By DAVID MOON, Moon Capital Management
May 14, 2006
Have you heard of Eaglemark Savings
Bank? Most banks hope you haven't ' not because they don't want you doing
business there, but because Eaglemark exemplifies a precedent that damages the
current arguments against Wal-Mart's plan to enter the banking
A 1930s law prompted by depression-era bank failures generally separates
the retail and banking industries. The law's purpose is to protect the solvency
of banks from the more volatile operating results of the retail
When Wal-Mart announced
last year that it was interested in chartering a bank in Utah for the purpose of
processing credit card, debit card and electronic check transactions, the anti
Wal-Mart forces rallied. Retailers, community bankers, union leaders, credit
unions and a host of miscellaneous Wal-Mart haters gathered forces to oppose the
effort by the Bentonville, Ark.-based retailer.
Some of the critics cite
the federal prohibition against bank and retail co-ownership. Many ' perhaps
most ' fear that Wal-Mart will flex its titanic competitive muscles on their
turf. Some people simply don't like Wal-Mart. Steve Verdier, senior vice
president of the Independent Community Bankers of America, says his group
opposes Wal-Mart's charter mainly 'because it's Wal-Mart. The way they operate
is pretty aggressive.'
Community bankers don't want to aggressively compete? Or do they simply
not want others to aggressively compete with them?
Ronald K. Ence, another vice president of the Independent Community
Bankers of America (banks have lots of vice presidents), says he is worried that
Wal-Mart might operate a lending business the same way it does its traditional
retail business. That is, it would charge sharply lower interest rates on auto,
home and other loans.
Can someone please explain the problem with
Wal-Mart is already tiptoeing into financial services. SunTrust operates
a number of bank branches, labeled Wal-Mart Money Centers by SunTrust, within
How does Eaglemark Savings Bank fit into this? Eaglemark is wholly owned
bank subsidiary of Harley-Davidson. Like General Electric and a host of other
companies, Harley-Davidson has a federal exemption allowing it to own and
operate a retail bank. Approval of those exemptions was historically
perfunctory' until Wal-Mart wanted
Over the last 35 years Wal-Mart has driven down prices in previously
fragmented and inefficient segments of the retail market. Consumers can decide
if lower banking prices are worth the loss of a small-bank feel. To paraphrase
Yogi Berra, if people don't want to bank at Wal-Mart, no one can stop
I understand that banks would rather not compete with Wal-Mart, but their
best strategy may be an attack in the marketplace, not the courtroom. Sears
tried to become America's financial supermarket and failed, because other firms,
many of them very small, offered consumers better service, products and delivery
systems, although often at a higher price.
Price may not be one of
them, but there are plenty of ways for small community banks to successfully
compete with Wal-Mart.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).