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ARLINGTON, Va. – The high premiums which have characterized purchases of credit union card portfolios for the past few years may be a thing of the past – at least for now, according to card portfolio brokers and some buyers. Rising interest-rates combined with the relatively inflexible nature of the card portfolio asset make them less profitable and somewhat unwieldy, the brokers and buyers explained. Tim Kolk, managing partner of Brookwood Capital, a brokerage for credit union card portfolios, explained that the rising interest rate market has been undermining some of the profitability credit union card portfolios have generally held. “A quality buyer is not going to want to pick up a card portfolio and immediately re-price it because that’s bad for the credit union and ultimately counter-productive,” Kolk explained. “But that can mean that some CU portfolios aren’t as good a deal now as they once were.” The other part of the card portfolio purchase, the opportunity to market cards to the often 75% or 80% of the credit union’s membership which has not taken the CU’s card before, still represents an opportunity, Kolk said. But it will likely be between two and four years before a new issuer will realize a full return from that market, he said. Kolk said that the firm was still seeing credit unions that were at least thinking of selling their portfolios, but that there was a marked reluctance among the buyer to offer the same premium. “There is still interest in the portfolios,” Kolk said, “just not as much interest in spending quite as much for them.” Willie Koo, CEO of Asset Exchange, the leading broker of credit union card portfolios, agreed with Kolk and said that while he lacked the statistics to look at the overall trend, over the last couple of months the firm had noticed premiums dipping. “The problem is really that credit unions have fixed rate cards or a fixed rate portfolio and that can be hard to change in this environment,” Koo said, who added that Asset Exchange was also helping evaluate a number of portfolios for possible sale. “It’s a tough balancing act for any of the buyers to pull off,” Koo said. “How much do you want to invest in a product whose margins may be gradually shrinking but which may have a lot of good growth potential?” Keith Floen, manager with InfiCorp, and one of the frequent purchasers of credit union card portfolios, was even blunter. “I think we have seen the top of the market for premiums on card portfolios,” he said, “at least for now.” In addition to echoing the observations of other card portfolio brokers and buyers about the changes in the market, Floen also observed that there may be some reluctance among some credit unions about going with MBNA as a card portfolio purchaser and partner after the noted card giant indicated its pending merger with Bank of America. But Hal Erskine, senior executive vice president with MBNA, said that the firm was as busy as it ever was and has a number of deals working their way to closing. He declined however to make any observations about premiums, noting that the topic was among the most sensitive competitive factors in the card portfolio market. “I really can’t comment on anything to do with premiums and wouldn’t really know about that anyway,” Erskine said. “None of the credit unions with who we do business want us to know what other buyers might be offering for their portfolios,” he said. He did say that the card firm had been reassuring credit unions that the same policies regarding pricing, commitment not to cross sell and customer service would be in place after the merger and predicted that the firm would make some purchase announcements in four to eight weeks. Glen Lee, vice president of TNB card services, the card services and management arm of credit union-owned Town North Bank, put the drop in premiums in a broader context, observing that the market for card portfolios may have stabilized and the lower premiums merely reflect the natural progression in the market from credit card portfolios being a relatively new an innovative product and agent programming an innovative service to both being considered a better known product and service. “I think it may be that we have just moved through this market and some sort of premium stabilization is natural,” Lee said. “There is still a market for the portfolios but it may not be at the same quick pace that it has been before,” he said. [email protected]

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