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Sallie Mae Beats Estimate – Analyst Blog

Zacks Market Commentaries — Wed, 21 Oct 2009 14:27:26 +0000

SLM Corporation (SLM) or commonly know as Sallie Mae, reported third quarter core earnings of $164 million or 26 cents per share. Results were well ahead of the Zacks Consensus Estimate of 8 cents per share. The company had earned 19 cents in the year-ago period.

Results reflected improvements in the credit market and an increase in loan originations. However, loan loss provisions remain high.

Quarterly results included a gain of $74 million on the repurchase of debt and a $55 million accounting adjustment to reflect slower loan prepayments.

Sallie Mae posted a net income attributable to common stock of $116.5 million, or 25 cents per share, compared with a loss of $186 million, or 40 cents, in the year-ago period. Core earnings return on assets was 0.31%, up 6 basis points (bps) year-over-year.

Sallie Mae originated $6.9 billion in federal student loans in the reported quarter. This represents a 25% increase from the prior-year period. The company wants to service these loans which are eligible for the U.S. Department of Education’s purchase program.

However, the origination of private education loans (PELs) decreased significantly during the quarter. Sallie Mae originated $893 million in PELs compared to $2.1 billion in the year-ago quarter. Results reflected conservative underwriting approach and a decrease in loan demand, reflecting recession.

Net interest income (on a core basis) for the quarter was $689.6 million, down 3.2% year-over-year. Credit metrics weakened during the reported quarter. Provision for private education loan losses was $413 million, up from the second quarter's $362 million, while charge-offs rose to $443 million from $355 million in the previous quarter.

Annualized net charge-offs were 8.1% of average managed PELs in repayment (up 140 bps sequentially) while delinquencies increased 40 bps sequentially to 10.0% of managed PELs in repayment. Though management expects loan charge-offs to decrease from the current quarter, they are still expected to remain at historic highs.

Core fee income including the debt repurchase gain was $331 million. Results were well ahead of the prior-year period’s income of $64 million. However, we note that the prior-year quarter’s results included $242 million impairment in the company’s purchased-paper line of business.

The company reported operating expenses of $309 million, a 2.5% decrease from the prior-year quarter’s expense of $317 million.

Sallie Mae also remains focused on bolstering its capital levels. This included the completion of $2.8 billion in private education loan securitizations, reducing the asset-backed commercial paper or ABCP outstanding facilities to $9.4 billion from $12.5 billion at the end of the previous quarter, repurchasing of $1.4 billion of unsecured debt which generated a gain of $74 million and funding $3.2 billion through the Straight A conduit program.

The company is also restructuring its business in response to recent legislative moves and current capital market challenges. As part of the cost reduction efforts, Sallie Mae recognized $3.6 million of expenses in the quarter.

However, the House of Representatives has recently approved a bill that would effectively eliminate the role of private lenders in the student loan market and establish the government as the sole lender of student loans under a program run by the US Education Department.

If enacted, the bill would put an end to the Federal Family Education Loan Program and severely impact banks, particularly student lenders such as Sallie Mae. Besides Sallie Mae, other companies who could be at risk under the new legislation are Student Loan Corp. (STU), Nelnet Inc. (NNI), ITT Educational Services (ESI), SunTrust Banks (STI) and Corinthian Colleges Inc. (COCO).

Nevetheless, we expect that if the bill is enacted, Sallie Mae will be a major participant in the Department of Education’s servicing contract, under which it will service and collect government guaranteed loans. Pending further developments, we recommend to Hold the shares of Sallie Mae.
Read the full analyst report on "SLM"
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Zacks Investment Research

Fitch Downgrades Sallie Mae – Analyst Blog

Zacks Market Commentaries — Wed, 16 Sep 2009 15:45:46 +0000

The corporate ratings of student lender SLM Corp. or Sallie Mae (SLM) was downgraded by Fitch Ratings yesterday. The outlook assigned was negative. The ratings downgrade reflects the agency’s concern about the company’s business model. Fitch expects the company to continue to shift to a fee-for-service business model with its subsidiary Sallie Mae Bank originating higher-risk private education loans.

Fitch downgraded the long-term issuer default and senior debt ratings to "BBB-" from "BBB", while preferred stock was downgraded to "BB" from "BB+". The short-term issuer default rating and short-term debt ratings were affirmed at "F3". About $34.4 billion of debt and preferred stock is affected by these actions.

To restore the $92 billion student loan market, the House Education committee approved a legislation, which closes the Federal Family Education Loan Program and shifts most of the student lending into the Education Department's Direct Loan program.

The bill is expected to go the House for a vote this week. If enacted, Sallie Mae is expected to be a major participant in the Department of Education’s servicing contract under which it will service and collect government guaranteed loans. Though the bill would allow some of the private firms to remain in the market as loan servicers, this business line would however be much smaller compared to that of loan originations.

The servicing contracts are also subject to renewal in five years and the federal government has the discretion regarding the distribution of the contracts and the servicing volume. Hence, any improper distributions of the servicing contracts will weaken the company’s profitability.

Sallie Mae’s management expects credit losses to pile up in the third quarter as non-traditional loans and loans without a co-borrower account for a lower percentage of loans entering repayment. Also, near-term asset quality trends remain a matter of concern.

Besides Sallie Mae, the other companies whose businesses could be at risk under the new legislation are Student Loan Corp. (STU), Nelnet Inc. (NNI), ITT Educational Services (ESI), SunTrust Banks (STI) and Corinthian Colleges Inc. (COCO).
Read the full analyst report on "SLM"
Read the full analyst report on "STU"
Read the full analyst report on "NNI"
Read the full analyst report on "ESI"
Read the full analyst report on "STI"
Read the full analyst report on "COCO"
Zacks Investment Research

Will Moody’s Downgrade Sallie Mae? – Analyst Blog

Zacks Market Commentaries — Fri, 28 Aug 2009 16:30:56 +0000

Moody's Investors Service said on Thursday that is thinking about downgrading the long-term ratings of the nation's biggest student lender, SLM Corp. or Sallie Mae (SLM).

Previously, on May 13, Moody's cut Sallie Mae's ratings to junk, prompting the student loan provider to call the action "premature". The expected action by the rating agency would affect Sallie Mae's long-term Ba1 (non-investment grade) rating.

The agency is considering a possible downgrade as Sallie Mae faces significant uncertainties related to the political and consumer lending environment for student lenders. According to Moody’s, these issues could challenge the company's liquidity and funding position as it nears large unsecured debt maturities in 2010 and particularly in 2011.

The agency also cited that cash flow generation is taking on greater importance in the lender's credit profile because the firm's unsecured debt balance exceeds its unencumbered earning assets.

Higher funding costs have added to the negative results for Sallie Mae for the last several quarters. However, we expect funding costs to come down slightly once the federally sponsored programs gather momentum.

However, one of the items in President Obama's budget proposals for fiscal 2010 – the elimination of private lenders from the student-loan market and the shift of the entire system to direct governmental loans in order to eliminate uncertainty for students and save approximately more than $4 billion a year – is a major concern for Sallie Mae at this point as it will lose the bulk of its business, if the proposal is enacted. The expected action by Moody’s will further add to the negatives.
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Zacks Investment Research

U.S. Banks – Zacks Analyst Interviews

Zacks Market Commentaries — Tue, 14 Jul 2009 05:00:00 +0000

While the bigger banks benefited greatly from the various programs launched by the Federal Reserve, the Treasury and the FDIC and are now in a much better shape, many smaller banks are still in a very weak financial state and the FDICÕs list of problem banks continues to grow. Further, the Government efforts have not succeeded in restoring the lending activity at the banks.ÊLower lending activity will continue to hurt the margins though the low interest rate environment should be beneficial to the banks with a liability sensitive balance sheet. Ê

For the last few quarters, the banks have mainly suffered due to the losses in the mortgages and Commercial Real Estate (residential construction loans). Housing prices have continued to decline and given the sharp increase in the level of unemployment, we anticipate continued losses in these portfolios. Further, deterioration in other Commercial Real Estate loans is now rising at a rapid pace and the downturn in this class is also likely to be very challenging. Ê

With the deterioration in the overall economic environment, and rising job losses, we anticipate the losses will continue to increase in all the other asset classes as well, especially in the consumer related loans. It was recently reported that U.S. credit card delinquencies rose to a record high and are expected to rise further. We expect the asset quality deterioration to continue at least through the end of FY09.

As a result of the rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting the profitability. Despite increased provisioning over the past several quarters, the ratio of allowance for loan losses to non-performing loans dropped to 70% at March 31, 2009 from 100% a year ago.ÊAs a result of these substantial asset quality deterioration and the need to build reserves further, many banks will continue to be unprofitable in 2009.

OPPORTUNITIES

We recently upgraded our recommendation on Ocwen Financial Corp (OCN) to a Buy, as this company could be a major beneficiary of the President's Home Affordable Modification Plan, which provides incentives for loan modifications to the borrower, the investor, and the servicer. OCN was appointed by a major GRE as one of the servicers for the new pilot initiative launched to identify borrowers who are at a risk of foreclosure. Recently the Treasury extended TALF to include securities backed by servicing advances, which will provide comfort on the liquidity front. Ê

WEAKNESSES

Banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL), KeyCorp (KEY), Zions Bancorp (ZION) will continue remain under pressure.

We also continue to maintain Sell recommendation on Freddie Mac (FRE) and Sallie Mae (SLM) as we anticipate rising losses and increased provisions during FY09.Zacks Investment Research

U.S. Banks – Industry Outlook

Zacks Market Commentaries — Tue, 14 Jul 2009 05:00:00 +0000

OPPORTUNITIES

WEAKNESSES

Banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL), KeyCorp (KEY), Zions Bancorp (ZION) will continue remain under pressure.

We also continue to maintain Sell recommendation on Freddie Mac (FRE) and Sallie Mae (SLM) as we anticipate rising losses and increased provisions during FY09.Zacks Investment Research

U.S. Banks – Industry Outlook

Zacks Market Commentaries — Mon, 13 Jul 2009 15:39:02 +0000

We think that the worst of the credit crisis is now probably behind us, but the banking system is not yet out of the woods -- there are still many significant challenges ahead. The banks are now able to tap the debt markets without the FDIC’s support, and also access the equity markets as the investor confidence returns in the stronger banks. Many banks have already repaid the TARP funds to the Treasury.

While the bigger banks benefited greatly from the various programs launched by the Federal Reserve, the Treasury and the FDIC and are now in much better shape, many smaller banks are still in a very weak financial state and the FDIC’s list of problem banks continues to grow. Further, government efforts have not succeeded in restoring the lending activity at the banks. Lower lending activity will continue to hurt margins, though the low interest rate environment should be beneficial to the banks with a liability-sensitive balance sheet.

For the last few quarters, the banks have mainly suffered due to the losses in mortgages and Commercial Real Estate (residential construction loans). Housing prices have continued to decline, and given the sharp increase in the level of unemployment we anticipate continued losses in these portfolios. Further, deterioration in other Commercial Real Estate loans is now rising at a rapid pace and the downturn in this class is also likely to be very challenging.

With the deterioration in the overall economic environment and rising job losses, we anticipate the losses will continue to increase in all the other asset classes as well, especially in consumer-related loans. It was recently reported that U.S. credit card delinquencies rose to a record high and are expected to rise further. We expect the asset quality deterioration to continue at least through the end of FY09.

As a result of rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting their profitability. Despite increased provisioning over the past several quarters, the ratio of allowance for loan losses to non-performing loans dropped to 70% at March 31, 2009 from 100% a year ago. As a result of these substantial asset quality deterioration and the need to build reserves further, many banks will continue to be unprofitable in 2009.

OPPORTUNITIES

We recently upgraded our recommendation on Ocwen Financial Corp (OCN) to a Buy, as this company could be a major beneficiary of the President's Home Affordable Modification Plan, which provides incentives for loan modifications to the borrower, the investor, and the servicer. OCN was appointed by a major GRE as one of the servicers for the new pilot initiative launched to identify borrowers who are at a risk of foreclosure. Recently the Treasury extended TALF to include securities backed by servicing advances, which will provide comfort on the liquidity front.

WEAKNESSES

Banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL), KeyCorp (KEY) and Zions Bancorp (ZION) will continue remain under pressure.

We also maintain Sell recommendations on Freddie Mac (FRE) and Sallie Mae (SLM) as we anticipate rising losses and increased provisions during FY09.

Zacks Investment Research

Sallie Mae Backs Community’s Proposal – Analyst Blog

Zacks Market Commentaries — Thu, 09 Jul 2009 15:04:21 +0000

On July 7, 2009, SLM Corporation (SLM), commonly known as Sallie Mae, announced its support for the Student Loan Community's proposal to reform the student loan program.

The alternative proposal, put forth by a diverse group that includes non-profit, for-profit and state-based service providers and guaranty agencies seeks to enhance the Administration’s plan to better serve students, families, schools, and taxpayers. The plan also aims at retaining a significant role for private lenders in the student loan market.

The Administration’s plan is framed to provide certainty that funding will be available to students and save nearly $90 billion over the next decade by ending unnecessary public subsidies paid to banks. It would use the freed up resources to partially cover the cost of a permanent increase in grants for students from lower-income families.

Consequently, this would end all private originations of student loans and use only a small panel of financial firms to service all student loans in the future.

The alternative proposal, however aims to allow individual colleges to maintain panels of private sector and not-for-profit lenders that would originate and service loans. Firms would be paid an annual fee by the Treasury for servicing the loans. An existing default fee of 3% that servicing firms must pay to the federal government in the event of a student defaulting on a loan would continue, which would raise revenue for the Treasury.

The Obama plan would end the private players’ role in loan origination. There is much doubt that this will generate any significant savings. However, it would needlessly end an income stream for banks at a time when they are suffering through a severe economic downturn.

Student lenders do not make significant earnings off these loans, but do get the opportunity to strike up relationships with students to cross-sell other financial products longer term, especially when they start earning later on.

The supporters of the plan argue that the Student Loan Community’s plan will help generate the same or greater budget savings as the President’s plan; and at the same time avoid significant transition risks from switching loan origination systems on more than $50 billion of private-sector-originated loans at some 5,000 schools. The proposal will ensure sufficient choice and competition in the marketplace, leading to innovation, superior customer service and lower defaults.

The proposal is being supported by Sallie Mae, Citigroup’s (C) subsidiary Student Loan Corp. (STU), PNC Financial Corp. (PNC) and SunTrust Banks Inc. (STI), along with a large group of not-for-profit lenders, regional banks and guaranty agencies.

Read the full analyst report on "SLM"
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Read the full analyst report on "PNC"
Read the full analyst report on "STI"
Zacks Investment Research

Company News for June 26, 2009 – Corporate Summary

Zacks Market Commentaries — Fri, 26 Jun 2009 14:29:58 +0000

* JP Morgan (NYSE:JPM) upgraded shares of Sallie Mae (NYSE:SLM) to "overweight," citing improved earnings visibility from its transition to primarily a loan service providers, which will lower interest-rate and funding risks

* Quantas Airlines cancelled orders for 15 Boeing (NYSE:BA) 787 Dreamliners scheduled for 2014-2015 delivery, and deferred orders for 15 more, citing the tough economic environment

* Potash (NYSE:POT) lowered its earnings guidance for the second quarter from $1.10-$1.50 to 70 cents, citing substantially lower than expected potash sales volume on deferrals by its global customers and lower realized prices for phosphate fertilizers

* UBS (NYSE:UBS) warned of a second quarter net loss, announcing $3.48 billion in capital-raising with a 293.3 million share offering at $11.91, a 6.9% discount to yesterday's close

* Goldman Sachs (NYSE:GS) lowered its 2010 earnings estimate and price target on Monsanto (NYSE:MON), citing lower glyphosate profits and lower seed price gains. The 2010 estimate was cut 50 cents to $4.30, and 45 cents for 2011 to $4.65, with the price target lowered to $80. The firm held its "neutral" rating

Zacks Investment Research

Zacks Industry Outlook Highlights: Wilmington Trust Corporation, KeyCorp, Zions Bancorp, Freddie Mac, and Sallie Mae. – Press Releases

Zacks Market Commentaries — Mon, 15 Jun 2009 13:48:13 +0000

For Immediate Release

Chicago, IL - June 15, 2009 - Zacks.com releases the latest Industry Outlook. Today's interview is with senior analyst Neena Mishra, who talks about the U.S. Banks Industry, including Wilmington Trust Corporation (WL), KeyCorp (KEY), Zions Bancorp (ZION), Freddie Mac (FRE) and Sallie Mae (SLM).

A synopsis of today's Industry Outlook is presented below. The full article can be read at http://at.zacks.com/?id=2678.

As a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting the profitability. Also, the banks will also continue to take mark-downs in the investment portfolios, further hurting the bottom-line.

Banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL), KeyCorp (KEY), Zions Bancorp (ZION) will remain under pressure. We also continue our Sell recommendations on Freddie Mac (FRE) and Sallie Mae (SLM), as we anticipate rising losses and increased provisions during FY09.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting: http://at.zacks.com/?id=2679.

About Zacks

The performance of the Zacks Rank portfolios shown above for annual and year-to-date periods are the linked monthly total returns (price changes + dividends) of equal weighted hypothetical portfolios, consisting of those stocks with the indicated Zacks Rank, assuming monthly rebalancing and zero transaction costs. These are not the returns of actual portfolios. The hypothetical portfolios were created at the beginning of each month from Jan 1988 forward based on the values of the Zacks Rank available to Zacks' clients before the beginning of each month.

The portfolios created monthly from 1988 through September 2006 exclude ADRS and are comprised of stocks that have the indicated Zacks Rank and were covered by at least two analysts at the time of the stocks inclusion in the portfolio. Starting in October 2006 and going forward, the portfolios are comprised of all stocks with the indicated Zacks Rank and do not exclude ADRs, which is more reflective of the list of stocks that customers will find on the Zacks web sites. 2007 returns are for the period of Jan 1 - Jun 30, 2007. These performance numbers have been audited from 1995 through 2003 by Autschuler Melovan, a division of American Express Financial.

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Web Content Editor
312-265-9380
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Zacks Investment Research

U.S. Banks – Industry Outlook

Zacks Market Commentaries — Mon, 15 Jun 2009 05:00:00 +0000

The worst of the credit crisis is now probably behind us, but the banking system is not yet out of the woods, as there are still many significant challenges ahead.

Ten of the nation's largest banks have received the Treasury approval for TARP repayment, as they are now able to tap the debt markets without FDIC's support and also access the equity markets as the investor confidence returns in the stronger banks.

While the bigger banks have benefited a lot from the various programs launched by the Federal Reserve, the Treasury and the FDIC, and are now in a much better shape, many smaller banks are still in a very weak financial state, and the FDIC's list of problem banks continues to grow. Further, government efforts have not succeeded in restoring the lending activity at the banks. Lower lending activity will continue to hurt the margins, though the low interest rate environment should be beneficial to the banks with a liability sensitive balance sheet.

For the last few quarters, the banks have mainly suffered due to the losses in the mortgages and Commercial Real Estate (residential construction loans). Housing prices have continued to decline, and given the sharp increase in the level of unemployment, we anticipate continued losses in these portfolios. Further, deterioration in other Commercial Real Estate loans is now rising at a rapid pace, and the downturn in this class is also likely to be very challenging.

With deterioration in the overall economic environment and rising job losses, we anticipate the losses will continue to increase in all the other asset classes as well, especially in the consumer related loans. It was recently reported that U.S. credit card delinquencies rose to a record high and are expected to rise further. We expect the asset quality deterioration to continue at least through the end of FY09.

OPPORTUNITIES

We recently upgraded our recommendation on Ocwen Financial Corp (OCN) to a Buy, as this company may be a major beneficiary of the President's Home Affordable Modification Plan, which provides incentives for loan modifications to the borrower, the investor and the servicer. OCN was appointed by Freddie Mac (FRE) as one of the servicers for the new pilot initiative launched to identify borrowers who are at a risk of foreclosure. Recently the Treasury extended TALF to include securities backed by servicing advances, which will provide comfort on the liquidity front.

WEAKNESSES

Banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL), KeyCorp (KEY), Zions Bancorp (ZION) will remain under pressure. We also continue our Sell recommendations on Freddie Mac and Sallie Mae (SLM), as we anticipate rising losses and increased provisions during FY09. Zacks Investment Research

U.S. Banks – Zacks Analyst Interviews

Zacks Market Commentaries — Mon, 15 Jun 2009 05:00:00 +0000

The worst of the credit crisis is now probably behind us, but the banking system is not yet out of the woods, as there are still many significant challenges ahead.

For the last few quarters, the banks have mainly suffered due to the losses in the mortgages and Commercial Real Estate (residential construction loans). Housing prices have continued to decline, and given the sharp increase in the level of unemployment, we anticipate continued losses in these portfolios. Further, deterioration in other Commercial Real Estate loans is now rising at a rapid pace, and the downturn in this class is also likely to be very challenging.

OPPORTUNITIES

WEAKNESSES

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U.S. Banks – Industry Outlook

Zacks Market Commentaries — Fri, 12 Jun 2009 20:54:23 +0000

The worst of the credit crisis is now probably behind us, but the banking system is not yet out of the woods, as there are still many significant challenges ahead.

Ten of the nation's largest banks have received the Treasury approval for TARP repayment, as they are now able to tap the debt markets without FDIC's support and also access the equity markets as the investor confidence returns in the stronger banks.

While the bigger banks have benefited a lot from the various programs launched by the Federal Reserve, the Treasury and the FDIC, and are now in a much better shape, many smaller banks are still in a very weak financial state, and the FDIC's list of problem banks continues to grow. Further, government efforts have not succeeded in restoring the lending activity at the banks. Lower lending activity will continue to hurt the margins, though the low interest rate environment should be beneficial to the banks with a liability sensitive balance sheet.

For the last few quarters, the banks have mainly suffered due to the losses in the mortgages and Commercial Real Estate (residential construction loans). Housing prices have continued to decline, and given the sharp increase in the level of unemployment, we anticipate continued losses in these portfolios. Further, deterioration in other Commercial Real Estate loans is now rising at a rapid pace, and the downturn in this class is also likely to be very challenging.

With deterioration in the overall economic environment and rising job losses, we anticipate the losses will continue to increase in all the other asset classes as well, especially in the consumer related loans. It was recently reported that U.S. credit card delinquencies rose to a record high and are expected to rise further. We expect the asset quality deterioration to continue at least through the end of FY09.

As a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting the profitability. Also, the banks will also continue to take mark-downs in the investment portfolios, further hurting the bottom-line.

OPPORTUNITIES

We recently upgraded our recommendation on Ocwen Financial Corp (OCN) to a Buy, as this company may be a major beneficiary of the President's Home Affordable Modification Plan, which provides incentives for loan modifications to the borrower, the investor and the servicer. OCN was appointed by Freddie Mac (FRE) as one of the servicers for the new pilot initiative launched to identify borrowers who are at a risk of foreclosure. Recently the Treasury extended TALF to include securities backed by servicing advances, which will provide comfort on the liquidity front.

WEAKNESSES

Banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL), KeyCorp (KEY), Zions Bancorp (ZION) will remain under pressure. We also continue our Sell recommendations on Freddie Mac (FRE) and Sallie Mae (SLM), as we anticipate rising losses and increased provisions during FY09.

Zacks Investment Research

Consumer Credit Drops Sharply – Analyst Blog

Zacks Market Commentaries — Tue, 07 Apr 2009 22:13:40 +0000

Highlights include Citigroup Inc. (C), JP Morgan Chase & Co. (JPM), Capital One (COF), Sallie Mae (SLM) and Nelnet Inc. (NNI).

U.S. consumer credit (outstanding) decreased at a rate of 3.5%, or $7.5 billion, to $2.5 trillion in February 2009, according to a report by the Federal Reserve, released today. The drop was much larger than expectations of a $1 billion decline. It was the fourth decline in six months.

However, the growth in consumer credit for January 2009 was revised to $8.1 billion, up from the previous estimate of $1.8 billion. The decline in borrowing in December 2008 was also revised to $5.6 billion from the earlier estimate of $7.5 billion.

As the economy continues to be in recession and job losses continue to rise sharply, consumers are cutting back on spending.

Further, credit-card lines continue to be reduced by the lenders. It is estimated that available lines were reduced by nearly $500 billion during 4Q08 alone. The balances on consumers' credit cards fell at a rate of 9.7% in February 2009 -- the fastest rate of decline since 1976.

Federal Reserve has recently implemented Term Asset-Backed Securities Loan Facility (TALF) to facilitate the extension of credit to households and small businesses.

The $200 billion facility (in joint effort with the Treasury), which could be expanded up to one trillion dollars, provides 3-year term loans to investors against AAA-rated securities backed by recently originated consumer (credit cards, auto loans and other types of consumer credit) and small businesses loans. Apart from the banks like Citigroup (C) and JP Morgan Chase (JPM), the facility is expected to benefit the credit card issuers like Capital One (COF) and student lenders like Sallie Mae (SLM) and Nelnet (NNI).

However, it has been reported that the participation in TALF has been less than enthusiastic, as the investors remain wary of legislative interference, tedious paper work and other issues.
Read the full analyst report on "SLM"
Read the full analyst report on "NNI"
Zacks Investment Research

Zacks Industry Outlook Highlights: Wilmington Trust, KeyCorp, Comerica, Freddie Mac and Sallie Mae – Press Releases

Zacks Market Commentaries — Thu, 02 Apr 2009 12:35:00 +0000

For Immediate Release

Chicago, IL - April 2, 2009 - Zacks.com announces the latest Industry Outlook. Today's outlook from Zacks Equity Research analyst Neena Mishra discusses the U.S. Banks sector. Highlighted stocks include: <Wilmington Trust Corporation (WL), KeyCorp (KEY), Comerica (CMA), Freddie Mac (FRE) and Sallie Mae (SLM).

Here is the latest on the U.S. Banks sector:

It was recently reported that U.S. credit card delinquencies rose to a record high in February and are expected to rise further. We expect the asset quality deterioration to continue at least through the end of FY09.

As a result of rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting the profitability. Further, the banks will also continue to take mark-downs in the investment portfolios, further hurting the bottom-line.

We currently do not see any opportunities and thus do not have a Buy recommendation on any stocks within this industry.

The banks with high exposure to housing and Commercial Real Estate loans like Wilmington Trust Corporation (WL), KeyCorp (KEY) and Comerica (CMA) will continue to remain under pressure.

We also maintain Sell recommendation on Freddie Mac (FRE) and Sallie Mae (SLM) as we anticipate rising losses and increased provisions through FY09.

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Contact:Mark VickeryWeb Content Editor312-265-9380Visit: www.zacks.com

Zacks Investment Research

U.S. Banks – Industry Outlook

Zacks Market Commentaries — Thu, 02 Apr 2009 05:00:00 +0000

While the various programs launched by the Treasury and the Federal Reserve to boost the capital levels and alleviate the liquidity problems (including capital injections and debt guarantee programs) have helped the capital and funding concerns to a great extent, the efforts have not succeeded in restoring the lending activity at banks. Lower lending activity will continue to hurt the margins though the low interest rate environment should be beneficial to the banks with a liability sensitive balance sheet.

For the last few quarters, the banks have mainly suffered due to the losses in the mortgages and Commercial Real Estate (residential construction loans). Housing prices have continued to decline, and given the sharp increase in the level of unemployment, we anticipate continued losses in these portfolios. Further, deterioration in other Commercial Real Estate loans has started rather recently, and the downturn in this class in also likely to be very challenging.

With the deterioration in the overall economic environment and rising job losses, we anticipate the losses will increase in all the other asset classes as well, especially in the consumer-related loans. It was recently reported that U.S. credit card delinquencies rose to a record high in February and are expected to rise further. We expect the asset quality deterioration to continue at least through the end of FY09.

OPPORTUNITIES

We currently do not see any opportunities and thus do not have a Buy recommendation on any stocks within this industry.

WEAKNESSES

The banks with high exposure to housing and Commercial Real Estate loans like Wilmington Trust Corporation (WL), KeyCorp (KEY), Zions Bancorp (ZION) and Comerica (CMA) will continue to remain under pressure.

We also maintain Sell recommendation on Freddie Mac (FRE) and Sallie Mae (SLM) as we anticipate rising losses and increased provisions through FY09. Zacks Investment Research

U.S. Banks – Industry Outlook

Zacks Market Commentaries — Wed, 01 Apr 2009 19:32:04 +0000

We maintain a Negative outlook on the U.S. Banks -- though we are now less negative than we were at the time of our earlier reports, as we see some signs of deceleration in the economic slowdown. Further, we are hopeful about the Treasury's Financial Stability Plan, but we think that the effect will take quite some time to come by.

While the various programs launched by the Treasury and the Federal Reserve to boost the capital levels and alleviate the liquidity problems (including capital injections and debt guarantee programs) have helped the capital and funding concerns to a great extent, the efforts have not succeeded in restoring the lending activity at banks. Lower lending activity will continue to hurt the margins though the low interest rate environment should be beneficial to the banks with a liability sensitive balance sheet.

For the last few quarters, the banks have mainly suffered due to the losses in the mortgages and Commercial Real Estate (residential construction loans). Housing prices have continued to decline, and given the sharp increase in the level of unemployment, we anticipate continued losses in these portfolios. Further, deterioration in other Commercial Real Estate loans has started rather recently, and the downturn in this class in also likely to be very challenging.

With the deterioration in the overall economic environment and rising job losses, we anticipate the losses will increase in all the other asset classes as well, especially in the consumer-related loans. It was recently reported that U.S. credit card delinquencies rose to a record high in February and are expected to rise further. We expect the asset quality deterioration to continue at least through the end of FY09.

As a result of rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting the profitability. Further, the banks will also continue to take mark-downs in the investment portfolios, further hurting the bottom-line.

OPPORTUNITIES

We currently do not see any opportunities and thus do not have a Buy recommendation on any stocks within this industry.

WEAKNESSES

The banks with high exposure to housing and Commercial Real Estate loans like Wilmington Trust Corporation (WL), KeyCorp (KEY), Zions Bancorp (ZION) and Comerica (CMA) will continue to remain under pressure.

We also maintain Sell recommendation on Freddie Mac (FRE) and Sallie Mae (SLM) as we anticipate rising losses and increased provisions through FY09.

Zacks Investment Research

SLM Corporation (SLM) – Bear of the Day

Zacks Market Commentaries — Tue, 03 Mar 2009 05:00:00 +0000

The shares of SLM Corp. (SLM), also known as Sallie Mae, sold off sharply on February 26, on the news of the budget proposal by President Obama regarding the elimination of subsidies for student lenders. Further, SLM's 4Q08 core net operating income came in at $0.14 per diluted share, substantially short of our estimate.

Higher funding costs were the primary reason for the lower-than-expected results. However, the performance of the private credit portfolio was better than expected. We expect funding costs to come down slightly once the federally sponsored programs (TALF and Conduit Facility) become operational.

But the proposal for the elimination of private lenders from the student-loan market is a significant threat to the company. As such, we maintain our Sell recommendation on shares of SLM.

We maintain our SELL rating with a lower six-month target price of $7.00. Zacks Investment Research

Proposals Hurt Student Lenders – Analyst Blog

Zacks Market Commentaries — Thu, 26 Feb 2009 21:33:47 +0000

Highlights include Sallie Mae (SLM), Nelnet Corp (NNI) and Student Loan Corp (STU).

Budget Proposals Hurt Student Lenders

President Obama's budget proposals for fiscal 2010 include the elimination of private lenders from the student-loan market and having the federal government make all such loans directly. Beginning in 2010-2011, all new student loans are proposed to be originated through the direct student loan program.

The shift to the Department of Education's direct-lending program is expected to save more than $4 billion a year in subsidies paid to private lenders, and also eliminate uncertainty for students.

Since the shift in control of the Congress to the Democrats, there has been, on the whole, more support for direct student lending by the Government. Direct loans, however, only accounted for about 20% of the $68.2 billion in new federal loans during for the 2007-2008 school year, but recently many private lenders had stopped making federally guaranteed loans due to the credit crisis.

Most of the student lenders were heavily reliant on the Asset Backed Security (ABS) market for funding, and had to resort to much more expensive funding sources when the ABS market virtually froze late last year. However, the recent legislative enactments had provided some relief on the funding front for FFELP, since it will (now through 2009-2010 academic year) be financed entirely by government financing -- paid for by the Treasury through the Department of Education.

Further, the recently announced TALF facility, which will provide 3-year term loans to investors against AAA-rated securities backed by recently originated consumer and small-business loans, is also expected to bring down the funding costs.

In addition to higher funding costs, the student lenders have been facing increased defaults recently. The shares of student lenders like Sallie Mae (SLM), Nelnet Corp (NNI) and Student Loan Corp (STU) sold off sharply today on the news of the proposals.

We maintain our Sell rating on SLM, and our Hold rating on NNI is under review.

Read the full analyst report on "NNI"
Read the full analyst report on "SLM"
Zacks Investment Research

The Last Bastion Against Deflation: The Federal Government

Jim Musselwhite — Fri, 20 Feb 2009 02:04:51 +0000

This article is part of a syndicated series about deflation from market analyst Robert Prechter, the world’s foremost expert on and proponent of the deflationary scenario. For more on deflation and how you can survive it, download Prechter’s FREE 60-page Deflation Survival eBook, part of Prechter’s NEW Deflation Survival Guide. The [...]

Let’s Talk About TALF – Analyst Blog

Zacks Market Commentaries — Thu, 29 Jan 2009 15:12:08 +0000

Highlights in this post include Citigroup (C), JP Morgan Chase (JPM), Capital One (COF), Sallie Mae (SLM) and Nelnet (NNI).

In a statement issued yesterday following FOMC's two-day meeting, the Federal Reserve confirmed that it will be implementing the Term Asset-Backed Securities Loan Facility (TALF) to facilitate the extension of credit to households and small businesses. It is one of the two programs earlier announced by the Fed on November 25, 2008.

We talked about the Fed's program to purchase mortgage-backed securities (MBS) issued by Fannie Mae, Freddie Mac and Ginnie Mae in our blog dated December 31, 2008. This program was implemented earlier this month and has been instrumental in bringing down the mortgage rates significantly.

Let's talk about the second program now -- the TALF, which is expected to commence lending in February 2009. The $200 billion facility (in joint effort with the Treasury) will provide 3-year term loans to investors against AAA-rated securities backed by recently originated consumer and small-business loans. Further, if the facility proves successful, the Fed intends to expand it to accommodate higher volumes or additional classes of securities.

On a fixed day each month, borrowers will be able to borrow under the facility. Loan proceeds will be disbursed to the borrower, upon receipt of the eligible collateral. As the loan is non-recourse, if the borrower does not repay the loan, the Fed will sell the collateral to a special purpose vehicle (SPV) established specifically for the purpose of managing such assets. The facility will cease on December 31, 2009, unless the Board of Governors extends the facility.

Any U.S. company (including hedge funds) that owns eligible collateral may borrow from the TALF.

The underlying credit exposures of eligible Asset Backed Security (ABS) must be auto loans, student loans, credit card loans, or small business loans guaranteed by the SBA (Small Business Administration). Eligible ABS must be issued on or after January 1, 2009. The minimum loan size under the TALF will be $10 million and loans have a three-year maturity.

We expect the program to ease the pressure on the ABS market and improve the profitability and liquidity of the companies which were reliant on the ABS market for funding, and had to resort to much more expensive funding sources when the ABS market virtually froze late last year.

Apart from the banks like Citigroup (C) and JP Morgan Chase (JPM), the facility will also benefit the credit card issuers like Capital One (COF) and student lenders like Sallie Mae (SLM) and Nelnet (NNI). We can only hope that the banks and credit card companies receiving the help from the Government will pass on the benefits to the consumers also, unlike what happened in case of TARP.

Read the full analyst report on SLM

Read the full analyst report on NNI

"JPM" Free Stock Analysis: Buy? Sell? Hold?
"SLM" Free Stock Analysis: Buy? Sell? Hold?
"COF" Free Stock Analysis: Buy? Sell? Hold?
"NNI" Free Stock Analysis: Buy? Sell? Hold?
"C" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Make 20% Yields from Our Vegetable Economy

Daily Wealth — Thu, 22 Jan 2009 13:00:00 +0000

BBy Tom Dyson/BBRBR Traders called it the "Greenspan Put."BRBR During the 1980s and 1990s, the Federal Reserve adopted an unofficial "bailout" policy. Whenever a crisis occurred, Fed Chairman Alan Greenspan would cut interest rates and inject billions of dollars of extra credit into the system. This "re-juiced" the markets, making them rise again.BRBR Traders buy put options to protect themselves from catastrophe. Put options are like insurance. With the Greenspan Put in place, traders felt comfortable speculating. They knew the Fed would bail them out if needed. They had insurance.BRBR Bernanke replaced Greenspan in 2006. The market assumed the Greenspan Put would live on. And the government validated this assumption by saving Bear Stearns last March. Following the bailout, the S and P rose from 1,250 to 1,400. The volatility index dropped from 35 to 20. Junk-bond spreads declined from 8% to 6%. We thought the credit crunch was behind us.BRBR Then, Lehman Brothers collapsed.BRBR Lehman Brothers was a 158-year-old firm with 26,000 employees and $59 billion in annual revenue. The government chose not to rescue Lehman. The Greenspan Put no longer existed.BRBR Without the Greenspan Put, the market could not trust any firm's finances. Too many bogies hid in corporate balance sheets. All faith in the system vanished. Even the largest firms in the world couldn't get credit. The Dow fell 3,000 points in four weeks. Volatility climbed from 25 to 80. Junk-bond spreads flew from 8% to 25%. It was the once-in-a-century sandstorm...BRBR When the government and the Fed realized the panic they had caused by letting Lehman fall into bankruptcy, they immediately brought back the Greenspan Put.BRBR In his December 16 Federal Open Market Committee statement, Bernanke said the Fed would "employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability." Bernanke also said the Fed could use a $200 billion credit facility to get money to households and small businesses. And Bernanke has the ability to buy Treasury and agency debt (bonds from Fannie Mae, Freddie Mac, Sallie Mae, etc.). He has already started a program to buy $500 billion of mortgage-backed securities.BRBR The Treasury went even further. The total cost of all the facilities, stimulus plans, equity stakes, and debt guarantees initiated by the government in 2008 is over $8 trillion. And the government will now rescue any troubled firm it thinks could generate financial and economic instability.BRBR These actions were too little, too late. The brief disappearance of the Greenspan Put had already pushed the economy into a coma...BRBR The U.S. government now runs the country's financial system and real estate market. This is a disaster for the economy. Government bureaucrats are the last people you want running your financial system. They invest in all the wrong places, they waste money, and their policies starve private enterprise.BRBR Worst of all, debt is the basic problem. The government's solution is to create more of it.BRBR But the important thing is, as long as the government is working hard behind the scenes, printing money, guaranteeing debt, bailing out failed companies, building infrastructure, supplying credit, and buying financial assets, there will be NO more bankruptcies, NO more defaults, and NO more credit crunches. Just a "vegetable" economy.BRBR As I'll show you in tomorrow's essay, this vegetable economy will be difficult for most investors, but for corporate bond investors, it couldn't be better. Some corporate bond investments will pay their owners over 20% a year in income. With yields this high, corporate bond investors will double their money in less than four years, simply by compounding the dividends.BRBR Right now, bond yields are up. In a vegetable economy, bond yields decline. When yields decline, bond prices rise. You make capital gains AND earn income. In short, we have the perfect environment to be a bond investor. This is why I call the period we're entering the "Golden Age" of bond investing...BRBR Tomorrow, I'll explain why this "vegetable" economy is so good for owning bonds... and show you the best way to buy corporate bonds with huge yields.BRBR Good investing,BRBR TomBRBR MORE ON OUR TOP TRENDBRBR One of the biggest stories in finance this week highlights our "gold is soaring, you just don't realize it" trend.BRBR Most American gold owners were disappointed with the metal's performance in 2008. It closed the year just barely higher from where it started. But those folks are missing the "big picture." You see, gold is actually soaring against commodities, real estate, stocks, and most of the world's paper currencies.BRBR This week's big story is the recent collapse of Britain's currency, the pound. It's lost over 30% of its value in the past six months – a gigantic move for a major currency. Britain's banking system is in worse shape than America's... and in the early stages of nationalization. Capital is fleeing the nation, which has caused the pound to lose nearly 50% of its value against gold in the past two years.BRBR Let's look at the bright side though, folks... At least we know how to protect ourselves with gold and silver. And a trip to see Big Ben and the Queen is all of a sudden a heck of a lot cheaper.BRBRdiv class="feedflare" a href="http://feeds2.feedburner.com/~f/dailywealth/rss?a=mBLvNkKB"img src="http://feeds2.feedburner.com/~f/dailywealth/rss?d=41" border="0"/img/a a href="http://feeds2.feedburner.com/~f/dailywealth/rss?a=tzRT2Eo1"img src="http://feeds2.feedburner.com/~f/dailywealth/rss?d=50" border="0"/img/a a href="http://feeds2.feedburner.com/~f/dailywealth/rss?a=0c2SPWpf"img src="http://feeds2.feedburner.com/~f/dailywealth/rss?i=0c2SPWpf" border="0"/img/a a href="http://feeds2.feedburner.com/~f/dailywealth/rss?a=SbuqXRBb"img src="http://feeds2.feedburner.com/~f/dailywealth/rss?d=54" border="0"/img/a a href="http://feeds2.feedburner.com/~f/dailywealth/rss?a=sLX33tgv"img src="http://feeds2.feedburner.com/~f/dailywealth/rss?i=sLX33tgv" border="0"/img/a a href="http://feeds2.feedburner.com/~f/dailywealth/rss?a=WpgEoPG4"img src="http://feeds2.feedburner.com/~f/dailywealth/rss?d=129" border="0"/img/a /divimg src="http://feeds2.feedburner.com/~r/dailywealth/rss/~4/rOdtOwOt7aI" height="1" width="1"/

U.S. Banks – Zacks Analyst Interviews

Zacks Market Commentaries — Fri, 26 Dec 2008 00:00:00 +0000

We continue to maintain a negative outlook on the U.S. Banks.

While the programs launched by the U.S. Treasury and the Federal Reserve to boost the capital levels and alleviate the liquidity problems have helped the capital and funding concerns to a great extent, the efforts have not succeeded in restoring the lending activity at banks. Lower lending activity will continue to hurt the margins though the low interest rate environment should be beneficial to the banks with a liability sensitive balance sheet.

During the current year, the banks have mainly suffered due to the losses in the mortgages and residential construction loans. As not much has been done so far to address the fundamental problems of declining home values and rising foreclosures and given the sharp increase in the level of unemployment, we anticipate continued losses in these portfolios.

Further, with the deterioration in the overall economic environment, we anticipate the losses will increase in all the other asset classes as well, especially in the commercial real estate loan and home equity loan portfolios. As a result of rise in charge-offs, the levels of reserve coverage has fallen over the past quarters and the banks will have to make higher provisions through FY09, hurting the profitability.

Opportunities

We currently do not see any opportunity and thus do not have a buy recommendation on any stocks within this industry.

Weaknesses

The banks with high exposure to housing and Commercial Real Estate loans like KeyCorp (KEY), Zions Bancorporation (ZION), and Comerica Incorporated (CMA) will continue to remain under pressure. We also maintain Sell recommendation on Freddie Mac (FRE), and Sallie Mae (SLM) as we anticipate rising losses and increased provisions through FY09.

"KEY" Free Stock Analysis: Buy? Sell? Hold?
"ZION" Free Stock Analysis: Buy? Sell? Hold?
"FRE" Free Stock Analysis: Buy? Sell? Hold?
"SLM" Free Stock Analysis: Buy? Sell? Hold?
"CMA" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

U.S. Banks

Zacks Market Commentaries — Wed, 24 Dec 2008 08:57:18 +0000

"ZION" Free Stock Analysis: Buy? Sell? Hold?
"KEY" Free Stock Analysis: Buy? Sell? Hold?
"FRE" Free Stock Analysis: Buy? Sell? Hold?
"CMA" Free Stock Analysis: Buy? Sell? Hold?
"SLM" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Overly Leveraged Private Equity Deals Add to Unemployment and Deepen Recession

Shah Gilani — Thu, 11 Dec 2008 15:06:16 +0000

pThe once booming business of private equity faces an uncertain future. What’s not uncertain, however, is that many private equity deals are imploding from the weight of leveraged debt and greed. Inevitable bankruptcies will result in higher unemployment and a deeper recession./p pPrivate equity is an asset class consisting of equity securities in operating companies that are not publicly traded. The name “private equity”is the rechristened, kinder and more gentile label for what used to be known as leveraged buyouts, or LBOs. But make no mistake about it, while leverage may not be part of the name any more, it remains a big part of every private equity deal./p pLBO firms, or “franchises”, as Henry Kravis, co-founder of a href="http://finance.google.com/finance?q=NYSE%3AKKR" target="_blank"Kohlberg Kravis Roberts #38;#8230;/a/p

Sallie Mae Sell Rating Sticks – Analyst Blog

Zacks Market Commentaries — Thu, 11 Dec 2008 10:58:56 +0000

SLM Corporation, or Sallie Mae (SLM) 3Q08 core net operating income came in at $0.36 per diluted share, substantially short of our estimate. Higher funding costs were the primary reason for the lower-than-expected results.

However, the performance of the private credit portfolio was better than expected during the reported quarter. We expect higher funding and credit costs to continue impacting the profitability of the company, though the funding costs are expected to come down slightly once the new facility (TALF) proposed by the Federal Reserve and Treasury becomes operational.

Based on our concerns, we are maintaining our Sell recommendation on the shares of SLM, with a reduced six-month target price of $8.00 per share.

Kalyan Nandy contributed to this report.

Read the full analyst report on SLM

"SLM" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

The Government Doesn’t Want You to Read This Article About the Financial Crisis

Jim Musselwhite — Wed, 03 Dec 2008 03:02:28 +0000

Editor’s Note: This article has been excerpted from a free issue of Robert Prechter’s monthly market letter, The Elliott Wave Theorist. The full 10-page market letter, Be One of the Few The Government Hasn’t Fooled, can be downloaded free from Elliott Wave International. By Robert Prechter, CMT “Who Will Benefit From The Housing Act?” This [...]