May 2, 2007

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  NEWS: Sallie Mae Loses on 1st Quarter

  Sallie Mae's parent SLM Corp., the nation's biggest lender of student loans, announced earlier this week that it lost some 24% of its first-quarter profits as a result of delinquency and default. The news from SLM – which will soon be going private as a company – follows similar woeful proclamations from many financial institutions, as the dramatic downturn of the subprime market continues to have a domino effect on the credit industry as a whole. The company announced that, between January and March, it earned $116 million, or 26 cents a share; that's a significant drop from the $152 million, or 34 cents a share, that it pulled in last year during the same time period. Analysts at Thompson Financial were predicting a 75-cent-per-share increase for SLM this past quarter; reality fell far short.
  
  SLM was just purchased in one of the biggest private buyouts ever by private-equity firm J.C. Flowers & Co. and three other investors in a $25 billion deal. The news came on the heels of demands by lawmakers and regulators that standards become tighter in the $85 billion college loan industry. As the industry giant, Sallie Mae was hit particularly hard by these new rules, which prohibit lenders from tempting college officials to steer students towards particular lenders. According to experts, the legislation affected the industry to such a degree, that it made Sallie Mae a particularly ripe candidate for takeover. About 84% of Sallie Mae's portfolio consists of private loans not backed by the government. It was in this arena that SLM lost money; taking a 3.4% hit on defaults.
  
  
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