Friedman, Billings & Ramsey think First Marblehead looks like a deal

An analyst from FBR today indicated that First Marblehead looks like an attractive takeover target.

Um, we don't think so. FBR sites their origination platform, brands, and database have value. Let's take each one of these.

The origination platform isn't rocket science. There are a number of off the shelf platforms that can be implemented so that perfunctory work can be accomplished in low wage regions of the world or USA. We mentioned before that student loan monolines aren't really that good at lending. FMD is a little different in that the founders are seasoned bond traders. They understand the importance of a good platform, but it was never their primary focus. FMD was really good at executing securitizations and leveraging their network. We give the origination platform a B-.

FMD brands were created out of thin air. Consumer products and services do this all the time so the same product may appeal to different segments of the population. In terms of the brand awareness and respect, First Marblehead didn't come up with anything earth shattering. They just threw out brands like their affiliate marketers and competitors. There was no innovation in their branding or marketing. Our grade for FMD brands: C-.

FMD's database? We don't see any value here at all. Every marketer/lender has a database. FMD's isn't especially large or doesn't carry any information that cannot be found from existing consumer databases or credit bureau's. FMD is hardly known for their data prowess. Our grade for FMD's database: C-.

In fact, we speculate (solely our opinion here), that FMD may be a liability. Why? Because their secondary market deals squeezed ALL future value from the loans at deal time. They were extracting 11%-13% premiums out of their deals; that's really spectacular. But now their guarantor is bankrupt, and there's no fat to subsidize losses. Speaking of losses, FMD underwrote loans based on a booming economy. Whoops....the economy has turned south...way south. How will their loans perform in an uncertain economic environment? We don't know. Neither does FMD. Nor Friedman, Billings & Ramsey. The trust income from FMD's securitizations may very well not support the bond p&i obligations for reasons we mentioned above. Just our opinion, but we're certainly entitled to it.