Sallie Mae: Loan Write-Offs To Slow In Early 2010
22 Julio 2009 - 8:23AM
Noticias Dow Jones
SLM Corp. (SLM) said losses from souring student loans will slow
early next year and will peak in the third-quarter.
"Early delinquency buckets are showing improvements," Albert
Lord, chief executive of the largest U.S. student loan company,
also known as Sallie Mae. Lord's comments came during a conference
call Wednesday morning to discuss the company's second-quarter
earnings, which were announced Tuesday after the close of the U.S.
stock market.
The company wrote off $355 million of its private education
loans in the second-quarter, an increase from $202 million in the
preceding quarter. About half of these loans were non-traditional
private education loans, a market segment the company discontinued
18 months ago.
Private student loans, which aren't guaranteed by the
government, are riskier - and more profitable - than federal loans.
But private loan volume has declined because of the freeze in the
credit markets where lenders like Sallie Mae would fund these
loans.
Sallie Mae squirreled away $362 million to reserve against
potential losses on its private student loans.
While 90-day plus delinquencies rose during the quarter, early
stage delinquencies declined. The total loan loss allowance totaled
nearly $2 billion at the end of the second-quarter and covers
expected losses for the next two years.
The company Tuesday evening reported a loss of $122.7 million,
or 32 cents a share, compared with year-earlier earnings of $265.7
million, or 50 cents a share.
Sallie Mae, which makes private and federal student loans, gets
nearly one-third of its income from the federal student loans it
makes on behalf of the government. It earns another third of its
income from the interest it charges on private student loans; the
remaining one-third comes from a number of smaller businesses,
including fees from college savings plans and collecting defaulted
student debt.
The company last month won a crucial contract from the U.S.
Department of Education to service federal student loans. The
five-year contract will provide income that would help offset the
loss in revenue stemming from the Obama administration's plans to
rein in subsidies on federal student loans, which make up a chunk
of the portfolio of Sallie Mae and other student lenders.
Investors have been concerned about the Obama administration's
proposal to eliminate the income that Sallie Mae gets from federal
student loans. But they hope that this loss in income would be
somewhat offset by the plan's requirement for the participation of
private lenders, such as Sallie Mae, for the servicing of federal
student loans.
Income from loan-servicing "will begin to contribute to earnings
per share soon," said Lord, and will increase in significance "as
we build our servicing portfolio."
To be sure, Sallie Mae's earnings are still expected to suffer
as a result of the potential revenue loss under the Obama proposal.
But additional income from servicing the federal student loans
should help make up for that; the extent to which it would help
depends on the volume of student loans Sallie Mae would
service.
The company also said that net interest income, which has been
negatively affected by dislocations in the commercial paper market,
would improve "significantly" in the third-quarter as this market
normalizes.
Net interest income declined by $105 million in the
second-quarter due to disruptions in the commercial paper market,
where companies typically fund their short-term funding needs.
Sallie Mae shares were quoted at $8.85 in pre-market trading.
The stock ended Tuesday at $9.51.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com