The break-up was announced on Wednesday along with the earlier than expected retirement of Albert Lord, the Sallie Mae veteran who had been chief executive since 1995 and who oversaw its privatisation a decade later.
The board has promoted chief operating officer Jack Remondi to replace Mr Lord immediately to oversee the restructuring and run the larger of the two ongoing companies.
“After 31 years I choose to focus only on good memories,” said Mr Lord, but he added: “I do regret not completing the [split] or achieving more of the intrinsic value in the share price before my exit.”
The restructuring comes after a period of upheaval in student finance that included the takeover of the bulk of student lending by the federal government in 2010. Sallie Mae, which is the largest collector of student debt in the US, has become a focus of protests at the high debt burden facing students.
The bulk of the company’s historic business will be bundled together and renamed, though for now it has only the nickname NewCo. It will manage a $150bn portfolio of student loans, including $118bn of government-backed lending from before the federal takeover.
Sallie Mae shares responded positively to the changes, closing up 2.2 per cent, but credit rating agencies expressed alarm. Fitch downgraded the company’s credit rating by one notch into junk territory and Standard & Poor’s and Moody’s both put the company on review for possible downgrade.
All of NewCo’s assets will be in “run-off mode”, Fitch analysts wrote, “leaving the servicing of federal student loans and other contingency collections as the primary sources of core earnings growth, both of which are believed to have relatively thin operating margins.”
Mr Remondi said the restructuring was the result of several years of frustration at the company’s stock market valuation, which he said under-appreciated both the cash generation of the historic loan servicing business and the prospects for its new lending operations, which will have an estimated 51 per cent share of the private student loan market this year.
The new lending business will be run by Joseph DePaulo, Sallie Mae’s executive vice-president of banking and finance. It will take over only a small portfolio of recent loans and will keep using the Sallie Mae name for new business.
Mr Remondi cited Sallie Mae’s privatisation in 2004 and its strategy since the government takeover of lending as showing “an ability to reinvent itself in changing business climates”.
“By separating our current operations into two businesses, we will facilitate focus on Sallie Mae’s growing consumer banking business and management of its education loan portfolios,” he said.