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May 2, 2007
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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