Sallie Mae Shares Tank as Company Posts Loss

Student lending company Sallie Mae posted a fourth-quarter loss, citing higher provisions for loan losses due to the weakening credit markets.

Shares of Sallie Mae dropped about 11 percent Wednesday.

Sallie Mae, legally known as SLM Corp., said its loss totaled $1.6 billion, or $3.98 per share, including a $1.5 billion loss on an equity-forward derivatives contract. The results also included $575 million in loan-loss provisions.

The fourth-quarter loss compared with earnings of $18 million, or 2 cents a share, in the year-ago period.

"It's another confirmation of the difficult straits that the company is facing -- it certainly is not comforting from an investor standpoint," said Sean Egan, managing director of independent credit-rating firm Egan-Jones Ratings.

Excluding several items, Sallie Mae said its fourth-quarter loss totaled $139 million, or 36 cents a share, compared to net income of $326 million, or 74 cents a share, in the year-ago period.

"Our cost of funds and loan loss expectations were impacted by weakening credit markets," said Albert Lord, chief executive officer.

Student loan originations totaled $5.0 billion in the fourth quarter and $25.5 billion for the full year 2007.

Student loans originated through Sallie Mae's internal brands, the most profitable segment of total student loan originations, grew 27 percent year over year to $16.6 billion, the company said.

Sallie Mae is embroiled in a legal battle with private equity firm J.C. Flowers, which last year said it wanted to terminate its agreement to acquire Sallie Mae for $25 billion.

The consortium argued Sallie Mae had suffered a "material adverse change" to its business due to the credit market squeeze and legislation that slashes subsidies to student lenders.

Earlier this month, Sallie Mae named banking veteran Anthony Terracciano as chairman and said John Remondi would return to the company as chief financial officer. The appointments were part of the company's efforts to restore credibility after the takeover deal collapsed. 

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