First Marblehead slashes 500 jobs

Email|Print|Single Page| Text size – + By Mark Jewell

AP Business Writer / May 5, 2008

BOSTON—Student-loan services provider First Marblehead Corp. on Monday slashed 500 jobs, or more than half its work force, in an attempt to ride out credit turmoil that has spread to the student loan market.

Cuts that took effect immediately were spread across all ranks of the company's offices in Boston and suburban Medford, where all the company's 920 employees are located, spokeswoman Janice Walker said. An earlier round of layoffs and attrition last year already reduced the work force from last summer's total employment of 1,028.

Jack Kopnisky, First Marblehead's chief executive and president, attributed the latest moves to "an extraordinarily challenging business environment for our company."

"The market and credit conditions have not improved," Kopnisky said, and an April 7 bankruptcy filing by a nonprofit firm that provides financial guarantees for First Marblehead "has forced our business situation to change quickly."

The company expects the cuts will reduce its annual operating expenses by $200 million, before taxes.

First Marblehead receives fees for helping banks package their private student loans -- those not backed by the government -- into bonds. The bonds are then sold to investors, who have become increasingly unwilling to buy as credit turmoil that started in the housing market has spread to areas including the $85 billion student loan market, which has seen rising defaults among student borrowers.

The troubles have sent First Marblehead's shares plunging from around $40 apiece last fall to as low as $3.12 on April 10. After Monday's job cuts, the stock rose 18 cents, or nearly 5 percent, to close at $4.04.

First Marblehead's stock sank nearly 37 percent the day after the April 7 Chapter 11 filing by The Education Resources Institute Inc., which shifted credit risk back to First Marblehead. The Boston-based nonprofit, best known as TERI, provides guarantees for more than $16 billion in nongovernment student loans, pledging to cover unpaid loans and offer security to bond investors who purchase student loans bundled into securities.

The TERI bankruptcy prompted Bank of America Corp. to cancel its business with First Marblehead last month. The bank had been the company's second-biggest customer, accounting for about 15 percent of First Marblehead's $881 million in revenue last year. First Marblehead's largest customer is JPMorgan Chase.

Despite the turmoil and Monday's job cuts, Kopnisky said his company still sees opportunity.

He foresees First Marblehead will transition "into a diversified education finance products and services company to serve students and their families. Today, we are making the difficult operational decisions we believe will position us to best take advantage of these opportunities."

First Marblehead's loan-servicing in fiscal 2007 totaled about $4.3 billion, covering students at more than 5,800 schools.