Fed says Wellpoint banking application permissible

By David Lawder

WASHINGTON (Reuters) - The Federal Reserve Board ruled on Friday that health insurer Wellpoint Inc.'s (WLP.N) application to create an industrial loan company is permissible because the firm's retail-oriented activities were complementary to its main insurance business.

The Fed said it was asked by the Federal Deposit Insurance Corp., which is considering the Wellpoint application, to determine its compliance with the Bank Holding Company Act.

The Fed said in a statement that Wellpoint's disease management and mail-order pharmacy activities are complimentary to the financial activity of underwriting and selling health insurance and are therefore permissible for a financial holding company.

The FDIC had imposed a temporary moratorium on acting on applications for deposit insurance by industrial loan companies (ILCs) controlled by firms that that are engaged in non-banking activities not permissible for a financial holding company under applicable laws.

But the Bank Holding Company Act permits the Fed, in consultation with the Treasury secretary, to determine that a non-bank activity is "financial in nature or incidental to a financial activity."

FDIC spokesman Andrew Gray said the ILC bank application must still be voted on by the FDIC board. "It has not gone before the board yet," he said.

The disease management and mail-order pharmacy businesses constituted less than 4 percent of Wellpoint's $57 billion in revenues last year, the Fed said.

To limit safety and soundness risks of the proposed activities, the Fed said its determination requires that mail-order pharmacy and disease management not exceed 2 percent of Wellpoint's consolidated assets or 5 percent of its consolidated annual revenues.

ILCs can offer a wide range of financial products, including mortgages, credit cards, loans and other services.

In March, Wal-Mart Stores Inc (WMT.N), the world's biggest retailer, pulled its application to open an ILC bank in the face of immense opposition from consumer groups, lawmakers and community banks worried about their demise if Wal-Mart were to enter the banking business.

Wal-Mart's application, as well as those of Home Depot and others, was held up by the FDIC's 12-month moratorium, which it imposed until the end of January 2008 to allow lawmakers to make a final decision on whether to separate banking and commerce.

In May the House of Representatives approved legislation aimed at barring commercial companies from operating an ILC bank. Similar legislation was introduced in the Senate but no action has been taken on it.

One month later, a senior Wal-Mart executive told Reuters the company does not plan to resubmit its ILC bank application with the FDIC, which insures bank deposits at state-chartered banks.

(Additional reporting by John Poirier in Washington)