ARLINGTON, Va. – Credit unions contemplating selling their credit card portfolios often face a challenging and unfamiliar process. While they might be assured that their card portfolios are worth something, and may even have received an offer or two out of the blue, they frequently have few means of measuring what their portfolios might really be worth in the market. Further, since virtually all the sales involve entering into agent relationships with the portfolio buyers, they can face the prospect of trying to evaluate multi-faceted offers in which the premiums their portfolios might bring might not be the most important factor. While their perspectives and backgrounds differ, card industry executives agree that credit unions thinking of selling their portfolios should find a broker to help them evaluate the offers and make the sale – and finding a broker can be almost as important a choice as finding a buyer. Frank Selker, president of Asset Exchange, Portland, Ore., and other brokers pointed out that the details of dealing with a card broker are not so much mysterious as they are merely unknown and that credit unions should shop around for the brokerage that might fit the best. In the interest of helping that process, Credit Union Times offers some information about some of the current credit card brokers that specialize in working with credit unions. The Most Active Independent “When you consider all that's involved it's really surprising, almost a little shocking, that as many credit unions sell their portfolios without a broker as they do,” said Selker, whose firm claims to broker roughly 40% of the card deals in which the broker solicits more than one bid. According to Selker, as many as 33% of credit unions which have chosen to sell have done so without the help of a broker, a fact, Selker noted, that almost insures that those credit unions didn't get as good a deal as they could have. Asset Exchange counts as a key strength its practice of not assuming that every credit union should sell its portfolio. “When we evaluate a portfolio, we don't go in assuming that they need to sell,” Selker said. “In fact, there are some who should not and we will advise them of that.” But Selker said the firm's key strength, which it shared with other independent card brokers, rested in bringing the credit union more than one bid. “We try to bring credit unions at least three bids for the portfolios,” Selker said, “and we are only really happy if we can bring five.” Bringing more bids for a portfolio helps a selling credit union in two ways, Selker explained. First it enables the credit union to get significantly better prices for its portfolio and, second, it enables the credit union to demand more of the qualities it wants in its ideal deal. A credit union could get three bids, Selker continued, one with a good premium, the second with some different customer service arrangements that it likes, and the third with some revenue sharing that it likes. By seeing three bids, the credit union is able to go to the one it likes the best and make specific proposals for how it could be made better. “They can say, `we like your premium but could you do a little bit better on the revenue sharing' and probably negotiate what they want,” he said. In seeking additional bids, Asset Exchange and all the other independents distinguished themselves from Kessler Financial Services, the Boston based firm that brokers deals primarily, if not exclusively, for MBNA. Kessler declined to comment for this story, but the firm is widely considered to bring only one bid, MBNA's, to the table when it contacts a credit union. Selker and the other brokers remained steadfast in their opinion that, even though Kessler brokers an estimated 40% of credit union card portfolios, such an approach does 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 real estate agent,” explained Tim Kolk, one of the principal partners in Brookwood Capital, LLC, a firm based in Peterborough, New Hampshire that is the most recent significant player in the credit card brokerage market. “A real estate agent is going to help the sellers package their property for the market and help find them a buyer. They are going to handle all the ins and outs of a transaction that may not be familiar to the real estate owner.” At about three-years old, Kolk estimated that Brookwood Capital had brokered about 20 credit union card portfolios, but pointed out that this is only a small portion of more than 200 deals in which the firm's principals had been involved over the years. Jim Walsh another principal and founder of the firm had been an investment banker and former partner in Kessler Financial for 12 years. Walsh founded Brookwood after deciding that he wanted to offer credit unions a more diverse range of buyers than he could at Kessler. That split has fueled rumors in the industry that MBNA declined to work with Brookwood, an allegation which Walsh and Kolk both firmly disputed. “When I left Kessler it was very amicable,” Walsh said, “I was invited to the Christmas party that year for example,” he said. Kolk noted that the firm had not brokered any credit union deals for MBNA in part because Kessler had often been on the scene first and, when it was, MBNA had a policy of going with the package that Kessler had put together. Credit Cards As Part Of Overall Picture Morgan Keegan, the large investment firm based in Memphis, Tenn. with 145 offices spread around the country is another firm that few credit unions might recognize as a card broker but which occasionally brokers credit union card sales. Rick Spell, Managing Director for the investment firm, explained that the firm sought to serve credit unions and other financial institutions primarily as a fixed rate investment advisor and sometimes would help a credit union sell its card portfolio from that context. “Sometimes in the course of evaluating a credit union's overall finances we will point out that the money in a portfolio could be better employed for the institution,” Spell explained. “When that is the case we will evaluate the portfolio's current worth and the trends in it and make a recommendation. If the credit union is willing, we will broker the sale.” Spell acknowledged that his firm's approach to card portfolios as part of a credit union's overall investment strategy meant that the firm was not interested in the credit card as a particular product for the credit union. The firm does not, for example, run any examples of what might happen with the portfolio if the credit union managed it differently. “We look at the past trends of the portfolio and offer advice based on those,” he said. Spell said business had been active this year, and said that he had four credit union card portfolios, ranging from $2.5 million to $9 million, moving toward sales at this point. Experience Counts Robert Hammer, president of RK Hammer, a credit card brokerage and consulting firm based in Thousand Oaks, Calif. explained that his wealth of experience made his credit union clients seek out his services. Although he does not break down the 114 deals he has brokered by financial institution, Hammer maintained that his 30 years as a credit union member, combined with his overall 23 years as a credit card manager and executive, gives him sensitivity to what credit unions need to see in their portfolio deals. “I have long understood that while premiums are certainly very important for credit unions selling their portfolios, it's not the only thing by far. I can help a credit union be certain going forward that they are getting the best deal, not only in the premium but in the other factors which make an agent relationship so important.” Hammer noted that experience with being on both sides of the table had helped firms whose portfolio sales he had brokered obtain an average premium of over 19%, almost two points over the 17.34% that he cited as the industry average. Currently, Hammer said he is working with six credit union clients who are in the process of evaluating their portfolios for possible sales or who have entered the sale process. [email protected]