The New York Times-20080124-Sallie Mae Records Huge Loss On Bad Bets

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Sallie Mae Records Huge Loss On Bad Bets

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Sallie Mae, the embattled student lending giant, said Wednesday that it lost $1.6 billion in its fourth quarter as it prepared for a jump in student loan defaults and took a hit from bad bets on its stock price. It was a stark reversal from the $18 million it earned in the period last year.

The company, formally known as the SLM Corporation, disclosed separately in a regulatory filing that the Securities and Exchange Commission had asked last month for information related to stock sales by some of its directors and executives.

Contributing to Sallie Mae's loss was a $1.5 billion write-down related to its falling stock price and a $575 million loan-loss provision, meant to buffer against expected defaults in the high-risk portion of the company's portfolio.

Shares closed at $18.69, down 1.7 percent. They have fallen nearly 59 percent over the last year, after a failed $25 billion buyout, bad bets on its own stock and a peculiar conference call that ended with expletives.

Last month, the company was forced to raise $3 billion in new capital to pay off its bets that its stock price would continue rising.

The company has also had to grapple with cuts in federal subsidies and drastically tighter credit markets, which have increased the cost of the company's financing. Since April, Sallie Mae has relied on an expensive $30 billion credit line provided by two of its former suitors, JPMorgan Chase and Bank of America.

At an investors meeting Wednesday, Sallie Mae's newly reappointed chief financial officer, John F. Remondi, said the company was very, very close to refinancing that credit line. But both he and Albert L. Lord, the company's chief executive, warned that the new financing would come at a steep cost, given today's market conditions.

Using an internal accounting measurement, Sallie Mae lost $139 million, or 36 cents a share, for the fourth quarter. By that standard, it earned $326 million for the same period last year.

Both Mr. Remondi and Mr. Lord reiterated Wednesday that the company would cut back on loans made to nontraditional schools, especially those with lower graduation rates. Officials also affirmed that the company would cut operational costs by 20 percent and had already announced plans to lay off 350 employees.

Mr. Lord said Wednesday that the company's fundamental business of making both federally guaranteed and private loans to students remained strong. Sallie Mae originated $5 billion in loans in the fourth quarter and $25.5 billion in loans for the year.

Sallie Mae may also strike some deals, both men hinted. Mr. Lord suggested that the company might acquire smaller, weaker competitors, and the company's new chairman, Anthony P. Terracciano, said he was willing to try to sell the company again.

Not all of Sallie Mae's bad news was mentioned at the meeting. Tucked away in a regulatory filing on Wednesday was a statement that last Thursday the S.E.C. requested information and documents related to actions the company took last month, before and after stock sales by directors and executives.

Mr. Lord was required to sell more than 1.2 million of his shares in the company last month to meet personal borrowing requirements. In addition, a director, Charles L. Daley, sold about 80,000 shares. In its filing, Sallie Mae said it was cooperating with the commission's request. A spokesman for the S.E.C. declined to comment.

The meeting, held Wednesday at the Waldorf-Astoria in Midtown Manhattan, was largely subdued, in contrast to the company's conference call last month. During that call, Mr. Lord was alternately vague and brusque and punctuated the proceedings with an expletive.

A chastened Mr. Lord apologized on Wednesday for his conduct during the call. I can't say that it's the first time I used bad language, he said. It's the first time I said it in front of 500 people. During the December call, Mr. Lord also joked that investors would need to walk through metal detectors to enter the meeting. None were present on Wednesday.