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Sides to Square Off on Bank

Wal-Mart's plan for a financial institution has produced unusual alliances, pro and con.

April 10, 2006|Abigail Goldman | Times Staff Writer

Politics may make for strange bedfellows, but Washington has nothing on Wal-Mart Stores Inc.

The world's largest retailer wants to open a limited-purpose bank in Utah, and that has prompted financial institutions, real estate agents and farmers to join with unions, housing activists and consumer groups in protest as hearings begin today on Wal-Mart's application.

"I'm just a kernel of grain in a 50-gallon barrel, but we need to be heard," said Arthur Douglas, president of the Utah Farmers Union. Douglas, a northern Utah cattle rancher and grain grower who has asked to testify, believes that a Wal-Mart bank could cripple the local financial institutions upon which farmers depend.

Supporters of Wal-Mart's bid are a similarly unlikely combination as think tanks and professors unite with a missing-children's organization and the Salvation Army.

The two sides began lining up almost as soon as Wal-Mart applied in July for a so-called industrial loan corporation charter in Utah, saying it would use the bank only to process a small portion of its credit card transactions in hopes of saving a few million dollars a year.

But as is often the case with the behemoth from Bentonville, Ark., critics are unwilling to believe that Wal-Mart would settle for anything short of market dominance.

The company, which got into the supermarket business less than 20 years ago, is now the biggest grocer in the United States. It is the No. 1 seller of recorded music and DVDs, toys, dog food and just about every other category in which it competes.

So despite Wal-Mart's relatively modest stated intentions, the idea of its becoming a banker is one that is tough for local savings and loans -- as well as the people and institutions that do business with them -- to swallow.

The debate stands as a landmark in financial services history, said V. Gerard Comizio, a lawyer at Thacher Proffitt & Wood in Washington and a former senior banking regulator with the Treasury Department's Office of Thrift Supervision.

"You're pitting major U.S. financial services and banking institutions against each other, as well as major federal banking regulatory agencies against each other," he said.

"To boot, you're adding in major retail, auto and industrial corporations that support the charter."

As the two camps prepare to square off at the Federal Deposit Insurance Corp.'s hearings, many banking experts say the hoopla is overblown.

"The conventional wisdom is that ultimately, the FDIC will approve this unless Congress does something to remove their authority or adds a factor upon which the FDIC can base a denial," said Sanford Brown, a bank regulatory attorney with Bracewell & Giuliani in Dallas.

Still, said Brown, who spent three years at the Office of the Comptroller of the Currency, which regulates national banks, the debate over Wal-Mart's application is so contentious that approval is not a foregone conclusion.

The FDIC has received 2,400 letters on the issue -- the most the agency has ever received for an application for deposit insurance, a spokesman said -- and expects to hear from 70 people during the hearings today and Tuesday in Arlington, Va., and April 25 in Overland Park, Kan.

Included in those letters, comments and public statements are impassioned arguments from members of Congress and both the past and current chairmen of the Federal Reserve -- which regulates other banks but not industrial loan corporations -- warning against a Wal-Mart bank or against the notion of combining banking and commerce.

The FDIC has seven criteria for evaluating an application, including the applicant's financial health and the character and fitness of its management.

The regulatory body has issued "very few denials," said FDIC spokesman David Barr, although the low number is attributable in part to applications being withdrawn when their prospects of success seem dim.

Wal-Mart isn't breaking new ground. Among other companies, several automakers, notably U.S. market leader General Motors Corp., operate their own specialized banks.

Target Corp., a Wal-Mart rival, has an industrial loan corporation. When the Minneapolis-based company submitted its application for deposit insurance, the FDIC received no comment letters.

To Wal-Mart, the opposition is much ado about nothing. The company has pledged not to use its bank to make loans or take deposits.

"We are not going to branch -- we say it right in the application. We have told Congress that we're not going to branch. So I think we've been about as clear on that topic as we can possibly be," Wal-Mart spokesman Marty Heiers said. "All we're really out to do here is to save some money and return the money that we save to our customers in the form of lower prices. That's what we do."

In fact, the company said, it holds long-term leases with 300 financial institutions that operate bank branches in 1,150 Wal-Mart stores across the country. The company has agreements with 250 more banks to open in future stores.

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