Merger Watch: JPMorgan Chase and Bank of America To Buy Sallie Mae
Status:
The sale is pending approval by the SEC, as well as by Sallie Mae stockholders. The sale is expected to be finalized in late 2007.
Background:
JPMorgan and Bank of America, as well as two private equity firms, J.C. Flowers & Company and Friedman Fleischer and Lowe, announced that they will purchase Sallie Mae, the nation’s largest maker of student loans, for a total of $25 billion. It is the largest buyout of a financial Services company. Both JPMorgan and Bank of America currently have student loan businesses which, they say, will remain independent. Sallie Mae originates 23% of the nation’s student loans, serves almost 10 million borrowers, manages $142 billion in loans and maintains relationships with over 5600 schools. JPMorgan Chase and Bank of America, together with Sallie Mae, could control as much as 40% of the student loan market.
See the Sallie Mae press release for more info.
Issues of Concern:
Sallie Mae was originally created as a government-sponsored enterprise (GSE). Now a publicly traded company, it will cease to be so once it is sold. Currently Sallie Mae issues student loans that come with federal subsidies and guarantees. Some experts have speculated that if federal subsidies are cut by Congress and Sallie Mae’s loans are administered by private companies, this could dramatically drive up the cost of interest rates and fees charged to students.
Previous to this announcement, Sallie Mae had reached an agreement with the New York State Attorney General’s office to settle an investigation into deceptive student loan practices. Under the settlement Sallie Mae will contribute $2 million to a fund devoted to educating college bound students about their loan options and adopt a new code of conduct. Citibank was also implicated in the investigation and made similar restitution.
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