Sallie Mae Collection Revenue Down; Corporate Loss Reported

Student loan provider and ARM heavyweight Sallie Mae (NYSE: SLM) Thursday reported a loss for the third quarter of 2007 and a large drop in revenue from collection activity.

For the third quarter, Reston, Va.-based Sallie Mae reported revenue from collections of $52.8 million, compared with $77.1 million in the second quarter of this year, a decline of nearly 32 percent, and with revenues of $57.9 million in the third quarter a year ago.

Sallie Mae recently changed the name of the operational unit that contains it ARM business to “Asset Performance Group” (APG) from “Debt Management Operations” (DMO). Sallie Mae owns collection agencies Pioneer Credit Recovery and General Revenue Corporation and has an 88 percent stake in the debt purchaser and collector Arrow Financial Services.

In the first nine months of 2007, Sallie Mae reported collection revenue of $195.4 million, a 7.4 percent increase from the $182 million in collection revenue reported for the first nine months of 2006.

The company said in its earnings press release that the drop in collection revenue in the quarter was attributable to the seasonality of collections, but noted that this attribution was applicable only when compared to the second quarter of 2007. Sallie Mae also said that write-downs on some of its purchased portfolios was a drag on revenue. Specifically, the company blamed some $11 million in impairment charges stemming from mortgage portfolios purchased in the quarter through its GRP Financial Services subsidiary, which reports in the APG unit.

Overall, Sallie Mae, officially known as SLM Corp., reported a net loss of $344 million for the third quarter, compared to net income of $263 million in the same period a year ago.

Sallie Mae’s Chairman Albert Lord yesterday told investors that the $25 billion buyout of the company, and its subsequent failure, are to blame for the low earnings. "It's clear that the deal distractions are significant. They cost us earnings momentum," said Lord.

Sallie Mae said Monday that it had filed a lawsuit against a consortium made up of private equity firm JC Flowers, Bank of America, and JPMorgan Chase for backing out of the deal. The company seeks the $900 million breakup fee that was inserted into the deal agreement. Both sides blame the other for the buyout’s failure, and both are still open to a renegotiated sales price.