Sallie Mae ARM Unit Posts Loss in Q1 on Impairments

The accounts receivable management unit of student loan giant Sallie Mae announced a loss in the first quarter of 2009 as the business took impairment charges related to ending its debt buying activity.

Reston, Va.-based SLM Corp. (NYSE: SLM), more commonly known as Sallie Mae, said late Wednesday that its Asset Performance Group (APG) – which includes the contingency collections and debt buying units – recorded a net “core earnings” loss of $27 million in the first quarter of 2009. This compares to net core earnings income of $10 million in the fourth quarter of 2008 and $18 million in Q1 2008.

Earnings and revenue in APG were dragged down by $77 million in impairment charges related to the wind-down of purchased debt operations. The Purchased Paper-Mortgage division recorded $74 million in impairments while the non-mortgage unit posted impairments of $3 million.

Sallie Mae said last year that it was exiting the debt buying business as it felt it was no longer a fit for its other offerings. The company closed on the divestiture of its international debt buying operations in the first quarter of 2009 (“Sallie Mae ARM Unit Posts Profit in Q4; Divests Int’l Debt Buying Unit,” Jan. 22).

The impairment charges greatly reduced revenues and profits in APG. Total income at the unit, before expenses and including the impairments, dropped nearly 50 percent compared to the fourth quarter to $75 million. The contingency collection operations brought in $73 million, down 11 percent from the year ago quarter. The contingency unit enjoyed net operating income of $18 million for the first quarter of 2009.

APG’s mortgage purchasing operation has not acquired new paper since March 2008, but the non-mortgage unit has forward-flow agreements in place through this month. In the first quarter, the unit purchased $388 million in non-mortgage debt portfolios at a price of $29 million. The company said that it will invest about $1 million in debt purchases on forward flows in April, but will not buy any more portfolios beyond that time.

Sallie Mae said that its contingency collections operation was working an inventory of $10.95 billion as of the end of the first quarter; $9.23 billion of which was student loan debt with the remainder classified as “Other.”