Sallie Mae to split into two companies, names new CEO
(Reuters) - Sallie Mae Corp (SLM.O), the largest U.S. student loan provider, said it would split into two publicly traded companies and named Chief Operating Officer John Remondi as its new chief executive.
The consumer banking business will separated from the larger education loan management business as part of a plan to unlock value and enhance long-term growth potential, the company said on Wednesday.
The Federal Family Education loans program (FFELP), under which private lenders made student loans backed by the government, ended in 2010, pushing companies such as Sallie Mae to focus more on their private lending businesses.
Sallie Mae shares, which have gained about a third in value since the beginning of the year, were up 13 percent at $25.94 in early trade. The stock was one of the top gainers on the Nasdaq on Wednesday.
The company, which trades under the formal name of SLM Corp, said the split would be undertaken through a tax-free distribution of common stock to its shareholders.
The education loan management business will own about 95 percent of Sallie Mae's existing assets. It is likely to consist of $118.1 billion in FFELP loans, $31.6 billion in private education loans, $7.9 billion of other interest-earning assets.
The consumer banking business is expected to include about $9.9 billion of assets comprising primarily private education loans and related origination and servicing platforms.
The split is expected to be completed in the next 12 months.
First-quarter net income at Sallie Mae, which has a market capitalization of about $10 billion, more than doubled as the lender benefited from a smaller loss in its derivatives and hedging activities and posted a gain from the sale of a loan securitization trust.
Sallie Mae said Remondi, known as Jack, immediately replaces Albert Lord, who has moved up plans to retire from the board and executive management. Joseph DePaulo, executive vice president of banking and finance, will lead the consumer banking business.
Student loans have been under scrutiny as reports suggest that outstanding student loan debt in the United States has crossed or is close to the trillion-dollar mark.
The Consumer Financial Protection Bureau (CFPB) is seeking to regulate non-bank student loan servicing companies as more Americans struggle to meet hefty monthly repayments.
(Reporting by Tanya Agrawal and Avik Das in Bangalore; Editing by Roshni Menon)
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