.0 18.0 18.9 17.1 24.4 13.2 13.6 Net Cash after Operations 13.9 17.7 17.9 16.8 23.6 12.7 13.6 Cash after Debt Amortization -0.2 2.8 0.4 0.1 0.0 -1.3 4.3 Debt Service P&I Coverage 1.1 1.9 1.7 1.6 1.5 1.2 3.8 Interest Coverage (Operating Cash) 1.8 2.9 2.4 2.3 2.2 2.0 4.6
Assets, % Cash & Equivalents 14.9 14.9 14.2 16.9 20.1 12.7 13.9 Trade Receivables (net) 37.1 36.6 33.4 29.7 31.4 28.4 25.1 Inventory 13.1 13.1 14.1 14.0 7.8 21.0 23.2 All Other Current Assets 10.5 11.6 12.0 13.1 10.6 15.9 17.1 Total Current Assets 75.6 76.1 73.7 73.7 69.9 77.9 79.3 Fixed Assets (net) 6.4 6.1 6.4 6.6 8.4 4.7 3.4 Intangibles (net) 2.3 2.6 2.7 2.9 2.8 1.8 7.1 All Other Non-Current Assets 15.7 15.2 17.2 16.8 18.9 15.6 10.2 Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total Assets ($m) 58,190.6 56,133.3 51,806.7 52,661.5 10,926.0 25,859.4 15,876.2
Liabilities, % Notes Payable-Short Term 35.9 35.4 36.0 32.6 26.7 39.8 39.7 Current Maturities L/T/D 2.5 2.5 2.3 2.2 1.9 2.5 3.2 Trade Payables 4.3 3.9 3.7 5.1 3.2 6.1 11.7 Income Taxes Payable 0.2 0.2 0.1 0.1 0.1 0.1 0.1 All Other Current Liabilities 8.1 8.5 8.3 8.5 7.7 9.0 11.0 Total Current Liabilities 51.1 50.4 50.4 48.6 39.6 57.4 65.8 Long Term Debt 12.6 11.0 12.0 12.7 15.6 10.0 6.2 Deferred Taxes 0.2 0.2 0.1 0.1 0.0 0.1 0.3 All Other Non-Current Liabilities 5.9 6.4 5.3 4.8 5.8 3.8 2.6 Net Worth 30.2 32.0 32.1 33.9 38.9 28.7 25.1 Total Liabilities & Net Worth ($m) 58,190.6 56,133.3 51,806.7 52,661.5 10,926.0 25,859.4 15,876.2
Maximum No. of Statements Used 1,286.0 1,196.0 1,042.0 1,095.0 598.0 382.0 115.0
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institution's borrowers and prospects.
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Additional Resources Additional Resources
US Federal Deposit Insurance Corporation http://www.fdic.gov
US Securities and Exchange Commission http://www.sec.gov
Office of the Comptroller of the Currency http://www.occ.treas.gov
Industry Jargon GENERATION Y The demographic of Americans generally aged 10 to 30.
LOAN AND LEASE LOSS PROVISION An amount set aside as an allowance for bad debts (i.e. debts where the customer defaults
or where the terms of the loan need to be renegotiated).
LOAN DEFAULT When a customer fails to pay back money received through a loan to the bank.
SUBPRIME MORTGAGE A type of mortgage made out to borrowers with lower credit ratings. Lending institutions
often charge higher interest on subprime mortgages to compensate themselves for carrying
more risk.
WARRANT A type of security that entitles the holder to purchase stock in the issuing company at a
specified price.
WRITE-DOWN A deliberate reduction in the value of an asset to reflect its current market value.
Glossary Terms BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an industry.
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CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with
that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital
intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is
$0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of
labor.
CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation
using the current year (i.e. year published) as the base year. This removes the impact of
changes in the purchasing power of the dollar, leaving only the "real" growth or decline in
industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US
Bureau of Economic Analysis’ implicit GDP price deflator.
DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their
country of origin. It is derived by adding imports to industry revenue, and then subtracting
exports.
EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working
proprietors, partners, managers and executives within the industry.
ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise
consists of one or more establishments that are under common ownership or control.
ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single
physical location where business is conducted or where services or industrial operations are
performed. Multiple establishments under common control make up an enterprise.
EXPORTS Total value of industry goods and services sold by US companies to customers abroad.
IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in
the United States.
INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is
considered high if the top players account for more than 70% of industry revenue. Medium
is 40% to 70% of industry revenue. Low is less than 40%.
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INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside the firm (such as commission
income, repair and service income, and rent, leasing and hiring income); and capital work
done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods
and services used in production. IVA is also described as the industry's contribution to GDP,
or profit plus wages and depreciation.
INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to
domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high
is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%,
and high is more than 35%.
LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an
industry's life cycle by considering its growth rate (measured by IVA) compared with GDP;
the growth rate of the number of establishments; the amount of change the industry's
products are undergoing; the rate of technological change; and the level of customer
acceptance of industry products and services.
NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are
mostly set up by self-employed individuals.
PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s
profitability. It is calculated as revenue minus expenses, excluding interest and tax.
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REGIONS West | CA, NV, OR, WA, HI, AK
Great Lakes | OH, IN, IL, WI, MI
Mid-Atlantic | NY, NJ, PA, DE, MD
New England | ME, NH, VT, MA, CT, RI
Plains | MN, IA, MO, KS, NE, SD, ND
Rocky Mountains | CO, UT, WY, ID, MT
Southeast | VA, WV, KY, TN, AR, LA, MS, AL, GA, FL, SC, NC
Southwest | OK, TX, NM, AZ
VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of
the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to
±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.
WAGES The gross total wages and salaries of all employees in the industry.
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- 1 About This Industry
- 1.1 Industry Definition
- 1.2 Major Players
- 1.3 Main Activities
- 1.4 Supply Chain
- 1.5 Similar Industries
- 1.6 Related International Industries
- 2 Industry at a Glance
- 2.1 Executive Summary
- 3 Industry Performance
- 3.1 Key External Drivers
- 3.2 Current Performance
- 4 Industry Outlook
- 4.1 Outlook
- 4.2 Performance Outlook Data
- 4.3 Industry Life Cycle
- 5 Products and Markets
- 5.1 Supply Chain
- 5.2 Products and Services
- 5.3 Demand Determinants
- 5.4 Major Markets
- 5.5 International Trade
- 5.6 Business Locations
- 6 Competitive Landscape
- 6.1 Market Share Concentration
- 6.2 Key Success Factors
- 6.3 Cost Structure Benchmarks
- 6.4 Basis of Competition
- 6.5 Barriers to Entry
- 6.6 Industry Globalization
- 7 Major Companies
- 7.1 Major Players
- 7.2 Other Players
- 8 Operating Conditions
- 8.1 Capital Intensity
- 8.2 Technology And Systems
- 8.3 Revenue Volatility
- 8.4 Regulation & Policy
- 8.5 Industry Assistance
- 9 Key Statistics
- 9.1 Industry Data
- 9.2 Annual Change
- 9.3 Key Ratios
- 9.4 Industry Financial Ratios
- 10 Additional Resources
- 10.1 Additional Resources
- 10.2 Industry Jargon
- 10.3 Glossary Terms
