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Sallie Mae (SLM), officially known as SLM Corporation, reported first quarter, “core earnings” net income was $188 million, or $.34 diluted earnings per share". It also reported that it made a record amount of student loans despite difficult economic conditions. Hey, that all sounds pretty good. Tough times and they still serve up a profit. Keep that one on the radar.

Then the company lets you know that they are making loans at a negative spread. The actual sentence used said “Under current conditions, however, loans can only be made at an economic loss.” Somehow Sallie wants to get onto the liquidity crisis bandwagon, or needs to get onto it.

Most people understand that lenders need to charge more for their loans than it costs to gather funding, admin and credit losses. That is fundamental and remains unchallenged. Sallie Mae has essentially allowed their origination machine to drive in business at uneconomic spreads.The fault lies with management for operating at such razor thin margins that they have no room to manoeuvre.

The liquidity crisis has been coming for some time and should have been foreseen in this context. On one hand, the company claims record volumes yet it is starting to engage in the practice of losing money. If management had been observing the road signs pointing to economic conditions it would not have been driving at record speeds to achieve losses.

Source: Sallie Mae "Off Point Excuses"