Home Depot hopes for bank as ILC freeze winds down

By John Poirier - Analysis

WASHINGTON (Reuters) - Home Depot Inc (HD.N) is making a fresh push to win regulatory approval to buy EnerBank USA, as the clock winds down this month on a bank industry-backed moratorium to keep retailers out of their business.

The U.S. banking industry's lobbying clout was among the factors that forced Wal-Mart Stores Inc (WMT.N) last year to drop its attempt to open a bank. Home Depot has not given up and plans to update an application it first filed in 2006 with federal regulators to buy the Utah-based bank.

It hopes regulators will give the green light after the moratorium ends on January 31 since Congress failed to pass legislation closing a loophole that allows nonfinancial companies to own a type of bank known as an industrial loan company (ILC). Federal law has historically sought to keep commerce and banking separate.

"We know there's going to be scrutiny of this application, and that there's going to be a lot of hard questions and issues," said Bryan Jacobs, a Home Depot lobbyist. "But the fact is EnerBank has been running for a long time."

EnerBank was created by CMS Energy Corp (CMS.N), a big Michigan utility, in 2002 to provide unsecured loans to homeowners to buy more energy-efficient heating and cooling systems. Home Depot, like auto companies and Target Corp (TGT.N) which already have ILCs, wants a bank to promote its business.

Atlanta-based Home Depot relies heavily on building and remodeling contractors, who make up about 35 percent of its sales. Sales totaled $79 billion in fiscal 2006, which ended January 31.

Home Depot would not comment on how EnerBank might affect its profits.

Under the plan, a customer would get a home improvement or remodeling loan from EnerBank. EnerBank would pay the contractor for the entire cost of the work once it is finished, and the customer would start repaying EnerBank.

According to its application, Home Depot has no plan to issue credit cards, or to establish local bank branches.

Home Depot worked with the Federal Deposit Insurance Corp (FDIC) to prepare its 2006 ILC paperwork. "They've already said it's a good application," Jacobs said. "Nothing is going to change just because it's going to be in Home Depot's hands."

HALF-DOZEN ILCS PENDING

In 2006 after an outcry about Wal-Mart's plan to open an ILC, the FDIC imposed a moratorium on all retailers' applications. Small banks argued that if Wal-Mart was able to offer loans, checking accounts and other banking services, the discount giant would drive them out of business.

The FDIC threw the controversial issue to Congress to decide whether to close the loophole allowing nonfinancial companies to obtain a state-chartered ILC.

ILCs make up a small fraction of the banking industry but some are owned by big parents such as Merrill Lynch & Co MER.N, General Electric Co (GE.N), Toyota Motor Co (7203.T) and UnitedHealth Group Inc (UNH.N). As of June 30, there were about 60 ILCs with $225 billion in total assets.

In addition to Home Depot, the FDIC has a half-dozen other applications pending to buy or create an ILC bank. But it is in no rush to act once the freeze is lifted.