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Sallie Mae Splits In Two, Will "Firewall" Student Loan Portfolio In Standalone Company

Tyler Durden's picture




 

How do you "extract" shareholder value when everyone and their grandmother knows you are one of the sole public proxies of an epic student loan bubble? You firewall its nearly $160 billion student loan portfolio (including Federal and Private) portfolio and associated origination and servicing exposure in its own public company and spin off the remainder as a separate "consumer banking" company. That is what Sallie Mae has just done.

What are the "assets" being firewalled?

  • The education loan management business’ principal assets are likely to consist of approximately $118.1 billion in FFELP Loans, $31.6 billion in private education loans, $7.9 billion of other interest-earning assets; and a leading education loan servicing platform that services loans for approximately 10 million federal education loan customers, including 4.8 million customer accounts serviced under the company’s contract with the U.S. Department of Education. In aggregate, this company will own approximately 95 percent of Sallie Mae’s existing assets and remain obligated for the company’s senior indebtedness.

The provided rationale for the split, from the press release:

The Board authorized management to pursue separation of the company’s existing businesses into two, separate, publicly traded entities -- an education loan management business and a consumer banking business -- to unlock value and enhance long-term growth potential.

 

The strategic plan will create two companies, each initially owned by Sallie Mae’s existing shareholders and the leader in its respective business lines. Sallie Mae would form an education loan management business comprised of the company’s portfolios of federally guaranteed (FFELP) and private education loans, as well as most related servicing and collection activities. This will be the leading education loan portfolio management, servicing and collection company, and Mr. Remondi will continue as its chief executive officer.

 

“This strategic separation represents a natural business evolution since FFELP originations ended in 2010. Sallie Mae has successfully adapted its businesses to remain at the forefront of education lending and servicing,” said Jack Remondi, chief executive officer. “Sallie Mae is the largest originator of private education loans, and we have diligently used credit standards that foster responsible borrowing. We’re also the largest servicer of private and FFELP loans with an important contract with the Department of Education. By separating our current operations into two businesses, we will facilitate focus on Sallie Mae’s growing consumer banking business and management of its education loan portfolios.”

What the last sentence should have said is the company will do its best to spin off whatever value it can from a ticking timebomb of what is becoming very clear to everyone is the next subprime crisis in terms of ultimate discharges, NPL and losses to originators. Luckily for SLM, the biggest originator in its case is the US government, which means the company's downside is limited.

That of the US taxpayer, however, especially if and when student loan discharge lawsuits swamp the US judicial system, isn't.

 

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Wed, 05/29/2013 - 08:04 | 3606799 new game
new game's picture

long firewalls

short downdrafts

Wed, 05/29/2013 - 08:05 | 3606805 King_of_simpletons
King_of_simpletons's picture

There is no bubble in student loans. Exfarts have said it: http://business.time.com/2013/03/07/viewpoint-stop-calling-student-loans...

Wed, 05/29/2013 - 08:06 | 3606815 malikai
malikai's picture

It's for the children, damnit!

Wed, 05/29/2013 - 08:23 | 3606866 azzhatter
azzhatter's picture

See how easy it is to fix these things

Wed, 05/29/2013 - 08:33 | 3606914 spastic_colon
spastic_colon's picture

and then you charge it to the taxpayers

Wed, 05/29/2013 - 08:35 | 3606921 jcaz
jcaz's picture

Oh look- they think of themselves as "a business"-

That's so precious.....

Wed, 05/29/2013 - 08:39 | 3606923 Big Slick
Big Slick's picture

If you believe the $1 Trillion number, it's hard to believe that Sallie owns less than one sixth of student loan debt.  I'm interested in knowing who owns the rest?  Are firewall plans in the works there too?

Wed, 05/29/2013 - 09:01 | 3607010 Jumbotron
Jumbotron's picture

Sallie Mae splitting in two......about says it all.....

“If money isn’t loosened up, this sucker could go down,” President Bush

Wed, 05/29/2013 - 09:40 | 3607136 Herd Redirectio...
Herd Redirection Committee's picture

Oh really?  Tax payers will be on the hook for this?  Or Treasury holders?

Fuck 'em.

Wed, 05/29/2013 - 11:34 | 3607560 Herd Redirectio...
Herd Redirection Committee's picture

http://beta.fool.com/mthiessen/2013/04/28/will-more-debt-laden-spin-offs...

Will More Debt-Laden Spin-offs Sue Their Parent Companies?
Wed, 05/29/2013 - 08:43 | 3606922 Big Slick
Big Slick's picture

BTW I owe fifty grand.  JUBILEE bitchez!!!!

Wed, 05/29/2013 - 13:03 | 3607854 dtwn
dtwn's picture

Hell yes.  40 here.  Where's my piece of the Keynesian wet dream fiat pie?

Wed, 05/29/2013 - 09:17 | 3607061 Jumbotron
Jumbotron's picture

"and then you charge it to the taxpayers"

And the taxpayers deserve every inch of it....long and hard.  They voted for this shit and have done nothing about it.

Wed, 05/29/2013 - 10:45 | 3607134 OneTinSoldier66
OneTinSoldier66's picture

Well now wait a second. What if I never really believed in the current "system" of representative democracy at a voting booth and never really voted in my life?(except perhaps when I first became of voting age decades ago because the propoganda hadn't been washed out of my brain yet)

 

What about people like me? What do I deserve? Where' my bailout? I at least want a cookie! Lol.

Wed, 05/29/2013 - 10:56 | 3607423 aerojet
aerojet's picture

I haven't voted since 1998, we're still on the hook for the "doing nothing" part--I guess we could have revolted more.  Dunno, man, dunno. 

Wed, 05/29/2013 - 08:08 | 3606820 EscapeKey
EscapeKey's picture

According to these idiots, there are never any bubbles but in gold.

Wed, 05/29/2013 - 19:36 | 3608852 Freewheelin Franklin
Freewheelin Franklin's picture

/internet

Wed, 05/29/2013 - 08:21 | 3606859 sleepyguy007
sleepyguy007's picture

i googled the guy who wrote that article (and he looks like he cant be much over 30 based on the picture).  given he's writing likely part time for time, and went to NYU which has annual tuition of $20k+ and probably has a liberal arts degree,  the fact that he's saying a $250k education is still worth it would make sense because if he didn't believe that it'd shatter his entire worldview.

i'd imagine being a writer doesn't quite pay enough to make his degree worth it, from an ROI perspective.

Wed, 05/29/2013 - 08:49 | 3606963 Its_the_economy...
Its_the_economy_stupid's picture

my neighbor's son writes internet articles like these, here how the scam works. You start writing for about.com or other "news" sites on topics of your choice. You get paid zip. overtime you build a "following". As your portfolio and following grows, the sites assign you topics to write on....for these you get paid. You might get 50-250 clown bucks per article, depending o the size of your following. I guess somewhere, somehow all this leads to a living, but asking this question results in empty stares.

Wed, 05/29/2013 - 10:01 | 3607211 FMR Bankster
FMR Bankster's picture

Best to pursue this line of "work" from your parents basement. Mooooom, bring me another mountain dew.

Wed, 05/29/2013 - 11:00 | 3607449 Buckaroo Banzai
Buckaroo Banzai's picture

MA!!! WHERE'S THAT MEAT LOAF???

Wed, 05/29/2013 - 08:21 | 3606860 mckee
mckee's picture

Semantics; yes student loans in and of themselves may not pop because the obligation to pay will "technically" still be there and the government will garnish whatever wages these individuals may be unfortunate enough to earn. But the failure to not recognize all the externalities and the uninitended consequences is truly a special kind of stupid.

Wed, 05/29/2013 - 08:32 | 3606912 LawsofPhysics
LawsofPhysics's picture

Indeed.  The major unintended consequence being that people will simple move away from monetary mechanisms/systems that are dishonest.  wages can only be "garnished" if they are known.

So long as there continue to be no real consequences for bad behavior, I remain long black markets and sharecropping.

Wed, 05/29/2013 - 08:46 | 3606948 mckee
mckee's picture

Semantics; yes student loans in and of themselves may not pop because the obligation to pay will "technically" still be there and the government will garnish whatever wages these individuals may be unfortunate enough to earn "LEGALLY". But the failure to not recognize all the externalities and the "social cost" is truly a special kind of "retarded".

Fixed!! (and I guess very few recognize the unintended consequences by definition)

Wed, 05/29/2013 - 09:35 | 3607123 Offthebeach
Offthebeach's picture

I don't pay, if possible. Paying taxes is materially assisting organized racketeering( Fed Reserve, TBTF, soul destructive welfare state...etc.)
"Owning" ( Goodwin alert ) is like being able to take " personal possessions " on the boxcar to the camps.
Work to be taxed, to work to buy to pay a tax from remains of labor to the be taxed every year upon threat of confiscation?
Please. Who would take such a deal?
Anyway, accelerate the inevitable, QE TO INFINITY!

Wed, 05/29/2013 - 08:13 | 3606840 lordbyroniv
lordbyroniv's picture

The bezzle is everywhere !!!!!

 

My dean at my law school made $500K a year to induce 21 year old kids to saddle themselves with 200k+ debt.

 

I aint playing anymore.

 

FUCK YOU AMERIKA !!

Wed, 05/29/2013 - 08:52 | 3606974 Its_the_economy...
Its_the_economy_stupid's picture

What is the name of the school?

Wed, 05/29/2013 - 09:53 | 3607174 ParkAveFlasher
ParkAveFlasher's picture

Let me guess: COLLEGE

Wed, 05/29/2013 - 10:59 | 3607439 aerojet
aerojet's picture

It doesn't matter--it's the same everywhere!  The university where I attended grad school has public employees making that kind of money as administrators.  Sometimes they retire, then come back as "consultants" making even more--so they get their state pension, then the new salary, too.  It's a fucking joke and it's all going down somehow.

Wed, 05/29/2013 - 08:04 | 3606801 max2205
max2205's picture

Bailout

Wed, 05/29/2013 - 08:16 | 3606818 GetZeeGold
GetZeeGold's picture

 

 

No jobs....but here's some amnesty.

 

Gonna be even less jobs after the illegals get their amnesty.

 

It's all about vote mining....screw the country.

Wed, 05/29/2013 - 08:04 | 3606802 More_sellers_th...
More_sellers_than_buyers's picture

Who would want it? 

Wed, 05/29/2013 - 08:06 | 3606811 malikai
malikai's picture

Long parachutes.

Wed, 05/29/2013 - 08:12 | 3606824 20834A
20834A's picture

Oh, this is just disgusting. There's always been corruption and double-dealing in the USA. But you know you're in big trouble, new territory, when they barely bother to pretend anymore. The mask is off> Fuck the serfs!

Edit: Gang-rape the serfs in the public square while snickering.

Wed, 05/29/2013 - 08:10 | 3606825 yrbmegr
yrbmegr's picture

Not a coincidence that this announcement closely follows yesterday's discharge of a student debt by the Ninth Circuit.  However, we will see whether that goes to the Supreme Court.  If it does, there is a 100% chance it will be vacated.

Wed, 05/29/2013 - 08:11 | 3606827 Headbanger
Headbanger's picture

WHAT DIFFERENCE DOES IT MAKE!?

http://www.youtube.com/watch?v=Ka0_nz53CcM

Wed, 05/29/2013 - 08:12 | 3606831 GetZeeGold
GetZeeGold's picture

 

 

It was such a long time ago.

Wed, 05/29/2013 - 08:12 | 3606833 Smuckers
Smuckers's picture

There must be some real nice hefty bonuses coming....

Wed, 05/29/2013 - 08:18 | 3606852 earnulf
earnulf's picture

Smoke and Mirrors, welcome to the show that never ends, come inside, come inside

Wed, 05/29/2013 - 08:19 | 3606853 slovester
slovester's picture

Next step:  bundle the student loans into CDO's with just enough performing loans to game the ratings agencies into giving the CDO's a AAA rating in order that the investment houses can snap them up and then comes the fast and furious derivatives bets around the junk paper.

 

Sound familiar?

Wed, 05/29/2013 - 08:27 | 3606884 new game
new game's picture

calling hedgies paulson; push the shit, short the shit.

Wed, 05/29/2013 - 11:00 | 3607448 aerojet
aerojet's picture

Except you won't be able to short them at all this time.

Wed, 05/29/2013 - 08:22 | 3606861 Hughing
Hughing's picture

Maybe the new Sallie will issue Visa's for victims of economic distress and .gov guaranties them......

Wed, 05/29/2013 - 08:24 | 3606875 Downtoolong
Downtoolong's picture

Privatize the profits and socialize the losses. So many ways to do it, so little time.

It kind of reminds me of my wife's view of our income and expenses. There's our money, and then there's her money.

 

 

Wed, 05/29/2013 - 08:30 | 3606897 LawsofPhysics
LawsofPhysics's picture

"There's our money, and then there's her money." -- very comforting to see that I am not alone in this view/experience.

Wed, 05/29/2013 - 09:44 | 3607148 Herd Redirectio...
Herd Redirection Committee's picture

"Everything thats yours is mine AND everything thats mine is mine"

Wed, 05/29/2013 - 10:46 | 3607386 MagicHandPuppet
MagicHandPuppet's picture

That's very socialist of her.

Wed, 05/29/2013 - 11:01 | 3607453 aerojet
aerojet's picture

She probably attended one of those Liberal Arts colleges.

Wed, 05/29/2013 - 08:29 | 3606891 LawsofPhysics
LawsofPhysics's picture

Ah yes, the profits will be kept be a relative few (who are responsible for the losses to begin with), nobody will be held accountable, nd the middle class will pay.  Same as it ever was...

roll the motherfucking guillotines...

 

Wed, 05/29/2013 - 08:38 | 3606930 Tsar Pointless
Tsar Pointless's picture

No room for guillotines. We need the space for hockey rinks and baseball fields.

Wed, 05/29/2013 - 08:31 | 3606906 new game
new game's picture

the education institute, unions roll on-recycle back to reelection-cycle complete less a trillion losses to plebs...

Wed, 05/29/2013 - 08:31 | 3606908 mydogisprettier...
mydogisprettierthanyou's picture

can someone break it down for me what this means?

Wed, 05/29/2013 - 08:43 | 3606945 Squiddly Diddly
Squiddly Diddly's picture

Privatize the gains, socialize the losses.

Wed, 05/29/2013 - 08:32 | 3606911 lower98th
lower98th's picture

Here's how to fix Student Loans:  Educational institution responsible for shortfalls in student repayment.

Wed, 05/29/2013 - 08:36 | 3606919 LawsofPhysics
LawsofPhysics's picture

Paritcularly those in the administration who managed/promoted this behavior and profitted handsomely from it.  I know several hardworking/honest/intelligent faculty at a local ag school.  Yet to meet an administrator of similar moral fiber.  This is what just slays me, there is a fucking paper trail for all of this.  we know who promoted the activity and who profitted from all this shit.  Hold the fuckers (including immoarl students) accountable for christ sake.

Wed, 05/29/2013 - 11:04 | 3607457 aerojet
aerojet's picture

Yes--it is very important to note that the faculties have not experienced the windfall.  It was administrators and their cronies, especially construction companies.  Campuses all across the nation underwent tremendous building booms and now they are saddled with huge infrastructure costs to maintain all those new buildings.  The people that did this followed the "you'll be gone, I'll be gone" modus operandi.

Wed, 05/29/2013 - 08:38 | 3606932 orangegeek
orangegeek's picture

In then end, who fucking cares?  If I worked at FM, so long as they paid me, I would keep shuffling the deck of rotten stench.

 

Six years later and the system is worse than ever.

 

Who's going to make a billion and write a book about it during this crash?

Wed, 05/29/2013 - 08:40 | 3606936 madcows
madcows's picture

So, this is an admission that student loans are a serious threat?

Wed, 05/29/2013 - 08:48 | 3606951 venturen
venturen's picture

If you promise to vote democrat....your loan is forgiven.... Vote GOP your loan rate is increased and the amount doubled! The IRS and NSA are watching....what would Ryan Lochte do?

Wed, 05/29/2013 - 08:46 | 3606953 bugs_
bugs_'s picture

fraudulent conveyance

Wed, 05/29/2013 - 08:51 | 3606968 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

PhDs for ALL!

Wed, 05/29/2013 - 08:53 | 3606978 Seasmoke
Seasmoke's picture

Out of every Greenspan and Bernanke bubble. I cannot think of a more evil one than the student bubble.

Wed, 05/29/2013 - 08:55 | 3606986 NEOSERF
NEOSERF's picture

No taxpayer left behind

Wed, 05/29/2013 - 09:11 | 3606998 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

The only real news here is the implied admission that the student loans are toxic turds like cancers threatening the host. Not like we didn't know that already but tell it to the rest of main stream America aka the parents who's little miss can't be wrongs, the majority of them are co-signed on these loans that they still think are going to pay off in the long run for their genetic droppings. I don't know who has been hoodwinked worse the kids with told and sold on college degrees that have no use in the real job market or the parents who believe any college degree is worth the money spent on it regardless of value in the real world. In the cases of the parents who co-signed these loans for useless real world degrees I plan them more than I blame the kids, kids are at that age tend to be irresponsible (hey we were all kids once too don't gloss over your fuck ups to play holier than thou) and it is the parents job to keep them on track and they failed miserably in this regard. Yes the kids deserve their share of responsibility in this mess but when the public education system fails to teach properly from cradle to college  and not just the three r's but the common sense and fundamental stuff you learn through popular culture and interactions with other children and adults who actually practice it that is symptomatic of a bigger problem.

Frankly in this case I don't blame the government for this mess since they didn't force you to go to college but the interaction part holds true with them since if they want to practice responsibility they will make these parents and kids accept their portion of responsibility for making bad decisions (ignorance is not an excuse as they say in traffic court) instead of doing the inevitable which is forcing it onto the rest of the taxpayers backs and absolving these people of their portion of responsibility. If they want to spread the blame force the fucking universities to foot some of this cost or forgive a portion of the debt since it is between the students/parents who co-signed the loans and the universities. Keep it to the parties involved and leave everyone else out of it.

Wed, 05/29/2013 - 09:01 | 3607009 Greenhead
Greenhead's picture

I love how the debt is guaranteed by the 'government'.  As if they had any money of their own.  Please call it the way it is: your kid's debt is guaranteed by working Americans. 

 

Wed, 05/29/2013 - 09:03 | 3607016 Fix-ItSilly
Fix-ItSilly's picture

This is a fraudulent raid on the assets of the company.  As the US Govt is on the hook guaranteeing many of these loans, Sallie Mae should not be allowed to put these assets, present when the US Govt made the loan guarantees, out of reach of the US Govt.

Wed, 05/29/2013 - 09:11 | 3607041 Fix It Again Timmy
Fix It Again Timmy's picture

Looks like we taxpayers will be kissing Sallie Mae where she stinks....

Wed, 05/29/2013 - 09:28 | 3607098 Jim B
Jim B's picture

Yes, I was thinking about taking my liabilities and spinning them off into a separate entity! LOL!

Wed, 05/29/2013 - 10:00 | 3607206 Hedgetard55
Hedgetard55's picture

Since Ben or his succesor will have to print new money to cover these debts, the tab is really going to be picked up by anyone who owns cash or cash equivalents, not just US taxpayers.

Wed, 05/29/2013 - 10:04 | 3607221 ThisIsBob
ThisIsBob's picture

Apparently  being ass over teakettle in debt is the best our educational system can come up with to motivate kids to work harder, longer, better.

Wed, 05/29/2013 - 10:14 | 3607275 Yen Cross
Yen Cross's picture

     The head line should read   "Sallie Mae", starts zombie bank to contain student loan defaults...

Wed, 05/29/2013 - 10:40 | 3607364 Shaten
Shaten's picture

who isn't going to short this???

Wed, 05/29/2013 - 10:44 | 3607377 MagicHandPuppet
MagicHandPuppet's picture

By the power invested in my puppet, I hereby grant all student loans forgiven!!!!  There may be a few letters and phone calls from those who have not yet submitted to my authority.  I hereby grant you the ability to ignore them.

Wed, 05/29/2013 - 12:29 | 3607742 SmittyinLA
SmittyinLA's picture

bullish on litigation lawyers 

Wed, 05/29/2013 - 21:22 | 3609113 samsara
samsara's picture

To those who say... 

I did everything right,  I went to school, and went in debt and what did I get

I give you the quote of the night From Otter to Flounder from Animal House

 

"You F'ed up, you trusted us"

http://www.youtube.com/watch?v=zOXtWxhlsUg

Thu, 05/30/2013 - 06:51 | 3609742 zipit
zipit's picture

Discharge, bitchez!  –TBTF

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