PORTLAND, Ore. -- Asset Exchange, a leading broker of credit union card portfolios, has publicly announced a change in policy. From now on the firm will represent the credit union looking to sell its card portfolio and not the organizations looking to buy it.
"For the longest time credit unions have been told that selling their card portfolios is free," explained William Koo, Asset Exchange CEO, "because they did not pay anything as part of the process. But of course it's not free. The broker usually gets paid by the portfolio buyer."
Koo said the policy move brings the brokerage firm back to a course it had wanted to follow from the beginning, that of helping CUs get the best deal for an asset whose value, particularly in the beginning, many credit unions might not have appreciated or understood completely.
He said that the firm had begun offering to represent CUs in the portfolio sales in 2006, but had only decided to publicly announce the policy shift when enough of the potential problems and uncertainties had been ironed out.
The change marks the latest in a series of innovations the firm has brought to the market for CU card portfolios. The first innovation the firm brought to the portfolio transaction process was the notion that it was better to have more than one buyer looking at your portfolio and making their best deal for it. That work involved the broker who would help the credit union evaluate the portfolio, package the portfolio information and contact potential buyers as well as arrange for evaluating the bids, all services for which the winning buyer would eventually pay a percentage of the final price.
The fact that the buyer paid the broker always left the brokerage firm open to concerns over whether it could really represent the credit union's interests fully since, if it advises against a given deal, it might undercut or eliminate a source of income. Having the credit union pay the broker for its services eliminates that source of concern, Koo explained.
This concern is particularly sensitive in credit card portfolio sales, Koo said, because the levels of the fee or commission paid to the broker are not fixed by law or regulation, as they usually are in real estate transactions.
"If a real estate purchaser knows that the broker representing the seller expects to make 6% or 7% or 5% or whatever it is on the sale, then they can figure that influence into their evaluation of the deal," Koo said. "But in portfolio transactions those brokerage fees are generally not revealed."
Of course, from the credit union's perspective, the downside of the new policy is that it will pay the broker for services that can be expensive. Koo said that the firm adopted a different, less costly, fee structure for when it represents the credit union in the portfolio deal. He also said that the firm would continue to represent portfolio buyers if the credit union indicates that this is what it wants to do.
Koo said Asset Exchange hoped that the new policy would help further the cause of greater transparency in the card portfolio sales process by leading more credit unions to ask how the brokers that are arranging the sales will be paid.
But Tim Kolk, managing partner with Brookwood Capital, another independent card portfolio broker headquartered in Peterborough, N.H., indicated that Asset Exchange's change in policy only brought the firm into line with a policy that Brookwood has had in place for more than five years.
"We always give the credit union the option of hiring us themselves," said Kolk. "Every credit union is presented that choice, some choose one way, some choose another. So, while an interesting announcement, I don't think it changes anything" in the industry overall.
Kolk said some credit unions choose to have the buyers pay for the sale because that means the CU is not paying for it. Sometimes it's a budget issue, he said, a certain amount has been budgeted for the sale and paying the brokerage fee would take the deal over budget.
The bigger issue may be how portfolio buyers will react to having a broker represent the credit union selling a portfolio. In the past the former MBNA, now FIA Card Services (a division of Bank of America), would not work with credit unions that used independent brokers in card portfolio sales. But company executives have said that the firm's policy has changed and that it welcomes broker involvement.
Elan Financial Services, another active purchaser of CU card portfolios, said that it also welcomes the work of brokers with credit unions.
"From our perspective it only helps us," said Dan Roads, first vice president with the card buyer. "We believe we make strong offers for credit union card portfolios and a credit union having a broker who can help it understand and appreciate the offer is only a good thing for us." --firstname.lastname@example.org