Home Depot: No Designs on Payments with Deal to Buy ILC

In sharp contrast to Wal-Mart Stores Inc., leading home-improvement retailer Home Depot Inc. professes no intentions of getting into the payments business even though, like Wal-Mart, it plans to operate a Utah-chartered industrial loan corporation, or ILC, that would give it an entrée into financial services. Less than a month after the Federal Deposit Insurance Corp. held three days of unprecedented hearings on Wal-Mart's application to open a Utah ILC, Atlanta-based Home Depot this week disclosed a definitive agreement to buy EnerBank USA, a Salt Lake City-based ILC with $75 million in net loan assets. The seller is Jackson, Mich.-based utility holding company CMS Energy Corp. But a Home Depot spokesperson says his firm's plans for the ILC bear no resemblance to Wal-Mart's. Bentonville, Ark.-based Wal-Mart says its proposed Wal-Mart Bank would have one function: submitting credit, debit and other electronic transactions into payment networks, saving on fees Wal-Mart now pays to outside entities. Many bankers and consumer activists worry that Utah ILC charters allow commercial firms to offer a broad array of financial services, and they especially fear Wal-Mart, the world's largest retailer, has larger designs that include operating its own bank branches. “This is totally different,” Home Depot spokesperson Jerry Shields Sr. tells Digital Transactions News. He says Home Depot's stated aim is to use the bank to deepen its relationships with contractors by enabling them to offer home-improvement loans to their own customers. Window, roofing, and other trade contractors account for about one-third of Home Depot's sales, according to Shields. Home Depot, the No. 2 U.S. retailer, posted fiscal 2005 revenues of $81.5 billion. It operates 2,040 stores in the U.S., Canada, Mexico, and the Caribbean; some 1,600 of those stores offer contractor services. Home Depot does not plan to use EnerBank for merchant acquiring or other payment functions, according to Shields. He also says the bank acquisition would not change Home Depot's current financial arrangements, which include private-label consumer and commercial credit cards issued by Citigroup Inc.'s Citibank. Target Corp. has a Utah-based ILC, Target Bank, which issues business cards. But the discount retailer issues most of its cards through a South Dakota credit card bank, Target National Bank. A CMS spokesperson says the company bought EnerBank in 2000 to provide loans for heating and cooling products and equipment. But the bank accounts for less than 1% of CMS's revenues. “We've been in the process of selling non-strategic assets in recent years and focusing on our prime subsidiary, Consumers Energy,” he says. “It's a better fit with Home Depot.” The spokesperson would not say how Home Depot came to be the buyer. Consumers Energy Co. supplies gas and electric service to 6 million of Michigan's 10 million residents. CMS last week reported a first-quarter net loss of $27 million, which it blamed mostly on non-cash changes in the value of gas contracts. In 2005, the company lost $84 million on $6.29 billion in revenues. Neither Home Depot nor CMS disclosed financial terms of the pending deal, which requires regulatory approval. EnerBank has 40 employees, 15 in Salt Lake City and the rest in Jackson, the CMS spokesperson says.