Sallie Mae Loss Blamed on Investment Trouble

Student loan giant Sallie Mae reported a second-quarter loss of $123 million Tuesday as it continued to feel the effects of a severe recession.

The loss of 32 cents a share was in contrast to a profit of 50 cents a share, or $266 million, in the corresponding period a year ago, the Reston lender said.

The company, officially known as SLM Corp., attributed much of the loss to a $484 million markdown on unrealized derivative and hedging activities. Excluding one-time charges, the company's core profit was $170 million, or 31 cents a share, up from $156 million, or 27 cents a share.

Rising unemployment weighed on Sallie Mae's results, as the company increased its provision for student loan losses during the quarter to $278 million, compared with $143 million a year earlier.

The results were issued after the close of financial markets. During regular trading, Sallie Mae shares closed at $9.51, down 28 cents, or 2.9 percent. In after-hours trading, the shares fell an additional 34 cents, or 3.6 percent.

Despite the slowing economy, Sallie Mae said, it increased the number of federal student loans it originated during the quarter by 53 percent, to $3.7 billion from $2.4 billion a year earlier. For the 2008-09 academic year, the company said its originations of federal student loans rose 11 percent, to $20 billion.

"We met our 2008 commitment to make every federal student loan to every student at every school last academic year," Sallie Mae vice chairman and chief executive Albert L. Lord said in a statement.

Sallie Mae manages $188 billion in education loans and serves 10 million customers. The company has cut staff and other expenses over the past year, which helped reduce costs for the quarter to $305 million from $339 million a year earlier.

Analysts upgraded their view of the company last month after an announcement by the Education Department that Sallie Mae was one of four companies it had awarded key contracts to service federal student loans.

The contract is part of an emerging strategy by Sallie Mae, the nation's largest student loan company, to transform itself from a lending company to a loan servicer.