Fallout from the subprime loan crisis will continue to plague the industry
Los Angeles, CA (PRWEB) August 26, 2012
A decline in deposits and exposure to subprime mortgages have decimated the Savings Banks and Thrifts industry during the past five years. Industry participants, which include savings and loan associations, savings institutions and thrifts, experienced a stagnation in deposits over the period, while commercial bank deposits have grown more than 8.0% annually in comparison. According to IBISWorld industry analyst Eben Jose, “This exodus of deposits from savings institutions to commercial banks has decreased the amount of lendable money to borrowers, impairing industry revenue.”
In the five years to 2012, revenue is expected to fall at an average annual rate of 5.2% to $82.2 billion. “A decline in deposits and the effects of the subprime crisis led to this slowdown,” says Jose. Savings banks have been losing deposits to commercial banks, which has dealt a critical blow to industry operators, since lending out to these deposits at a higher rate drives the majority of revenue. Subprime loan exposure has hammered banks' balance sheets, causing large write-downs and profit losses. From 2011 to 2012, revenue is expected to experience a further decline of 4.1%, after a decrease of 3.7% over 2011.
Consolidation is a major trend that has affected the Savings Banks and Thrifts industry during the past five years and will continue to trouble operators. In 2008, the industry's largest player, Washington Mutual, failed because a lack of consumer confidence led to a 10.0% fall in deposits. This fall in consumer confidence was a result of huge subprime loan losses. Also in 2008, industry players IndyMac and Downey Savings failed, representing the fourth and 13th largest bank failures in US history, respectively. More than 150 banks have failed since 2008, causing the number of firms to drop in 2008 and 2009. This trend is expected to continue as the commercial banking structure absorbs savings banks in the coming years. Industry consolidation will contribute to declining revenue. In the next several years, the industry concentration will continue to decrease as only the strongest firms will survive. Weak banks will either be acquired or be forced to close their door because of a decreasing amount of deposits due to the movement of customers to commercial banks that are viewed as "too big to fail" and offer a greater variety of services. Commercial banks will also be able to use larger revenue per company to enact price cutting measures on a variety of items like ATM and account fees to gain more deposits.
In the five years to 2017, savings institutions will continue to feel the effects of the subprime crisis and lose deposits to commercial banks. Increases in commercial real estate defaults will increase the stress on operators' balance sheets, and the industry will be unable to compete with larger, multifunctional commercial banks. These factors will decrease profit margins and continue to hamper revenue.
For more information, visit IBISWorld’s Savings Banks and Thrifts in the US industry report page.
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IBISWorld industry Report Key Topics
The industry includes companies that accept customer deposits and place them into interest-bearing products like savings accounts and certificates of deposit (CDs). Industry firms then loan these deposits at higher interest rates through consumer and business loans and make profit on the difference. This industry only covers firms governed by the Office of Comptroller of the Currency; commercial banks and credit unions are not included in this industry.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
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