SLM Earnings Call Nuggets: Increase in Net Charge-Offs and Stock Repurchases
Increase in Net Charge-offs
Brad Ball – Evercore: For detail on the credit outlook, Al, how much of the increase in net charge-offs in the fourth quarter do you think was attributable to the acceleration related to the forbearance change back in the second quarter, and would you expect right away, early in 2013 an improvement back to those levels that we saw in the sort of mid-3% range net charge-offs in the private student loans?
Albert L. Lord – VC and CEO: I am ultimately the least informed about the contents, but my answers are generally fairly close to right. I hope all the increase in the fourth quarter was attributable the forbearance change. And we will learn that as time passes. I think there’ll be some forbearance change defaults in Q1, but by and large, I think the lion’s share of the run-up in both Q3 and Q4 was caused by the forbearance change. Did I miss some part of the question?
Brad Ball – Evercore: No, that’s helpful. So, your comments on the economy in the economy and the relative weakness that you’re seeing isn’t causing any additional drag on net charge-offs?
Albert L. Lord – VC and CEO: Well, I would – I’d be loathed to say that. I think in an economy that is growing 3% or 4% a year our charge-offs are down several hundred million dollars. So you may be trying to put too fine a point on this and I am not suggesting there has been necessarily a change in the economy, but it’s – other than that it just persists.
Brad Ball – Evercore: Just separately on the FFELP spread as you guys have been shifting from the conduit to more ABS financing it’s been pressuring the spread a little bit. Do you expect the trend to continue at about the same rate or are you still confident what was it the 90s core cash to loan spread in FFLEP?
Jonathan Clark – EVP and CFO: We haven’t changed our forecast. I would still say looking forward in 2013 we can expect high 90s.
Brad Ball – Evercore: High 90s will continue into next year?
Jonathan Clark – EVP and CFO: Yes.
Leon Cooperman – Omega Advisors: I wonder if you could play a little more granularity on the 230 guidance (as it requires) three areas. What are you assuming for the Board’s decision regarding stock repurchase in 2013? Is the 230 assuming initial repurchase? Second credit losses and third you made a comment that Jack is working very hard towards reducing expense and it is not easy, what are you assuming in terms of operating expenses? Secondly, how do you guys view corporate liquidity for Sallie Mae at the present time? You think you are over capitalized, partly capitalized, excess capital, et cetera? Any help on those questions would be appreciated.
Albert L. Lord – VC and CEO: Lee, when you ask about – in your last question you talked about liquidity and capital. I look at those kind of separately. Are you asking about both or…?
Leon Cooperman – Omega Advisors: I guess I am asking whether you view yourself as being carrying excess amount of liquidity presently which kind of we feed into the repurchase of dividend decision. It was how do you feel about your capital adequacy basically. I know Tony is very big on capital. Do you guys think you’ve got more than you need? What’s behind the question is…
Albert L. Lord – VC and CEO: Let me just say that I think the capital level is very, very adequate and will become more adequate as our legacy private and particularly, the non-traditional piece of our legacy private winds down even further. For example, the non-traditional part of our portfolio is at around $3 billion or about 8% of all of our private assets, but it provided some 35% of our charge offs, then that has to go away. In the end, we are going to be needing to provide capital for the Smart Option product which just needs – in my view, will need significantly less capital, more probably less than the 13% that we provide. As I said, we distributed over $1 billion of capital in the year 2012 which was a hair more than we earned. I think it demonstrates pretty clearly that we intend to keep capital levels at roughly the same amount and you can – if you are trying to do the arithmetic yourself, it’s just 13% against the private credit asset, and you’re within a couple hundred million dollars of it if you do that. You asked about the relative magnitude, I think, of repurchase in the coming year. We will be deciding that in coming months and I would say, I can pretty safely say that there will be share repurchase and I would suggest that, at this point, it’s probably going to be – the aggregate distribution will probably be less than the $1.1 billion it was last year. In the bad debt front, I think I said between $900 million and $1 billion. I’d like to hope that the number is below that, but I’m guessing we’ll be $50 million to $75 million below where we were in 2012.
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