ARLINGTON, Va. – MBNA, a leading purchaser of credit union card portfolios, has stopped working with independent card brokers in deals for the portfolios in which it is interested and will only work with Kessler Financial Services, a firm it has had a 20 year-relationship with. Hal Erskine, a senior executive vice president with the monoline issuer, confirmed the policy and said that MBNA had not used a broker on a deal since September 2004. "I can confirm that is correct," Erskine said of the policy, which appeared as part of an April 14 solicitation letter that Erskine said MBNA sends out over his signature roughly on a monthly basis. MBNA has gone on record explaining that it hasn't generally liked working with brokers on card portfolio deals because a broker's approach cannot convey, the card issuer has said, the depth and expertise of customer service which characterizes its work with credit unions. In addition, the fees and commissions that brokers charge the buyers of the card portfolio help deflate the premium that the buyers will pay for a credit union card portfolio, Erskine has argued. "Brokers like to point out that credit unions don't pay their fees," he said, "but we all know there is no such thing as a free lunch." But the April 14 letter was the first time the card brand has said that it would not work with brokers and explicitly appeared to warn credit unions away from using them. "Now, please don't misunderstand," the April 14 letter said. "use a broker if you must to solicit other bids. Just remember that a broker won't be able to get you an offer from MBNA," Erskine wrote. "So please be careful what you sign, an exclusive broker relationship could cost you significant and unnecessary fees or `commissions'", Erskine added. Erskine explained that MBNA was not opposed to credit unions using brokers to help evaluate their card options but would not be soliciting bids through any brokers. If a credit union wanted to solicit a bid from MBNA and then use a broker to solicit other bids, that would be fine, Erksine said. But if a credit union signed an exclusive agreement with the broker then it might be precluded from approaching MBNA independently. The letter also included a statement which it attributed to David Addison, CEO of the $1.4 billion Texans Credit Union: "Brokers gave us a lot of options to consider, but in the final analysis we chose to partner with MBNA because they and they alone understood our needs. Outside brokers created a biased auction environment that did not fully address our needs and cost us valuable time. Plus the double digit portfolio growth we have enjoyed since the transaction has proven we were right to work with the industry leader." Addison was unavailable to expand upon or clarify his comments and Asset Exchange, a leading independent broker of credit union card portfolios which was known to have handled the bulk of the deal, would not comment either. But the card broker did point out that the credit union had signed off on a case study that it had developed documenting the Texans' deal and that the case study had included quotes from the credit union indicating satisfaction with the broker's work. The study excerpt is as follows: "As a result of the assistance we received from AssetExchange, I am confident we made the best decision," said Dean Borland, COO of the creditr union in the case study. "AssetExchange gave us access to the most competitive offers, which helped us identify the best partnership to suit our members' needs." What Role Do Brokers Play? MBNA's move has highlighted two lingering controversies in the market for credit union credit card portfolios: what role do credit card portfolio brokers play and what, exactly, is the role that Kessler Financial Services plays with MBNA? Ironically, MBNA's statement of policy about brokers appeared in a letter that also highlighted what credit union executives and brokers said brokers can help a credit union do, namely to sort out competing claims among buyers. In the first paragraph of MBNA's letter, for example, the card issuer states that in 2004 it "led the field with 70% of all new partnerships and are now partnering with more than 85 credit unions serving more than three million members, making MBNA the leading credit card partner to credit unions." But when pressed, the company admitted that this statement was not quite accurate, that while MBNA took roughly 70% of credit union card portfolios over $10 million in assets, which are the portfolios for which it competes, the brand had only taken roughly 17% of the year's overall portfolios. Brokers, credit union executives have said, can help CUs narrow buyers down to facts and clarify what can sometimes be marketing hyperbole. Brent Lister, CEO of the $120 million Seaboard Credit Union, headquartered in Jacksonville, Florida, said that using brokers, not only in cards but across the board in buying services, is increasingly the way the credit union industry is going. If a vendor wants to hit a home run, Lister opined, the very first thing they have to do is to get to the plate and that's where brokers can help both sides of the transaction. They help move the vendor into position where they at least get a swing at the ball. Seaboard is concluding a deal with MBNA for its $12 million card portfolio, Lister explained, in a deal which both involved working with MBNA directly and working through AssetExchange. Lister explained that the credit union had begun the process with AssetExchange under a previous CEO and then picked up again from the beginning, based in part on the work already done with AssetExchange, when he came on board. Unlike other card portfolio sales which usually do not have the credit union pay the card broker directly, Lister said that Seaboard paid Asset Exchange for its work even though it had concluded its deal with MBNA independently. "I am a person who believes that someone should get paid for their work," Lister said, "and AssetExchange did a good job for us, even if it didn't result in this deal directly." Stephen Grech, vice president for lending for the $714 million Credit Union One, also pointed out that their work with a card brokerage firm, in 2003, had shown them that they had not gotten appreciably lower bids from buyers when using a broker. The credit union had sold $33 million of its then $40 million card portfolio to InfiCorp in 2003 and had worked with a broker and with InfiCorp directly. Grech also firmly endorsed the notion of a credit union using brokers to help organize and regularize the bidding process, pointing out that their broker had helped credit union staff be able to focus on different elements from different bids without getting lost in the forest of differing details and claims. Both CEOs were a little bit surprised at MBNA's stance as well since it is well known that the card brand works with Kessler Financial Services, a firm which has described itself as a broker in the past and which has a 20-year relationship with MBNA. Erskine acknowledged that MBNA works with Kessler and that it pays Kessler fees for its work on the portfolios upon which is bids, but he pointed out that Kessler has such an established relationship with MBNA that, on card portfolios of over $10 million, the card brand does not usually pay a fee in the same way it would pay a fee to another, more independent, card brokerage firm. The cost of working with MBNA in these deals are less fees and more a part of the overall relationship, Erskine explained. [email protected]

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