Banks Aim to Jumpstart Marblehead Program

Several big banks are looking into the idea of securitizing private student loans they originated for First Marblehead’s securitization program just before the market collapsed.

The banks, which hold some $3 billion of the credits, believe investors would be eager for such offerings in part because the loans are well seasoned and thus come with extensive performance histories. They also could offering generous yields at a time of low interest rates.

The banks see the plan as an opportunity to shed unwanted assets that have been lingering on their balance sheets since the onset of the credit crisis in late 2007, although they’re likely to pick only the best-performing accounts for use in asset-backed bond deals. Among the institutions that fed loans to First Marblehead for securitization are Bank of America, Citigroup, Deutsche Bank and J.P. Morgan.

In a surprising twist, the banks have approached First Marblehead about sponsoring the transactions. The Boston firm had been among the most active issuers of bonds backed by private student loans, pooling billions of dollars of credits originated by correspondent lenders. But its pipeline of deals froze when the credit market collapsed, forcing the banks to retain the collateral on their books.

Now, some of those same banks want First Marblehead to help them dispose of those loans. Specifically, they envision a scenario in which the shop would buy the credits from the banks, using securitization to fund the purchases. This way, First Marblehead would be the issuer, allowing the banks to avoid ongoing exposure to the assets. That’s a key consideration at a time when banks are facing more stringent risk-based capital requirements under the Bank for International Settlements’ Basel 3 mandate.

For its part, First Marblehead is considering such a transaction. After all, it has been working for four years to rebuild its business, ultimately with the aim of resuming its role as an issuer of asset-backed securities. From 1997 to 2007, the firm sold $15.6 billion of private student-loan bonds, according to Asset-Backed Alert’s ABS Database.

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