Sallie Mae (SLM) Splits Off Student Loan Segment into Navient (NAVI)

Joel Anderson |

Shares in student loan company SLM Corp (SLM) , better known as Sallie Mae, plunged during Thursday’s trading after the company completed the spin-off of its loan servicing enterprises into a separate company, Navient ($NAVI). The separation involved issuing a new share of Navient for each existing Sallie Mae share, and separates the company’s consumer banking arm to remain as SLM Corp and its student loan arm as Navient.

The seeds of this separation were sewn in 2010 when the government opted to shift its policy. Where before, the federal government would pay lenders to make student loans while also backing the companies against defaults. However, beginning in 2010, the Department of Education began making student loans directly, cutting lenders like Sallie Mae out of the equation.

The end result was two separate business segments that seemed increasingly difficult to keep under one roof, the higher-risk/higher-yield student loans and consumer banking and lower-risk FFELP loans. In response, Sallie Mae opted to spin off the student loan servicing into Navient, leaving Sallie Mae’s core consumer banking business as a stand-alone entity.

"With a 40-year foundation of experience, today Sallie Mae begins anew as a bank that emphasizes responsible consumer financial practices to benefit our customers," said CEO Raymond Quinlan. "The new Sallie Mae is squarely oriented toward meeting our customers' needs and building long-term relationships. Our leadership includes a mix of tenured education lending and banking talent who share my vision for growing the franchise."

The new valuation for Sallie Mae, which started its life as the government-sponsored Student Loan Marketing Association in 1972 before going private in 1997, may take some time for the markets to sort out.

Navient takes with it the student loan book from the Department of Education, including 5.7 million accounts worth some $300 billion; Sallie Mae CEO Jack Remondi as its new President; a little more than 20 percent of Sallie Mae’s assets net loans; $2 billion in annual revenue; and 6,000 of Sallie Mae’s 7,200 employees.

However, despite all this, the day’s 65 percent sell-off may be too much according to a few of those analysts positing their opinion. Both Citibank, Credit Suisse, and Compass Point analysts all initiated coverage in the new SLM Corp with an $11 price target.

"We anticipate this rapid growth period will last for at least the next five years given that the bank has about $7.5B of loans today with only 15% of loans in repayment and originations growing from an estimated $4.1B in 2014 to $4.9B in 2016," wrote Credit Suisse’s Mosche Orenbuch.

Citigroup’s analysis was equally bullish, saying “Sallie Mae Bank is a fast growing, highly profitable, mid-cap bank specializing in making student loans to undergraduate and graduate students.”

 

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
NAVI Navient Corporation 17.28 0.25 1.47 3,364,494
SLM SLM Corporation 11.37 0.59 5.47 5,753,352
HESAY Hermes International SCA ADR 42.60 0.72 1.72 6,176

Comments

Emerging Growth

Inception Mining Inc

Inception Mining Inc a mining exploration stage company engaged in the acquisition, exploration, and development of mineral properties, for gold from owned mining properties.

Private Markets

WayBetter

The spark hit Jamie when he saw co-workers competing to lose weight. Instead of pizzas and subs, they were eating salads and jogging along the river. Some were sneakily leaving…

Snapchat

Snapchat is the fastest way to share a moment with friends. The mobile app, allows users to not only share photos with friends but also control how long they can…