First Marblehead loses major customer, revenue source

Student loan packager First Marblehead Corp. suffered another financial setback when major customer Bank of America Corp. said it would no longer fund private student loans.

Boston-based First Marblehead needs a major capital infusion and a quick rebound in the global credit markets to stop the freefall of its stock. Meanwhile, the company's revenue has slowed to a trickle.

Bank of America, a major source of revenue for First Marblehead, notified the company on Thursday that it has decided to exit the private student loan business and focus on providing federal student loans. Shares of First Marblehead, which have plummeted in recent weeks, fell 17 percent to $3.37 in Thursday trading. The stock is down 91 percent over the past year.

Content Continues Below

The bank exercised its right to terminate agreements with First Marblehead. The move comes after the nonprofit that guaranteed the loans packaged into securities by First Marblehead filed for bankruptcy protection on April 7.

Structural advisory fees and residuals from the packaging of loans originated by Bank of America represented about 15 percent of First Marblehead's total revenue for fiscal 2007, First Marblehead said in a regulatory filing.

Meanwhile, business for First Marblehead has all but dried up because there's no market for student loan-backed securities. A chief source of revenue for the company has been getting fees for taking pools of thousands of student loans and restructuring them into securities to be sold on Wall Street.

Loans funded by Bank of America and JPMorgan Chase & Co. were guaranteed by Boston nonprofit The Education Resources Institute (TERI). Bank of America was able to terminate its relationship with First Marblehead because of TERI's problems.

"In the current economic environment, we understand and respect Bank of America's decision," First Marblehead CEO Jack Kopinsky said in a statement.