Canoeing along the White River in the Ozark Mountains three years ago, Irvine banker Robert B. Hildt must have thought he was paddling upstream.
In canoes rowing next to him were S. Robson Walton, chairman of Wal-Mart Stores Inc., and Tom McLean, Wal-Mart’s financial services director.
He was hobnobbing with the executives as an invited guest who just had been hired to set up a bank for the retailer.
It was the third attempt by Wal-Mart to start a bank. The company had been hammered by bankers and unions opposed to the bid.
This time, Wal-Mart tapped Hildt, who earlier this year set up MetroPacific Bank along Von Karman Avenue in Irvine.
Hildt’s charge was to go about buying Franklin Industrial Bank of Orange for $2.4 million.
He and Wal-Mart didn’t prevail. The reason: Unions and bankers lobbied the state Legislature to pass a law barring non-financial institutions from owning industrial banks.
The nine-month process to get the Wal-Mart bank was an experience of a lifetime for 62-year-old Hildt, who two years earlier had launched his own bank in San Diego, called 1st Pacific Bank of California, where he was president and chief executive officer.
“I have nothing but the greatest admiration for Wal-Mart,” Hildt said.
Wal-Mart has made other runs at banking.
In 1999, it tried to buy an Oklahoma thrift, but a change in federal law banned thrift ownership by corporations.
In 2001, Wal-Mart tried to partner with Toronto-Dominion Bank to open branches in stores but failed to obtain the approval of the Office of Thrift Supervision, the federal regulator of savings and loan associations.
Three years ago, a lawyer friend representing the sale of Franklin Industrial Bank set up a phone meeting between Hildt and a roomful of Wal-Mart executives in Bentonville, Ark.
After two hours of talking one late Friday evening, they hung up. Fifteen minutes later, Hildt was invited to travel to Arkansas to meet them in person at 7 a.m. the following Monday.
“We discussed in general their intentions in purchasing the bank (Franklin), and they wanted my assistance on the business plan,” Hildt said. “Their motives were never to take over banking in California.”
Wal-Mart spends millions of dollars annually to have other banks process debit card transactions and could see huge savings by doing so itself.
After several days of getting briefed, Hildt was invited to Wal-Mart’s annual meeting in 2002 at the Bud Walton Arena on the University of Arkansas campus in Fayetteville, Ark.
“This was something I had never been exposed to before,” Hildt said. “But in my trips back there, I was enlightened to the fact that senior management and employees are intent to carry on the spirit of (founder) Sam Walton.”
This past summer, Wal-Mart proposed an industrial bank to be chartered in Utah, home to 31 of 59 such institutions, including one owned by rival Target Corp.
Other companies run banks and thrifts. They include BMW AG, General Motors Acceptance Corp., Toyota Motor Corp., Volkswagen AG and Harley-Davidson Inc., which runs a thrift in Nevada called Eaglemark Savings Bank.
Wal-Mart executives are seeking permission from the Utah Department of Financial Institutions and Federal Deposit Insurance Corp. to open an industrial bank in Salt Lake City, one that the company says will allow it to save money on the more than 140 million credit, debit and electronic check payments carried out at its stores each month.
Wal-Mart said it intends to pass on the savings to shoppers and has no plans to open bank branches or lend money.
Wal-Mart already leases space to more than 1,000 bank branches in its 3,197 U.S. stores and is “actively seeking new financial institutions as tenants.”
As with everything about Wal-Mart, the banking issue is a hot one.
Craig Hudson, president of the trade group California Independent Bankers in Newport Beach, was recently in Washington, D.C., trying to drum up support on Capitol Hill to hold hearings on Wal-Mart’s latest gambit.
One Senate Banking Committee panel plans to hold hearings on the subject in the near future.
“If something goes wrong for a giant like Wal-Mart, with $284 billion in annual sales, that could expose the FDIC insurance fund to enormous risk and exposure,” said Hudson of the federal agency that insures commercial bank and thrift deposits.
The other lingering concern is over the impact on other banks if Wal-Mart processes its own transactions.
Hudson argues that this is a predatory practice, and could force some banks out of business.
“It could cause a serious disruption to the banking system,” he said.
So far, Wal-Mart’s application to charter a bank has drawn more than 1,550 mostly negative comments, the most ever collected by the agency. The FDIC isn’t expected to make a decision on the application until next summer.
Would Hildt ever return to Wal-Mart if it gets into banking?
“I’m too busy developing this bank right now,” said Hildt of MetroPacific. “My gut tells me they should be allowed to do it. I don’t consider them a threat to the banking industry.”
