Financial services in the 1980s and 1990s can be characterized as consisting of three quite different but overlapping eras:

1982 to 1989 was an era of growth, innovation, and speculative excess. The period began with primary attention to consumer financial services, but the greatest energy was to go to corporate and capital markets activities.

It was the age of the stock market boom, the megamerger and leveraged buyout wave, the rise of the market for junk bonds, the growth in corporate leverage, the explosion in the use of derivative products and trading methods based on them, the commercial real estate boom, and the "Big Bang" in London.

Growth was high and innovation flourished, but the speculative excesses could not be sustained.

The Current Phase

1987 to 1995 is an era of adjustment and renewal.

In reaction to the losses and market declines that grew out of the 1980s excesses, most financial firms scaled back capital market activities, withdrawing from many lines entirely.

The focus of the industry has shifted to consumer financial services, which are seen as offering greater stability and, in the case of regional bank mergers, opportunities for improving profits through cost cutting.

What's Ahead

1993 to 2000 and beyond will be a time of resurgence.

In the first two years the financial services industry will move out of the present era of adjustment and renewal and enter an era of resurgence, which has the potential to last well beyond the turn of the century.

Capital market businesses, corporate lending, and investing will rebound, but only at a moderate rate domestically.

The greatest opportunities as we move further into the 1990s will be international, particularly in business and institutional activities.

International Scene

These include private sector and government-assisted lending and investing, and financial market activities associated with globalization, world growth, and increased reliance on markets.

Future capital market and corporate opportunities will not be founded simply on the continuation of past trends in globalization and technology, or on once-in-a-generation booms such as occured in the stock market and with mergers in the United States.

Rather, the opportunities will be based on a true watershed in history -- the spread of strong economic development to more countries, and the renaissance of capitalism throughout the world.

Despite some strong individual lines of business, profit opportunities will be limited in consumer financial services in the United States because of saturation, high debt, low savings, and changed demographics. The demand for homes has been reduced by the aging of the population.

Vying for Business

Nonbank competitors have come into markets for credit cards and other services, eroding pricing, offering discounts on merchandise, as well as creating pressures to add services.

Default risk has increased. Life insurance has moved to a slower growth trend. Savings rates are unlikely to have a large rise in the next few years. And international consumer opportunities for U.S. financial firms will be scare.

Also, the battle for market share will lead to interregional mergers that are largely unprofitable because of coordination difficulties and because most markets will already be well served.

Many U.S. financial firms are playing it safe by staying close to home. In effect these banks are doing the opposite of what's required for long-term success. And many banks are ginoring the vest emerging potential.

Redirection Needed

Financial firms emphasizing markets that are crowded or offer limited potential rquire fundamental redirection.

They must find the will to transcend immediate pressures and begin to prepare for the future.

Constantly changing opportunities make it imperative that banks work to position themselves to take advantages of these opportunities. And financial institutions must pursue effort to improve efficiency so as to provide a strong base from which to evolve.

But that will not b enough.

Major changes will come very quickly. U.S. financial firms that do not start to change their thinking now are running a high risk of being lft behind when the most promising opprtunities unfold.

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