Bove said that the Bluebird service "raises a series of questions as to whether a major slice of consumer finance activities have now slid into the shadow banking market away from the scrutiny of the regulators." One question is "whether the country will now deal with a two tier financial system. One tier is heavily regulated. The other is not regulated and where funds are transferred between companies in a murky area of non-disclosure," he said.
It remains to be seen how the Consumer Financial Protection Bureau will react, and how, or if, the agency will regulate the Bluebird service, but there is no doubt that today's move by Walmart and American Express is a very important development for the financial services industry.
Bove said that "If Wal-Mart is able to go up market with its products, it will hurt the banks. This is because banks are now relying on price increases on many of the products that Wal-Mart hopes to give away under its new card arrangement. Moreover, if Wal-Mart gets away with doing banking as a retailer many more retailers are likely to enter the fray and the price competition they represent for banks will be formidable."
Walmart's shares rose slightly to close at $75.25, while American Express was up slightly, closing at $58.82.
SunTrustGetting back to today's financial loser, SunTrust of Atlanta has seen its stock return 69% year-to-date, following a 40% decline during 2011. The shares trade for 1.1 times their reported June 30 tangible book value of $26.02, and for 11 times the consensus 2013 earnings estimate of $2.78 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate $3.31. SunTrust will announce its third-quarter results on Oct. 22, with a consensus earnings estimate of $1.83 a share (including several extraordinary items), increasing from 50 cents the previous quarter, and 39 cents a year earlier. The company on Sept. 6 announced that it would end its investment in Coca Cola (KO), in order to shore up its capital ratios, because the Federal Reserve's proposed capital rules will increase the risk weighting of banks' equity investments. SunTrust accelerated two forward purchase agreements to sell its Coke shares, while also transferring $3 billion in portfolio loans to held-for-sale, and said that the moves, along with other actions, would lead to a pretax third-quarter gain of $1.9 billion, or $1.2 billion after taxes.
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