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Christian Hudspeth

The Top 10 Most-Profitable Financial Companies in America

by Christian Hudspeth | Dun & Bradstreet Editor

October 16, 2015 | No Comments »

CoinsBig Money is back. While it was hard to imagine the re-emergence of financial companies during the depths of the Great Recession, the financial services sector is now the second-most-profitable by profit margin in the US (behind only the healthcare technology sector), as Forbes recently reported using research by Factset.

As a whole, companies that make up the financial services sector are forecast to generate profit margins averaging just over 17% in 2015, meaning for every dollar in sales, financial companies will keep 17 cents as profit after all expenses are paid. By comparison, companies in the retail sector will generate razor-thin profit margins of less than 4%, which is the reason that retailers (read Wal-Mart) often rely on higher sales volume to generate more profit.

While Forbes‘ report tells analysts and others following the sector something about the health and efficiency of financial companies overall, I felt it might be even more revealing to take a deeper dive into the sector to see what specific kinds of financial companies are really shining.

Using the Hoover’s Build-A-List tool, I screened through 34,375 US financial companies on the Dun & Bradstreet database to find the ones with the highest profit margins. To narrow down the list to the more matured companies with established business models, I screened down to 319 companies that generated more than $1 billion in profit during 2014 and ranked them by profit margin.

Here’s the list of the top 10 most-profitable financial companies, based on profit margin:

Top 10 Most-Profitable Financial Companies

Financial Company Industry Profit Margin 2014 Profit ($M)
Ford Motor Credit Company Auto Lending 52% 1,705
Visa Financial Transaction Processing 43% 5,438
MasterCard Financial Transaction Processing 38% 3,617
CME Group Securities Brokerages 36% 1,127
CIT Group Lending 31% 1,130
T. Rowe Price Group Mutual Fund Management 31% 1,230
Franklin Resources Mutual Fund Management 28% 2,384
US Bancorp Banks & Credit Unions 27% 5,851
Wells Fargo & Co. Banks & Credit Unions 26% 23,057
PNC Financial Services Banks & Credit Unions 26% 4,207

Source: Hoover’s Build-A-List, Dun & Bradstreet

Given the industry trends, it’s not hard to see why many of these financial companies have been so profitable.

Visa and MasterCard‘s massive profit margins of around 40% — more than twice the sector’s average — weren’t a huge surprise. As I mentioned in a previous post, companies in the financial transaction processing and credit card industries have been booming as more consumers around the world are ditching paper to pay with plastic and mobile phones.

And with naturally high barriers to entry (think you can you start a credit card network and convince millions of retailers to replace their existing Visa and MasterCard networks?), these companies will likely keep generating sky-high profit margins for some time.

T. Rowe Price Group and Franklin Resources can thank the bull market for their strong profitability. Asset management companies like these, which earn most of their revenue from commissions on advisory services or based on the value of customer assets they manage, have been growing fast over the past few years as strong stock market gains have boosted asset valuations and attracted more investor money.

Some who are familiar with the banking industry might be surprised to see three mega-sized banks — US Bancorp, Wells Fargo, and PNC — on this list. After all, the five largest US banks barely grew at all last year as some of them faced tight interest margins on loans, heavy lawsuits, and/or heavy loan loss provisions to cover their bad loan debts.

But US Bancorp and Wells Fargo are different. Unlike Citigroup or Bank of America, these two megabanks were relatively unharmed during the financial crisis, and carry much lower levels of profit-sapping bad loans. They also haven’t been plagued with as many “postcrisis” lawsuits like some of their megabank counterparts.

Taking the top spot on the profitability list is Ford Motor Credit Company, which generated a staggering 52% profit margin — a level three times higher than the financial sector’s average. While the auto lender generates about 30% of its revenue from providing loans to car buyers and another 20% from dealer financing, more than half of its revenue — and most of its profit — comes from its car leases.

It’s a similar story with CIT Group, whose growth during 2014 was driven by its higher-margin leasing business rather than its loan business, which has been shrinking over the past few years in the low-interest environment.

The Takeaway

The last few years have treated financial companies well for the most part. Strong financial markets have buoyed the fortunes of asset managers, security brokerages, and investment banks, while convenience-minded (and cash-strapped) consumers have taken to spending more with their debit and credit cards. And while the retail banking industry grapples with near-zero interest rates, the US’s fastest-growing banks have managed to boost their annual revenues by 60% or more.

Sure, a similar story could be told before the last financial crisis finally took its toll on these industries. But for now, the financial service sector may well enjoy its #2 rank as the most-profitable sector in America.

Want to screen for your own bank prospect targets as I just did? Take a look at the Hoover’s Build-A-List tool, powered by Dun & Bradstreet‘s massive company database. The easy-to-use software lets you screen through more than 434,230 banks worldwide (and more than 90 million companies overall) and allows you to narrow your search by geography, employee count, growth, and dozens of other variables that give you the tools you need to be highly effective. See how it works in the video below.

More related articles that you may like:

China’s “Hidden” Bad Loans Signal Trouble Ahead
The Top Five Hottest US States For Banking
How Community Banks Are Outgrowing Mega Banks by 6 to 1

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Christian Hudspeth is a company analyst for Dun & Bradstreet who researches and reports on more than 1,000 banks and financial firms for Hoover’s company database subscribers. Before joining Dun & Bradstreet, Christian was a managing editor, senior financial writer and analyst for a financial publishing company. His financial articles have been featured on MSN Money, Business Insider, Nasdaq.com, and several other well-known online publications. Before he was an editor, Christian worked in the commercial banking industry for seven years.

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