First Marblehead Corp (FMD)
I last wrote about First Marblehead (FMD) in early August at the height of the liquidity crisis as funding was drying up for nearly every lender and investors were worried about loan assets that might be impaired or overvalued on balance sheets. Since the fed cut the rate at the discount window and then cut the primary Federal Funds rate by 50 basis points last week, many of these fears have been either put to rest or shoved to the back burner. At the same time, I think Wall Street has begun to price securities on a case by case basis instead of the “shoot first, ask questions later” selling from last month. A beneficiary of this individual asset pricing is FMD who truly has little risk linked to a credit crisis due to the fact is is a consulting company and does not carry loans on its books.
Yesterday (Wednesday) was a very quiet day for FMD as the stock hovered around the unchanged area nearly all day. Suddenly at 3:40 EST, I was surprised to see FMD shoot up nearly three dollars almost immediately. While the price action backed off a bit into the close, the stock finished the day up $1.41. Initially I couldn’t find any news on the stock, but an associate of mine was mentioning a quick drop in SLM Corp (SLM) which occurred at the exact same time. Sure enough they were related as FMD was trading off the news that several banks who were attempting to buy SLM was having second thoughts. If the SLM deal were to go bust, it would have a positive effect on FMD because of the business it currently does with these banks.
FMD’s primary business is to advise financial institutions on marketing and servicing plans for education loans. While SLM operates more on the funding side of the business, it also participates in consulting with the banks on how to set up these loan programs. There was some concern that a merged SLM would take business from FMD as banks would prefer to do the programming and servicing of the loans in house instead of outsourcing some of these functions to FMD. While many of the banks have publicly stated that they expect to continue their relationship with FMD, the SLM concern has been weighing heavily on FMD as an added burden to the stock price. It appears that if this deal is not able to be consummated, or if there are fewer banks participating in the acquisition, FMD will likely receive more business, and the stock price will lift as investors gain more confidence.
From a technical perspective, there still may be a good bit of supply having over the stock. $42.00 is a key area as that is the level from which the stock gapped down in April, and the level has been tested 3 times now as the stock attempts to repair the damage. But while FMD is not out of the woods yet, I believe investors are gaining more confidence in their long-term prospects and the company as a whole is becoming better understood.
FD: Author has long position in FMD.
You state:
FMD’s primary business is to advise financial institutions on marketing and servicing plans for education loans.
You could not be more wrong! First Marblehead’s main line of business is securitizing private student loans made by their client lending companies. First Marblehead’s advisory services on marketing and servicing plans for education loans is done at cost. The obligation that the clients enter with First Marblehead for this service is that, should they decide to securitize those loans, it will be done through First Marblehead.
September 30th, 2007 at 11:01 pm[…] …Blogged about at First Marblehead Corp (FMD) - zachstocks, […]
October 5th, 2007 at 1:27 am80% of revenues for the company come from securitization. I use to work in capital markets for them.
As long as they have volume, they are printing money out of the place.
Even with tighter liquidity, their sell-side perspective is weak, but volume will go up because more people go to school in a recession.
October 9th, 2007 at 9:29 am