Thursday, July 06, 2006

Calls of Note Part 4

- FBR is out negative on First Marblehead (NYSE:FMD) saying they have confirmed that Bank of America is now outsourcing new private student loan products to a competitor. While it is impossible to determine the impact to earnings, the fact that one of FMD's long standing partners chose a competitor, raises issues regarding the company's vulnerability to competitors and pricing. Given this news, high levels of concentration risk, high levels of noncash earnings, changes in the federal loan program, concerns regarding credit, and valuation, the firm reiterates Underperform rating.

Although it is impossible to determine the potential impact to FMD at this time, Bank of America is one of the company's most important clients, accounting for approximately 27% of the company's loans. FMD will continue to facilitate the bank's loans issued under the Education Maximizer program as part of the recently signed contract with FMD. Helping to offset the potential volume going to Educap will be the addition of GE and KeyBank as new clients.

Notablecalls: FMD will get hit today. I suspect the recent momentum darling will decline by 2-3 pts. Nice piece of research from FBR!

2 comments:

tunemann2003 said...

Great analyst note. Too bad I didn't take action. Great site.

notablecalls said...

Thanks!

Must say I underestimated FMD's move.