Sallie Mae: Interested In Exploring Citi's Student Loan Operations
May 19 2010 - 10:28AM
Dow Jones News
SLM Corp. (SLM) is interested in acquiring student lenders
suffering from the termination of the Federal Family Education Loan
Program, the company said at an investor conference Wednesday.
Notably, Vice Chairman and Chief Financial Officer Jack Remondi
told participants at the Barclay's Financial Services Conference in
London that SLM, known commonly as Sallie Mae, "would be interested
in exploring" the student lending operations of Citigroup Inc. (C),
which is the next largest player in the industry. Citigroup has
placed its 80%-owned Student Loan Corp. (STU) in Citi Holdings, its
line of non-core businesses, which it has said it wants to exit as
soon as possible.
In late March, lawmakers voted to eliminate the Federal Family
Education Loan Program, or FFELP, ending fees paid by the
government to banks that originate federally guaranteed loans. The
loss of funding is a major hit for many originators, though four
companies were chosen to service the loans that will now be
originated directly through the government, helping soften the blow
slightly. Sallie Mae was one of those companies.
"The declining business model makes it, we think, a ripe
opportunity for entities to exit the business, particularly if it's
not material to them," Remondi said. "We are, we believe, the best
positioned to take advantage of these acquisition opportunities to
add to our revenue stream."
Sallie Mae, the biggest originator of federal loans, also has a
large private loan portfolio and a steady revenue stream from loan
guarantee and collection businesses, among other operations. The
company stated during its first-quarter earnings call that it was
interested in acquiring the federal loan portfolios of lenders that
will be in runoff mode once new originations cease July 1.
Remondi also noted that even though Sallie Mae won't be
originating new loans, its $147 billion federal loan portfolio
isn't winding down immediately. The average life of Sallie Mae's
federal loans is 7.8 years.
Meanwhile, Remondi said Sallie Mae is continuing to see the
quality of its private loan portfolio improve as it requires more
students to have co-signers.
Shares of SLM were trading recently at $11.38, up 4 cents.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
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