Wal-Mart is seeking mortgage executive

Critics say it proves chain's bank plans

May 12, 2006|By COX NEWS SERVICE

WASHINGTON -- Wal-Mart Stores Inc. confirmed yesterday that it is seeking a senior manager to oversee "new strategic initiatives" in the mortgage business, but said the move does not signal an expansion into retail banking.

Some bankers, lawmakers and Wall Street analysts disagreed, saying they believe the executive search shows the retail giant is planning to move into full-service banking, despite promises to the contrary to federal regulators.

"This is the smoking gun. What more do you need?" asked Camden R. Fine, chief executive of the Independent Community Bankers of America.

The trade group, which represents small banks, is fighting Wal-Mart's application to the Federal Deposit Insurance Corp. for permission to start a small, special-purpose bank.

Community bankers say Wal-Mart is being deceptive when it tells regulators it wants government-backed insurance only to operate a limited bank, known as an industrial loan company, or ILC, to process its own stores' credit and debit card and electronic-check payments.

They fear that Wal-Mart will expand to become a full-service, nationwide banking operation capable of wiping out competing banks in small towns by undercutting their prices.

Wal-Mart spokesman Martin Heires said interpreting the company's executive search as proof of a move into commercial banking is "absolutely off base."

He said the search is related to an employee benefit program to help Wal-Mart workers in 43 states obtain relatively cheap home mortgages. By joining forces with Nationwide Advantage Mortgage Co., Wal-Mart already offers its employees lower closing costs, reduced paperwork and quicker decisions on loans, Heires said.

The new executive would help expand that program, as well as improve existing programs offering customers simple financial services such as money orders, money transfers and credit cards through banking partners, he said.

Those basic services don't require federal insurance. Wal-Mart critics say the FDIC, which is currently weighing Wal-Mart's application for an ILC, should maintain the legal wall that has long separated commercial companies from banks.

Earlier this week, Wal-Mart was faced with a new round of criticism when Reuters reported inaccuracies in the retailer's testimony to the FDIC.

The company had told regulators it couldn't realistically expand into commercial banking because it already has long-term leases with banks that operate branches in its stores.

Wal-Mart said only the banks could end those leases. But Reuters reported, and the company later acknowledged, that leases with at least some banks could be renewed after five years only if both the bankers and Wal-Mart approve.

That news, in addition to Wal-Mart's search for a mortgage executive, has raised hackles on Capitol Hill, where several lawmakers were already objecting to Wal-Mart's application to the FDIC.

"We are beginning to see a pattern of misleading or false statements from Wal-Mart with regard to their interests in branch banking," Republican Rep. Paul E. Gillmor of Ohio said in a written statement Thursday.

Gillmor, a member of the House Financial Services Committee, wants to restrain the proliferation of ILCs.

"If true, reports of easy loopholes for Wal-Mart to escape from their lease agreements with in-store bank branches, and the news that Wal-Mart is actively recruiting mortgage and strategic banking specialists, make the need for FDIC scrutiny of Wal-Mart's ILC application ever more important," Gillmor said.

He noted that Home Depot Inc. also is seeking an ILC. Other retailers, including Target Corp., already operate limited-purpose banks.

"We must consider the impact of giving a company a foot today when it intends to take a mile tomorrow," Gillmor said.

Fine, of the community bankers' group, said he had a copy of the recruiting letter that laid out Wal-Mart's specification for a senior manager with "broad financial services experience."

The letter, also obtained by Cox Newspapers, said the executive would have "direct contact" with Wal-Mart chief executive H. Lee Scott Jr.

Fine said he did not believe Wal-Mart would hire an executive to work directly with Scott if he or she were merely overseeing a minor employee benefit program. "They absolutely are laying the groundwork for a full-service banking operation," he said.

Bart Narter, a senior banking analyst at Celent LLC, a consulting firm in Boston, said Wal-Mart's explanation for hiring a new executive to help with employee mortgages made little sense. "That's an unusual benefit. Providing better health care coverage is more common."

Narter believes Wal-Mart is using its employee base to learn more about helping low- to moderate-income families get mortgages in preparation for its eventual push into retail banking.

The FDIC is expected to make its decision on Wal-Mart's application early this summer.

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