ARLINGTON, Va. – Credit unions contemplating selling theircredit card portfolios often face a challenging and unfamiliarprocess. While they might be assured that their card portfolios areworth something, and may even have received an offer or two out ofthe blue, they frequently have few means of measuring what theirportfolios might really be worth in the market. Further, sincevirtually all the sales involve entering into agent relationshipswith the portfolio buyers, they can face the prospect of trying toevaluate multi-faceted offers in which the premiums theirportfolios might bring might not be the most important factor.While their perspectives and backgrounds differ, card industryexecutives agree that credit unions thinking of selling theirportfolios should find a broker to help them evaluate the offersand make the sale – and finding a broker can be almost as importanta choice as finding a buyer. Frank Selker, president of AssetExchange, Portland, Ore., and other brokers pointed out that thedetails of dealing with a card broker are not so much mysterious asthey are merely unknown and that credit unions should shop aroundfor the brokerage that might fit the best. In the interest ofhelping that process, Credit Union Times offers some informationabout some of the current credit card brokers that specialize inworking with credit unions. The Most Active Independent “When youconsider all that's involved it's really surprising, almost alittle shocking, that as many credit unions sell their portfolioswithout a broker as they do,” said Selker, whose firm claims tobroker roughly 40% of the card deals in which the broker solicitsmore than one bid. According to Selker, as many as 33% of creditunions which have chosen to sell have done so without the help of abroker, a fact, Selker noted, that almost insures that those creditunions didn't get as good a deal as they could have. Asset Exchangecounts as a key strength its practice of not assuming that everycredit union should sell its portfolio. “When we evaluate aportfolio, we don't go in assuming that they need to sell,” Selkersaid. “In fact, there are some who should not and we will advisethem of that.” But Selker said the firm's key strength, which itshared with other independent card brokers, rested in bringing thecredit union more than one bid. “We try to bring credit unions atleast three bids for the portfolios,” Selker said, “and we are onlyreally happy if we can bring five.” Bringing more bids for aportfolio helps a selling credit union in two ways, Selkerexplained. First it enables the credit union to get significantlybetter prices for its portfolio and, second, it enables the creditunion to demand more of the qualities it wants in its ideal deal. Acredit union could get three bids, Selker continued, one with agood premium, the second with some different customer servicearrangements that it likes, and the third with some revenue sharingthat it likes. By seeing three bids, the credit union is able to goto the one it likes the best and make specific proposals for how itcould be made better. “They can say, `we like your premium butcould you do a little bit better on the revenue sharing' andprobably negotiate what they want,” he said. In seeking additionalbids, Asset Exchange and all the other independents distinguishedthemselves from Kessler Financial Services, the Boston based firmthat brokers deals primarily, if not exclusively, for MBNA. Kesslerdeclined to comment for this story, but the firm is widelyconsidered to bring only one bid, MBNA's, to the table when itcontacts a credit union. Selker and the other brokers remainedsteadfast in their opinion that, even though Kessler brokers anestimated 40% of credit union card portfolios, such an approachdoes not offer the credit union the best sale opportunities.Brokering Cards Is Something Like Real Estate “In a lot of ways,finding a credit card portfolio broker is a lot like finding a realestate agent,” explained Tim Kolk, one of the principal partners inBrookwood Capital, LLC, a firm based in Peterborough, New Hampshirethat is the most recent significant player in the credit cardbrokerage market. “A real estate agent is going to help the sellerspackage their property for the market and help find them a buyer.They are going to handle all the ins and outs of a transaction thatmay not be familiar to the real estate owner.” At about three-yearsold, Kolk estimated that Brookwood Capital had brokered about 20credit union card portfolios, but pointed out that this is only asmall portion of more than 200 deals in which the firm's principalshad been involved over the years. Jim Walsh another principal andfounder of the firm had been an investment banker and formerpartner in Kessler Financial for 12 years. Walsh founded Brookwoodafter deciding that he wanted to offer credit unions a more diverserange of buyers than he could at Kessler. That split has fueledrumors in the industry that MBNA declined to work with Brookwood,an allegation which Walsh and Kolk both firmly disputed. “When Ileft Kessler it was very amicable,” Walsh said, “I was invited tothe Christmas party that year for example,” he said. Kolk notedthat the firm had not brokered any credit union deals for MBNA inpart because Kessler had often been on the scene first and, when itwas, MBNA had a policy of going with the package that Kessler hadput together. Credit Cards As Part Of Overall Picture MorganKeegan, the large investment firm based in Memphis, Tenn. with 145offices spread around the country is another firm that few creditunions might recognize as a card broker but which occasionallybrokers credit union card sales. Rick Spell, Managing Director forthe investment firm, explained that the firm sought to serve creditunions and other financial institutions primarily as a fixed rateinvestment advisor and sometimes would help a credit union sell itscard portfolio from that context. “Sometimes in the course ofevaluating a credit union's overall finances we will point out thatthe money in a portfolio could be better employed for theinstitution,” Spell explained. “When that is the case we willevaluate the portfolio's current worth and the trends in it andmake a recommendation. If the credit union is willing, we willbroker the sale.” Spell acknowledged that his firm's approach tocard portfolios as part of a credit union's overall investmentstrategy meant that the firm was not interested in the credit cardas a particular product for the credit union. The firm does not,for example, run any examples of what might happen with theportfolio if the credit union managed it differently. “We look atthe past trends of the portfolio and offer advice based on those,”he said. Spell said business had been active this year, and saidthat he had four credit union card portfolios, ranging from $2.5million to $9 million, moving toward sales at this point.Experience Counts Robert Hammer, president of RK Hammer, a creditcard brokerage and consulting firm based in Thousand Oaks, Calif.explained that his wealth of experience made his credit unionclients seek out his services. Although he does not break down the114 deals he has brokered by financial institution, Hammermaintained that his 30 years as a credit union member, combinedwith his overall 23 years as a credit card manager and executive,gives him sensitivity to what credit unions need to see in theirportfolio deals. “I have long understood that while premiums arecertainly very important for credit unions selling theirportfolios, it's not the only thing by far. I can help a creditunion be certain going forward that they are getting the best deal,not only in the premium but in the other factors which make anagent relationship so important.” Hammer noted that experience withbeing on both sides of the table had helped firms whose portfoliosales he had brokered obtain an average premium of over 19%, almosttwo points over the 17.34% that he cited as the industry average.Currently, Hammer said he is working with six credit union clientswho are in the process of evaluating their portfolios for possiblesales or who have entered the sale [email protected]