There have been better times to be a banker. The recession seems never ending, loan losses have yet to abate for many institutions and the recent reform legislation promises to create a tangle of new costs, hassles and lost revenue opportunities.
Higher capital requirements and expected bumps in deposit insurance premiums will only add to the earnings pressure.
And now, just when traditional lenders are at their weakest-or perhaps because they're looking so vulnerable-an old nemesis has begun to quietly re-emerge as a threat.
In the past year, Wal-Mart Stores Inc. has begun offering savings accounts and credit cards through its three-year-old Banco Walmart de Mexico Adelante franchise south of the border, where it aims to have 160 branches in place by the end of 2010. Those branches already accept deposits and originate auto loans and mortgages, among other things.
This June, it opened Walmart Canada Bank-an operation that offers credit cards and has hinted at mortgage lending in the future.
The Bentonville, Ark., retail giant also offers loans and insurance through its Asda subsidiary in the United Kingdom, where rival Tesco, the country's biggest supermarket chain, already operates a healthy, wholly owned banking franchise.
Here at home, the moves have not been quite so overt, but could hint at bigger things to come. Wal-Mart is opening its MoneyCenters, which offer such financial goodies as wire transfers, check-cashing and bill pay, at an accelerating clip. It expects to have them in about 40 percent of its nearly 3,000 SuperCenters by the end of 2010, with more on tap for next year.
The company's Sam's Club subsidiary recently announced a pilot partnership with Superior Financial Group, a nonbank lender, to offer online loans of up to $25,000 to small-business owners at a 7.5 percent interest rate over 10 years.
Wal-Mart also has taken an equity stake in Green Dot, a marketer of prepaid cards that, in turn, gets 63 percent of its revenues from the retailer. Green Dot announced in March that it was acquiring Bonneville Bancorp of Provo, Utah, and filed an application to be a bank holding company.
Mix the foreign learning with the domestic expansion, throw in a starkly new operating environment-one that is much less sympathetic to traditional lenders than in the past-and to some observers, the birth of the Bank of Wal-Mart, with retail branches scattered around the country, is less a matter of "if" than "when."
Robert Manning, a finance professor at the Rochester Institute of Technology, has been studying Wal-Mart for three years as part of a soon-to-be-released research project for the credit union industry. He calls Wal-Mart's entry into the U.S. retail banking market "inevitable," and says that doing so while traditional banks struggle with loan issues and battered reputations will increase its appeal.
"Wal-Mart will enter ... with high levels of capitalization, a clean slate of performing loans and a carefully coordinated and well-funded marketing campaign that will appeal to the populist, anti-Wall Street sentiments of working and middle-income households," Manning says. "If you're a bank and you're not preparing for Wal-Mart now, it could be too late."
Tony Plath, a finance professor at the University of North Carolina, Charlotte, predicts Wal-Mart could get into banking by 2011 or 2012."But it could be six months," Plath says. "Wal-Mart isn't stupid. They realize that this is a new, different age in banking, and they sense an opportunity."
Not everyone is convinced. Banking is no longer the cash cow it was when Wal-Mart made its push for an industrial loan charter a few years ago, and the new regulatory environment would invite scrutiny that the folks in Bentonville might not like. Likewise, lawmakers could resist adding another player to the too-big-to-fail roster. "If you thought we had trouble with AIG and General Motors, what if Wal-Mart got into trouble with a bank?" asks Camden Fine, chief executive of the Independent Community Bankers of America.
Douglas Faucette, a bank regulatory attorney and partner with Locke Lord Bissell & Liddell in Washington, D.C., says the recent reform legislation has closed the so-called "nonbank bank" loophole that made it possible for other commercial companies to own banks.
"There's no way that Wal-Mart could be a bank right now, even if it wanted to," he says. "It's a huge bugaboo."
David Schick, a Baltimore-based retail analyst for Stifel Nicolaus & Co., doesn't believe Wal-Mart aspires to run a full-service bank. "It makes for great headlines," he says, "but I don't think any retailers are sitting around saying, 'We want to be a bank.'"
For retailers, Schick says, the name of the game is growing market share. And part of that effort-going back at least as far as the old Sears Roebuck in the late 1800s-has been extending credit to help customers buy more stuff. "They're coming at this from the customer's perspective, seeking more share of wallet," Schick says. "Offering financial services is simply another arrow in the quiver to try to deepen that relationship."