Wal-Mart Finally Pulls The Trigger

Tiring of the gun held to its head for the last 20 months, Wal-Mart last week reached over and pulled the trigger: it withdrew its applications for an FDIC-insured, Utah-chartered industrial loan company (ILC). Statements by Wal-Mart, its opponents, and the FDIC were boringly predicatble.

We previously reported on the public relations ineptitude of Wal-Mart, which repeatedly insisted that it had no intention of expanding the ILC's activities into retail banking services, while its actions, such as commencing retail banking operations in Mexico, spoke otherwise. The latest PR faux pas occurred this past week (paid subscription required) when a Wal-Mart opponent, Ohio Representative Paul Gillmor, announced the latest example of "overreaching" by Wal-Mart. It appears that Wal-Mart has been in the process of modifying its leases with in-store third-party banks to allow Wal-Mart to offer financial services and products.

"The only reasonable explanation of Wal-Mart's recent plan to revise its leases is that it plans to enter into full-scale banking," Rep. Gillmor said. "This really helps us because when they lose their credibility it enhances the chances of us passing legislation.

"They continually do what they say they are not doing," he said, "and they continually give us dishonest and deceptive statements, and I don't think that's right."

Wal-Mart claimed that it was merely updating old leases, and that the same language had been in leases executed within the last five years. Why that explanation might have been expected to mollify its opponents, who fear that Wal-Mart has embarked on a plan to expand into retail banking, is beyond me. The fact that it put these provisions into leases starting five years ago is entirely consistent, as are its attempts to acquire a federal savings bank and ILC over the last decade, with actions to further such a plan.

Wal-Mart claimed that the timing of Rep. Gillmor's and Wal-Mart's public statements was a mere coincidence. Nevertheless, the decision to finally put yourself out of your misery is a sound one. The ILC charter--in fact, any U.S. financial institution's charter--is not in the cards for Wal-Mart. Even a blind man could see this. Banking gadfly Bert Ely certainly could.

"This is the fourth time they have struck out since 1998 in trying to get into the deposit-taking business," Mr. Ely said. "They clearly could have played the game better."

Indeed. It appears that Wal-Mart will have to parse the nuances and find another way to play.

"We don’t plan to do this again," said Jane Thompson, Wal-Mart’s president for financial services. "The bank is behind us. We will use our partners to roll out new products."

Partners are nice, but they require you to split the income, and besides, you have all those messy fiduciary duties to one another to worry about. Don't be shocked if one or more foreign bank charters are someday used by Wal-Mart to get it where it wants to be in the retail banking world without the use of "partners" or a U.S. bank charter.

In the meantine, the FDIC wiped the flop sweat from its fevered brow.

"Wal-Mart made a wise choice [said FDIC Chairperson Sheila Bair]. This decision will remove the controversy surrounding their intentions. They don't need an ILC to play an important role in expanding access to financial services, they can do so by partnering with banks and others. We look forward to working with Wal-Mart in meeting the need for low-cost financial services across all populations."

Yes, they made a "wise choice" for you, Sheila, since your concern is purely bureaucratic. You don't want the FDIC in the line of fire, even though, under current law, you should have ruled on the application one way or the other long ago. Instead, you took the easy way out by stalling until either Congress made moot your need to act or Wal-Mart got tired of waiting, which is what happened. "No guts, no glory." Of course, no criticism, either. As a former high-level federal bank regulatory agency official once explained to me, "We regulators are like cockroaches. We scurry about in the darkness. When you shine a light on us, we freeze, paralyzed, unable to move. Once the light passes on, we  resume our scurrying." Who am I to argue with that expression of self-love?

I wonder what it must be like, going through life with your primary purpose being to attempt to avoid any mistakes? At least, any for which you can't shift the blame.

Wal-Mart's opponents were predictably ecstatic.

"We're popping champagne corks around here," said Cam Fine, president of the Independent Community Bankers of America, which represented small banks that led the opposition to Wal-Mart's application. "We have worked very, very hard for the 18 months to achieve this result."

Don't let one of those corks bounce off a wall and put your eye out, Cam. If by "working very hard" you mean making an ass out of yourself, then mission accomplished. At least your hyperbolic bloviations were consistently laugh-worthy. I include within that group your supposed "rebuttal" to former Citigroup credit card operations counsel Duncan MacDonald in the March 2, 2007 edition of the American Banker (paid subscription required), which for unadulterated low-brow appeal, was unparalleled. It was also deliciously cringe-inducing, and I say that as an expert in the genre. I'll give you the benefit of the doubt, and call you wonderfully cynical. If you were serious with your analogy of community bankers versus Wal-Mart as George Baily versus Mr. Potter from "It's A Wonderful Life," then you need to get a ghost writer. I'd recommend Clifford Irving.   

Then, again, you "won" didn't you? Inside the Beltway, that's all that counts: "victory" by whatever special interest group you're shilling for. To hell with the broader implications.

Speaking of Congress, there was immediate speculation that this action would leak the hot air out of Barney's and Paul's balloon. Those Congressmen have introduced legislation to close the ILC "loophole" in federal law's ban on mixing commerce and commercial banking. No such luck. Wal-Mart's younger brother, Home Depot said on Friday that it is still in the hunt. According to the Wall Street Journal, so is Congress.

In Congress, the chairman of the House Financial Services Committee, Rep. Barney Frank (D., Mass.), said he still intends to close a regulatory loophole that allows commercial firms to own banks.

As previously discussed, Utah Senator Robert Bennett has publicly opposed such efforts and has vowed to kill such legislation in the Senate. Home Depot may have a long wait.

Nevertheless, although we may not have Wal-Mart to kick around this particular field anymore, there's plenty of game left.