Thursday, December 13, 2007

Another Sign That Things are Not Going Well in “Lending Land”

Instead of mortgages this lending problem is occurring in student loans. Writedowns are up 112% in the third quarter compared to the same period last year. Just remember there is no spillover into other lending areas, or so says the Fed and other groups. From CNNMoney:

Student lender Sallie Mae on Wednesday slashed its profit forecast for the fourth quarter and all of 2008, as it hoards cash to offset bad loans and faces reduced federal subsidies.

The company also said it failed to renegotiate a buyout with an investor group that balked several months ago at its original $25 billion cash offer for Sallie, the nation's largest student lender. The investor group, led by private-equity firm J.C. Flowers & Co., "does not wish to pursue these opportunities," Sallie, formally known as SLM Corp., said in a press release.

Sallie and the group have been feuding for months over terms of what would be one of the world's largest private-equity takeover deals, and the dispute has landed in court. The group maintains that a "material adverse effect" has occurred, and therefore it should not have to pay a $900 million breakup fee.

The investors argue that student-loan legislation that has reduced federal subsidies since Oct. 1, and weaker economic conditions, have had a significant negative impact on Sallie, justifying the cancellation of the deal agreed upon in April.

In the third quarter, Sallie wrote off $142.6 million for borrowers missing payments on student loans, more than doubling the $67.2 million writedown of a year earlier.

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