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$1.97 -0.26 (-11.66%)
10/6/2008 4:13 PM

The First Marblehead Corp (FMD)

CAPS Rating:
****

The Company with its subsidiaries offers national, regional financial, educational institutions, as well as businesses, education loan marketers & other organizations, a suite of outsourcing services for private education lending in the U.S.

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Avatar NetscribeFinServ (< 20) Submitted: 2/05/07 8:04 AM : Underperform Start Price: $53.54 FMD Score: 68.69

First Marblehead helps meet the growing demand for private education loans by providing an integrated suite of services for student loan programs. They do not serve as a lender, guarantor or loan servicer, but instead receive fees for the services provided in connection with processing and securitizing of clients' loans. Armed with strength of 1000 employees the company provides loan services to 14 of the 20 largest originators of federally guaranteed student loans.

The recent quarters performance has not been satisfactory with net revenues down by 15.6% at $197 million. The future of the company looks troubled with slow down of private loan originations impacted from changes in federal loan program and making alternate sources of funding attractive. Further growth will result in depleting credit quality leading to more riskier credit borrowers with FICO scores of less than 680. Higher interest rates would result in faster repayments, rising delinquencies and consolidation.

Even the positive forecast for the securitization business is hindered by the uncertainties arising out of contract renewals by Bank of America, which account for 30% of the same. Of late the company loosing bargaining power as clients like JP Morgan Chase have renegotiated a deal forcing it to purchase loans at a higher premium. The company sees potential in its relation ship with General Electric and awaiting the spring season applications. Though the student loan market is around $15 billion, with expectations of doubling in 2010, competition from players like Sallie Mae entering the market, lack of awareness among the parents makes soft landing a difficult task in 20007.

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Avatar cdulan (92.99) Submitted: 4/29/07 2:51 AM

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This is a horrible pitch. Even though I am a bull, I love a good bear pitch because that is where you find the best analysis. This ain't it.

1) Revenues down 15%? What? This company is growing at 20% YOY clip. Did you look at sequential quarters? This is seasonal work so you have to compare comparable quarters from the previous year. In that regard this company is fine.

2) Subprime problems with student loan lending? Students never had any credit, so the historical information in the TERI database that FMD buys is that much more valuable. Are you worried about interest only school loans or option arm tuitions or something? HA!

3) Lack of awareness? What parent doesn't want little Johnny to get through school? The education process may be last minute, but most parents find a way to pay for school and make good on the payment.

4) Contract renewals, now that is a huge issue. Right now they are ironclad until 2010. Who is to say that BofA will not just buy FMD too for the purpose of increasing growth and profit margins? Or maybe GE will buy them out to leverage themselves into the game? There are lots of risks here, but there is a reason Sallie Mae did not dominate this aspect of the field and why FMD has seen such a demand.

Overall, the market for securitizing and servicing student loans is there and growing, it is just a question of whether FMD will find the clout to be able to maintain it's current relationships and leverage itself into the position as THE student loan service provider.

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Avatar texalope7 (< 20) Submitted: 5/02/07 5:25 AM

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It's interesting to note that JP Morgan upgraded this stock from neutral to buy at the same time investors are worrying that FMD will lose JP Morgan business to Sallie Mae.

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Avatar Wyatt70 (< 20) Submitted: 6/26/07 11:55 AM

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"lack of awareness among the parents makes soft landing a difficult task in 20007."



This is a quote from First Marblehead's website:



"In providing our services, we do not serve as a lender, guarantor or loan servicer, but instead receive fees for the services we provide in connection with processing and securitizing our clients' loans. Using our services, our clients can offer student borrowers access to customized, competitive student loan products while enhancing their fees but minimizing their resource commitment and exposure to credit risk."



Now, perhaps I am misunderstanding something here, but I interpret this to mean that potential borrowers still apply to the bank of their choice. The bank, in turn, has First Marblehead do the heavy lifting of checking the student's credit, securing the loan, etc. Therefore, it doesn't matter whether or not the parents are aware of the existence of First Marblehead.





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