There was another public relations setback for Wal-Mart this week, when the over-sized retailer announced after a year and a half of lobbying, that it was withdrawing its controversial proposal to open up an industrial bank in Utah. Jane Thompson, the head of Wal-Mart’s “financial services” was quoted in a press release as saying, “We notified the FDIC today that Wal-Mart has withdrawn the application we made in July 2005 for an Industrial Loan Company (ILC) charter.” Thompson’s press statement added: “This action follows January’s FDIC decision to extend the moratorium on a number of pending ILC applications. Unlike dozens of prior ILC applications, Wal-Mart’s has been surrounded by manufactured controversy since it was submitted nearly two years ago. At no stage did we intend to use the ILC to establish branch banking operations as critics have suggested — we simply sought to reduce credit and debit card transaction costs. Wal-Mart’s financial services already save customers over $245 million a year so they can live better. Since the approval process is now likely to take years rather than months, we decided to withdraw our application to better focus on other ways to serve customers. We fully intend to continue to introduce new products and services that champion those who deserve convenient, lower priced financial services.” Despite Wal-Mart’s denial, members of Congress, federal regulators, and the banking community all accused the retailer of planning to get into consumer lending. This week, Republican Congressman Paul Gillmor of Ohio disclosed an internal Wal-Mart e-mail that said the retailer reserved the right to offer a full array of financial services in lease agreements with banks that rent space inside Wal-Mart. “The only reasonable explanation of Wal-Mart’s recent plan to revise its leases is that it plans to enter into full-scale banking,” Congressman Gillmor stated. “This latest information is the smoking gun of Wal-Mart’s dishonesty and deception.”
Sensing that the headlines over this story were only going to get worse, Wal-Mart surely wanted to fold its tent quickly and put the issue behind them. But the company’s application to own a bank stimulated Congress to hold hearings on whether or not commercially owned banks should be banned outright. The head of the Federal Deposit Insurance Corporation applauded Wal-Mart’s withdrawal. “Wal-Mart made a wise choice. This decision will remove the controversy surrounding their intentions,” You know things have gone sour when a Congressman accuses you of “dishonesty and deception.” What would have been the next step: Wal-Mart life insurance? Wal-Mart home mortgage lending? It’s better that they just stick to importing cheap Chinese underwear, and leave banking to the banks. As we’ve stated for years, Sam Walton’s son Jim Walton is the head of the banking empire Arvest Bank, which includes the Bank of Bentonville, once owned by Sam Walton before he launched his Walton’s 5 & 10 store. For now, it looks like Wal-Mart has closed its account and withdrawn what little credibility it had invested in this issue. But you can expect regulators to shut the door behind Wal-Mart, because they don’t want to see the company make a second try at becoming a bank. For earlier stories, search Newsflash by “bank.”
