Updated from 10:05 a.m. EST
CEO Albert Lord apologized Wednesday for using profanity on a conference call with analysts in December, as he met them anew on a call to discuss the student lending giant's swing to a fourth-quarter loss.
Lord's apology came after Sallie reported a loss of $1.6 billion for its fourth quarter, due largely to a steep rise in loan-loss provisions as school loan defaults spike. It also disclosed in a regulatory filing that the
Securities & Exchange Commission
has sought information about company disclosures and actions last December before and after sales of the company's stock by its directors and executives.
"My closing comments were offensive," Lord said on Wednesday, after acknowledging that he was not providing adequate answers to questions from analysts on the December call. "They were not meant to be my closing comments."
The offensive comments were made after William Kavaler, a managing director of the French bank Societe Generale, pressed Lord repeatedly for insights about the interest in securities backed by Sallie Mae loans.
"We're trying to figure out what your stock is going to be worth, and you've got to give us some guidance, you've got to give us some numbers," Kavaler said.
After referring Kavaler to Sallie Mae's investor relations contact, Lord cut the call short and said, "No questions. Let's get the
expletive out of here." The episode provided Wall Street with an eerie reminder of obscene comments made to analysts by Enron's Jeff Skilling during the energy company's meltdown in 2001.
Sallie Mae is reeling amid mounting losses, a crisis in the credit markets and the collapse of a $25 billion buyout deal with a private equity consortium, sending the company's stock price into a tailspin and calling its management's credibility into question.
In an effort to restore its reputation, Sallie Mae recently named Anthony Terracciano, the former chairman of Riggs National, as its chairman. Riggs National, a financial services company, was acquired by
PNC Financial Services Group
after Terracciano led the bank in the wake of a money-laundering scandal.
Terracciano told you that he has credibility in selling companies," said Lord on Wednesday. "He has sold some."
On the call, Terracciano said Sallie Mae would use the current downturn in the financial markets as a transitional period to review its lending practices and its business and take measures to improve it. That said, he left the door open to another buyout deal.
"We recognize a good deal when it comes along, and if that's the right deal for the shareholder we'll do it," Terracciano said. "The board has already demonstrated it's willing to sell, and I've demonstrated that I'm willing to sell."
Private equity firm J.C. Flowers, which led the consortium including
Bank of America
, terminated its agreement to buy Sallie Mae last year, claiming that the lender had suffered a "material adverse change" to its business due to the credit crisis and a change in federal student loan laws that that slashed billions of dollars in federal subsidies for the school loan industry.
Now, Sallie Mae is struggling to shore up its capital position and restore credibility with investors and potential buyers that could take it out of its misery. In addition to bringing on Terracciano, the company recently said John Remondi would return as its chief financial officer.
Terracciano said the company would create the new role of a chief credit officer in its management ranks in 2008.
Despite its efforts to placate Wall Street, Sallie Mae's shares sold off further on Wednesday. The stock recently was down $2.16, or 11.4%, to $16.88. The company reported a loss of $3.98 a share for the quarter, compared with earnings of 2 cents a share for the same quarter last year. Those results included a $1.5 billion loss on an equity-forward derivatives contract and $575 million in loan-loss provisions.
On its so-called "core basis," which uses Sallie Mae's preferred accounting methodology for reporting operating results, the company said its fourth-quarter loss totaled $139 million, or 36 cents a share, compared to last year's net income of $326 million, or 74 cents a share. Those results exclude forward contract mark-to-market losses.
On that basis, its provisions for loan losses totaled $750 million, up from the $88 million it reported last year.
On the call, Lord attributed the spike in loan defaults to a departure at Sallie Mae over the last several years from its traditional lending policies.
"We lent too much money to students who have gone to schools without very good graduation records," said Lord. "Such students were responsible for 60% of our credit losses.
"The good news is our business," said Lord. "We have a very good business, and it will continue to be a good business."