Wal-Mart: Can Banking Bid Pass Political Test? WSJ]
By NIKHIL DEOGUN
April 8, 2006; Page A2
To Wal-Mart Stores Inc.'s long list of image problems, add this: a public flogging before bank regulators.
Starting Monday, the Federal Deposit Insurance Corp., a banking regulator, will take the unusual step of holding public hearings on Wal-Mart Stores' application for deposit insurance so it can start an industrial-loan company in Utah.
Wal-Mart will have a few advocates backing its application, but they will be drowned out by the anti-Wal-Mart crowd, who claim that the "Bank of Wal-Mart" would "boost Wal-Mart's domination of our economy," in the words of Wal-Mart Watch, one group scheduled to testify at the hearing.
On paper, the application isn't controversial. Many companies -- including General Electric Co. and General Motors Corp. -- have specialized banks.
But this is Wal-Mart. Nearly 2,400 letters have been sent to the FDIC, the overwhelming majority urging the application's rejection. In contrast, Target Corp. had its application approved in 2004 with nary a public comment in protest.
Wal-Mart has vowed not to open any retail branches. Nevertheless, small banks worry that Wal-Mart will use its charter as a back door to get into retail banking. Small businesses worry about a reduction in sources of capital. And the unions oppose the application because they oppose Wal-Mart.
Wal-Mart is the victim of bad timing. Federal Reserve Chairman Ben Bernanke favors closing the loophole that allows nonfinancial companies to own banks. In addition, the acting FDIC chairman, Martin Gruenberg, is a former top aide to Sen. Paul Sarbanes, the ranking Democrat on the Senate Banking Committee who has long opposed any mixing of banking and commerce.
Mr. Bush is preparing to name Sheila Bair, a former Treasury Department official, as chairwoman of the FDIC. Wal-Mart's backers are hoping Ms. Bair and other directors will judge the application based on the agency's criteria: an applicant's financial history and condition, adequacy of capital, risk to the insurance fund and so on.
"The FDIC is not going to have legal reasons to assert why it shouldn't approve" the application, says V. Gerard Comizio, managing partner of Thacher Proffitt & Wood's Washington office, who isn't involved in the case.
For now, though, no one should discount the political reasons.
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