As the equity markets raced to new lows today, Wal-Mart [WMT] finished up on the day thanks to much better-than-expected same store sales and an increased dividend. Wal-Mart was the top performing S&P 500 component in 2008 [one of only a handful of constituents that provided gains], and although it gave up some ground YTD, the stock has climbed off its lows as the market continues to plummet.
As I look at Wal-Mart and its relative strength, and juxtapose that against what's happening with GE and the fears over its finance unit, I'm reminded of just how easily things could have gone a different way.
It wasn't long ago that Wal-Mart, arguably the most efficient retailer in history, wanted to extend its dominance into the banking arena.
In 2005, Wal-Mart applied to the FDIC for an industrial loan bank license that would be located in Utah and allow the company to forgo the fees it pays to other banks to process credit and debit card charges. Wal-Mart contended, at the time, it had no intentions of expanding into customer-facing banking operations, yet many regional banks vehemently protested the plan; believing that Wal-Mart would eventually move into other facets of banking.
A coalition has formed to keep Wal-Mart out of banking and includes the Independent Community Bankers of America (which provided a sample letter for its members to send to the F.D.I.C.), the National Grocers Association, the National Association of Convenience Stores and the United Food and Commercial Workers union, which is trying unionize Wal-Mart workers. A coalition of community groups called Wal-Mart Watch has sent a petition to the F.D.I.C. with 11,000 signatures opposing Wal-Mart's application.
The debate has even reached Capitol Hill,
where Representatives Paul Gillmor of Ohio and Barney Frank of
Massachusetts, both members of the House Financial Services Committee,
have asked the F.D.I.C. to hold hearings. "This is a very controversial
application filed by the company that is the largest retailer in the
world," they wrote.
This wasn't the first time Wal-Mart tried to work its way into financial services. In the late 90s the Waltons tried to expand the State Bank & Trust Company [which they also owned] by opening branches in Wal-Mart stores. That move was shut down due to the Gramm-Leach-Bailey Act. Three years later, Wal-Mart tried buying Franklin Bank of California but that too was stopped by legislative action.
Fast forward to 2009 and consider what might have been. Had Wal-Mart been successful in its bid for an industrial bank, would it have expanded into customer facing operations as feared? If so, is there any question Wal-Mart could've carved out an important role in the banking system by now? And had that happened, how might the world look at the company differently? One could argue [and I would], that Wal-Mart's lack of exposure to a large financial arm is a big part of why it remains on [relatively] solid footing among investors. Had Wal-Mart gotten what it wanted, we might be seeing the same kind of fear mongering and lack of confidence that plagues seemingly any institution with financial exposure these days.
For even the largest, most dominant businesses, sometimes its better to be lucky than smart.
Disclaimer: At the time of writing, the author or firms affiliated with the author maintained a long position in WMT, but did not maintain a position [long or short] in GE or any related instrument. The author and the firm reserve the right to alter their investment positions at any time in the future. The content on this site is provided as general information only and should not be taken as investment advice. Content should not serve in any way as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author. Any action taken as a result of information or analysis on this blog is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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