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."

Jane Thompson, president of Wal-Mart's financial services unit, declined repeated requests for an interview, nor did she answer questions submitted by email. She hasn't talked much publicly about the company's financial services strategy in more than two years, and her media staff said it was unable to provide even basic numbers, such as the number of bank partners with branches in its stores.

One of those partners, SunTrust Banks Inc., was similarly icy. The Atlanta company has 83 branches in Wal-Mart outlets, but a spokesman declined to discuss the relationship, beyond saying that it is "strong."

Thompson's recent silence is viewed as ominous: Wal-Mart has a history of going "underground" to avoid publicity when it's working on new initiatives, Plath says. The company line, however, remains the same as it was four years ago, when the industry fought a bitter lobbying battle to block the retailer's efforts to obtain an ILC: Don't worry; we don't want to be a retail bank.

As proof, company officials have noted that more than 1,000 of its U.S. stores already host branches of traditional banks, some with leases that don't expire until the mid-2020s. The MoneyCenters' menu of services, they add, targets what the company estimates is a market of 73 million unbanked or underbanked U.S. consumers, roughly one-quarter of the country's population. Since those customers aren't using banks anyway-and since Wal-Mart can't take deposits-it shouldn't be seen as a threat.

Testifying at a Federal Deposit Insurance Corp. hearing in 2006, Thompson asserted the retailer wanted an ILC charter solely "to provide greater efficiency, effectiveness and safety in Wal-Mart's interaction with the payments systems ... nothing more." Wal-Mart itself would be the institution's "sole customer," she added. "Wal-Mart is absolutely and unequivocally committed not to engage in branch banking."

Despite those assurances, there's never a shortage of banker conjecture and suspicion over Wal-Mart's intentions and tactics. Many observers assume that Wal-Mart has some sort of secret plan to get into the banking game. "You always have to keep an eye on them," Fine says. "You know the corporate suits in Bentonville would love to directly own a bank."

Manning says the best evidence of Wal-Mart's intentions lies in Mexico, where its banking operations have quickly migrated from cards to deposit-taking and loans. "If you look at their record in Mexico, the opponents were right," he says.

South of the border, Wal-Mart is experimenting with a "blended retail point-of-sale approach" to banking, where any customer contact, such as buying groceries in the checkout lane, offers an entree to meet potential banking needs. In essence, the entire store is postured as the branch, Manning explains. "It has the potential to be very powerful."

No one but Thompson can say for sure what the $400 billion retailer's plans are for its home market, where it boasts more than 4,300 stores. But the MoneyCenter expansion, with its emphasis on debit cards, seems aimed at "getting them used to going to Wal-Mart for banking services," Manning adds. "It's banking on training wheels."

Armed with the right charter, it could transform that physical presence into a formidable, low-cost national branch network, virtually overnight.

Defenders say scale and efficiency is good for consumers, and they have a point. A dollar stretches farther at Wal-Mart than it does downtown. A 2008 study by research firm Global Insight found that a family spending $100 a week on food could save $700 a year by choosing Wal-Mart over the average grocery store. It has flexed those same muscles with financial services, charging $3 to cash a check or fill a prepaid shopping card.

But critics argue that the savings come at a cost of jobs and local control. Community bankers have witnessed firsthand Wal-Mart's methodical destruction of Main Street merchants, which saw their business sucked off by the big-box discounter's aggressive pricing.

"We've lost a number of local hardware stores. We've lost a number of local pharmacies. We've lost a grocery store," says Salvatore Marranca, the CEO at the $160 million-asset Cattaraugus County Bank in Little Valley, N.Y. "It's astounding how powerful Wal-Mart is-in transactions and pricing and in dominating the market."

With its huge balance sheet-Wal-Mart's market capitalization is about $190 billion-customer base and aggressive pricing practices, the reasoning goes, it could undercut banks in much the same way, siphoning off deposits and loans. "All of a sudden, every big Wal-Mart will have a branch. It will be open late at night and offer basic products at a really cheap price," Plath predicts. "It could hasten the demise of many community banks, and fairly quickly."

At its most threatening, Wal-Mart could take the whole notion of cross-selling to a new level. "They could say, 'If you get a mortgage from us, we'll give you a $500 Wal-Mart money card,'" Manning says. "Will customers shop and compare? I don't think so. They're going to grab that card and go buy a plasma TV."

Wal-Mart isn't the only retailer beefing up its financial-services offerings. The list includes the likes of Best Buy, Home Depot and Lowe's. Most of their efforts involve a mix of prepaid and credit cards-the portfolios mostly managed by banks-and sometimes such basic consumer services as check-cashing, wire transfers and bill paying. They're also reviving an old standby: layaway purchases.

The rationale is simple, says Susan Ehrlich, president of Sears Financial Services. Not everyone needs a bank account, and with bank fees certain to rise, they're not about to flock to the traditional deposit-takers now. These unbanked and underbanked consumers turn to cash-checking outfits when payday comes, making a special trip to pay high fees. Getting those customers to cash their checks in the store offers the obvious potential to boost sales in the aisles.

Ehrlich, who ran Washington Mutual's card business before joining Sears in 2006, is overseeing a pilot in 10 Chicago Kmart stores to host Wal-Mart style "financial centers," which offer $3 check-cashing and will pay a bill electronically for $1.50.

"We've always played a role a few steps into the Saturday morning routine," she says. "Now we're trying to move to the beginning of that process. We want them to come to the store first, and we're giving them a good deal for it. While they're there, they'll see we have milk and some of the other things they need on sale."

Ehrlich says Sears' isn't pursuing a banking charter, "because it's not allowed," but won't rule it out if the rules change. For now, she sees Sears' financial offerings as "complementary" to traditional banks, and says that auto loans, mortgages and other types of bank activities "are too complicated to imagine selling in a retail store environment."

Wal-Mart's pervasiveness makes it look more threatening than those other retailers. When applying for the ILC, Wal-Mart said it only wanted the ability to run its own card business. Manning estimates that Wal-Mart could save $700 million a year in card interchange fees by running its own processing, and could get another $1.3 billion in profits from the card portfolio.

Lacking a banking charter, Faucette says, Wal-Mart could find a niche as a creative financier for sales of its own products, similar to automakers' captive finance arms. Without a base of low-cost deposits, the retailer could face funding challenges, but Manning says it already has been quietly learning the ropes of the securitization market.

For all that, the real money lies in taking deposits and making loans. The question is how. Some fear Wal-Mart could leverage its stake in Green Dot, which has applied to be a bank holding company. If the industry took a turn for the worst, Plath speculates, regulators might invite it to take over a big branch network.

Wal-Mart also might seek to leverage the North American Free Trade Agreement to expand its Mexican banking franchise north of the border. Rules meant to force the opening of Mexico's market to American banks are a two-way street.

"Once they've established a record of performance as a retail-banking enterprise there, collecting deposits, underwriting auto and mortgage loans for millions of people, it would be hard to say they shouldn't be allowed here," Manning says. "The [World Trade Organization] could trump the congressional decision."

Or it could simply win over the critics and obtain a U.S. bank charter outright. In the present environment, Wal-Mart can make a compelling case as a well-capitalized financial services provider to a customer segment in which banks aren't much interested, and serve as a competitive force to keep fees and prices low.

While she won't comment directly on Wal-Mart, Ehrlich says if the only viable alternatives for so many consumers are payday lenders and cash-checking operations, "then there's a lot of room for a national retailer to step in and save that shopper some money."

When bankers last confronted Wal-Mart the retailer satisfied most of the regulators' concerns regarding separating banking operations from the core business and capitalization levels, but was shouted down by the public. Ordinary Americans liked their banks and wanted to protect them.

Post-crisis, much of that goodwill is gone, replaced by anger over government bailouts, rising fees and a sense that banks are to blame for the recession. This time, Wal-Mart could position itself as a consumer champion.

"What kept Wal-Mart from being a bank a few years ago was the public outcry," Plath says. "Today, a lot of the banks' reputational capital has eroded." That could provide just the opening the world's largest retailer needs.

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