Sallie Mae

Update - 2009-02-26: Included in President Obama's 2010 budget proposal is a provision that CNN Money reports would "effectively end private sector student lending" by eliminating subsidies paid to banks by the government to incentivize their participation in making the loans. Self-described as the "largest and lowest-cost provider of student loan services," Sallie Mae would be directly affected. Bloomberg had this quote:

"The market is shaken by this," said David Long, an analyst with William Blair & Co. in Chicago. Federally backed loans are Sallie Mae's "core business," he said.

Sallie Mae issued a statement in response to the proposal, saying they would "continue to work with the Administration and Congress to implement the best solution for students, schools and taxpayers." The term "work with" certainly appears to us to mean 'lobbying' and we wonder how many millions will be thrown against the wall in order to preserve what the Obama administration says might save as much as $4 Billion per year. Shares in SLM were down over 30% at $5.80 at the end of trading after falling to as low as $4.72 earlier in the day.

Under the proposal, the government would become "the sole provider of federally backed college lending," Bloomberg noted:

"About 64 percent of federal student loans are made by private lenders, are subsidized and are guaranteed by the government, according to the House Education and Labor Committee. The remaining 36 percent are loans directly from the government to students, the method by which [all] future loans would be made under Obama's proposal."

Original Posting - 2008-01-04: Although outside of the Mortgage Lending sphere, Sallie Mae's trouble should be listed here as strictly a sign of the times... part of the historical record. We don't expect to Implode them, but they should be noted here as a step-sister or cousin of Fannie and Freddie.

"From the financial sector, Sallie Mae (SLM, Fortune 500) said Thursday that it needs to sell $205 billion worth stock to buy out certain contracts that have hindered the student lender's performance. The company also said it faces a class-action lawsuit alleging that the company steered minority students into more expensive loans, an allegation the company denied. Shares of Sallie Mae plunged nearly 7 percent by mid-day."

BusinessWeek states "Last week, the company's shares plunged to their lowest price since early 2001.".

More from CNN Money, Dec. 27, 2007:

"Last week Sallie Mae's shares fell to a five-year low after the company's chief executive failed to satisfy Wall Street analysts seeking details about the company's plans to shore up its finances in the wake of a failed $25 billion buyout.

Sallie Mae also has been trying to close out share repurchase agreements, which allowed the company to profit from rising share prices, but turned into a problem when the company's share price fell.

The company is now forced to buy the shares back from Citigroup by Feb. 22. Citigroup agreed last week to assume responsibility for those contracts from other investors.

Sallie Mae said after the close of trading Wednesday it would use about $2 billion raised through the stock offering to buy back 44 million shares at $44.25 per share. The remainder would be used for general corporate purposes. Sallie Mae had 414.1 million shares outstanding as of Sept. 30."

While the company said last week it intended to raise more capital to shore up its credit, Sallie Mae said in the SEC filing that it cannot reassure investors that the stock offering will raise enough capital to maintain its credit ratings. The company also said it may issue additional common stock "to maintain, and ultimately improve our credit ratings."

Sallie Mae's chief executive, Albert Lord, was widely criticized last week after a contentious conference call in which he dismissed several analysts' questions and ended the call with an expletive, something generally reserved for Implode-O-Meter interviews.

SLM says they are negotiating with 10 financial institutions to replace a$30 billion credit line before Feb 15th.

"...Moreover, defaults are mounting on student loans, while credit-market tremors similar to those linked to the mortgage crisis have begun to show up in the $85 billion student-loan market."

And finally, from TheStreet.com -- The Five Dumbest Things on Wall Street This Year:

"Dumb-o-Meter Score: 100. That's right, my Sweet Lord was granted this column's only perfect 100 score. He is our own Nadia Comaneci. Our children's children may not live to see another."