SLM Corporation, the student loan provider commonly known as Sallie Mae, is in trouble. It all started in 2007 when Sallie Mae began expanding its private loan program (“PELs”). SLM Ventures recently filed a lawsuit as a result, and a spicy investor call at the time is worth noting.
At the time, the company decided that its private loan program, a ‘mere’ $7 billion (pocket-change, really), was not enough. So, Sallie Mae went ahead and doubled it to over $15 billion (now we’re talkin’!).
The company told their investors all was fine. I bet they said, “Baby, it’s cool, don’t worry, we’re following standard underwriting procedures.” Well, that might not be true, especially when it comes to the recent suit filed against Sallie Mae (see the news report here — they are being accused of fraud by approving risky loans to borrowers at correspondence and for-profit schools).
The investors call at the time is a classic. Albert L. Lord, who was chairman of Sallie Mae at the time, does not seem to win over the investors in 2007. Moreover, Lord was trying to sell off the company to private equity investors. If he had succeeded, he would have received $225 million, the total amount of his stock options in the company (now that’s freakin’ pocket change). The deal, however, fell through.
Oh Lordy, poor little Lordy!
Anyway, Lord was extremely defensive during the December 2007 investors call (read the part of transcript here). When discussing the expansion of PEL, he was tight-lipped and refused to answer specific questions about it. At one point he said, rather oddly, “Most of the advice I get takes the direction of playing poker and how to play poker.”
But he quickly added this contradictory claim, “I think it’s important that you understand that I’m not playing poker. The board is not playing poker. We are trying to do what we’ve always done and that’s create value by running the company well.”
Whatever that means . . .
The call worsened, and Lord kept delivering bad jokes. (A word of advice to Lord: if you do quit your day job as a loan predator, don’t go into stand-up comedy). He continued with a string of dumb, jokey comments. “I don’t play chess. I play golf — poorly. I don’t play the piano, but we have a piano and if you put CDs in it, it plays itself,” he said. That didn’t go off well, as Lord said a few minutes later, “You guys are pretty serious today, I can see.”
But as the Courthouse News Service reported, he would not discuss the creditworthiness of PEL.
David Jackson, who is a contributor to Seeking Alpha, described the Q&A session as the “most remarkable” he ever experienced (see Jackson’s transcription here).
This is when Lord gets nasty! Jason Miller asks Lord several questions, and Lord essentially lets him know that it’s too much. They move to the next caller, Bill Cavalier. Cavalier begins to ask questions about securitization. Lord refuses to respond, and insists that Cavalier direct those questions to Steve McGarry (McGarry was promoted to senior vice president of investor relations in 2008).
Cavalier sounds surprised by Lord’s reaction, and says, “But you’re the CEO. You’re the guy who just took over the company.”
Lord replies, “Yeah, that’s exactly right. I’m the CEO. You should give Steve a call. Next question.”
It seems to me, that Lord is suggesting that CEOs aren’t responsible for understanding the inner-workings of their companies, especially when it relates to securitization and banking. That’s obviously expecting far too much! How dare Cavalier expect that of Lord.
When the call is wrapped up, and there are no more questions, Lord says to McGarry, “How good is this? Steve, let’s go. There’s no — no questions. Let’s get the fuck out of here.” [my emphasis]
Lord, like usual, was keepin’ it classy. Stay tuned for updates on this case of SLM vs. SLM.
LORD: “Look, I don’t f%$@*ing know! I’m just the CEO. Ask Steve. I’m going golfin’ on my 18-hole golf course on my estate in Anne Arundel County. Yeah, that course was built by turning millions of Americans into indentured educated citizens . . . Oh s—t! I mean . . . just ask Steve!”
Cryn Johannsen is the founder and executive director of All Education Matters (AEM). She is currently writing a book about the student lending crisis and how this mess can be fixed. Read her full HyperVocal archive here, and make sure to follow her on The Twitter @cjohanns.