It takes a tough man to rescue billion dollar banks, but Anthony Terracciano, (a.k.a. “Tony the Tiger”) has made a career of doing just that. And since January, 2008, serving as the chairman of the board for the sagging Sallie Mae Fund, Terracciano seems to have shouldered the most difficult financial challenge of his life.
The SLM Corporation, commonly known as the Sallie Mae Fund, is the nation’s foremost provider of college savings and loans programs. Managing $180 billion in loans to more than 10 million student and parent customers, it has become a vital fixture in both our fiscal and educational systems.
As the current recession drives incomes down and debts up, loan repayments have dwindled, and Sallie Mae, just as mortgage lenders and major banks, faces decreased revenues. Calls of incompetence and corporate greed have been leveled, and amidst it all Terracciano strives to haul Sallie Mae into back ink and keep its reputation afloat.
To explain where Sallie Mae stands and how it got there, the Princeton Regional Chamber of Commerce has invited Terracciano to speak on “Some Reasons for the Current Banking and Financial Crisis” at its monthly luncheon on Thursday, March 5, at 11:30 a.m. at the Marriott Princeton Hotel. Cost: $50. Visit www.princetonchamber.org.
“I don’t know why the financial press began calling me ‘Tony the Tiger,’” says Terracciano. “Perhaps it was the maniacal pace. But when you know the right thing to do, it becomes frustrating to do it slowly.” A native of Bayonne, Terracciano attended St. Peter’s College, earning a bachelor’s in economics. Then, disdaining the well worn MBA track, he took a master’s at Fordham University in philosophy while teaching at a high school. “Banking and philosophy are a lot closer than most people think,” he says.
Until then, Terracciano always assumed he would be a teacher, but following his service in the U.S. Army, he emerged as an ex-lieutenant with a wife, child, and a need for income. Beginning with JPMorgan Chase, he rose rapidly from credit officer to vice chair. During the 1980s, as president of Mellon Bank, he began a series of rescue operations that proved both his name and his value. Since then he has served as CEO of First Fidelity Bancorporation; president of First Union (later Wachovia,) and chair of Dime Bancorp. He currently shares leadership of Sallie Mae with board vice chair and CEO, Albert Lord.
Banking blunders. “An awful lot of people have difficulty when it comes to evaluating the quality of decisions.” says Terracciano. He likens the current fiscal debacle to the events in the Greek classic “Oedipus Rex.”
“You could see people making decisions based on the best information they knew at the time,” he says. “Of course, the results were disastrous.” One of the major problems he cites is quarter-to-quarter thinking. Financial leaders needed to literally keep a portfolio of their decisions and review it. They did not keep such executive records and thus failed to spot a trend that began years ago, right under their very noses.
Corporate greed? Oh yes, Terracciano admits it played its part in our current crisis — along with the greed for houses and business loans beyond the repayment abilities of consumers and business people. Everybody was simply pursuing his own self interest.
However, when systems of self-interest cross the line into greed-driven scams, caveats are strongly required. For Terracciano, the most effective guide to safe investing remains the basic principle: Make people explain their ideas clearly, so it sounds right. “If a guy can’t explain the most complicated financial instrument to me in 15 to 30 minutes, so I can understand it, I will not approve it,” he says.
When it comes to such practices as mortgage bundling, and unusually high interest funds, people at all levels were simply not asking the right questions and not understanding into what they were placing their money.
The Sallie Mae part. “A key challenge is resolving the public’s misconception that Sallie Mae and mortgage lenders Freddie Mack and Fannie Mae are all in the same heap of trouble. They are not,” insists Terracciano. While all three are quasi-government agencies, their operations and holdings differ noticeably.
Formed in 1972 as a government enterprise, Sallie Mae became an independently traded company (SLM) in 2004. It buys up student loans from original lenders, manages them, and provides financing to state student-loan agencies.
Fannie Mae, founded in 1938, and its little brother Freddie Mac, purchase or guarantee up to 60 percent of our nation’s home mortgages. They amass a large and extremely liquid fund of mortgage backed securities through these purchases. Investors include major pension funds, insurance companies, and even foreign governments. Yes, your home might actually be partially owned by the Egyptian government.
The burst of the housing bubble, among other things, caused the failure of mortgage kings Freddie Mac and Fannie Mae. The inability of the recessed nation to repay its student loans is what is still sending shivers through Sallie Mae’s timbers. Yet in the fallout, SLM has also come in for its, some say, very justified criticism.
Regaining confidence. Long before the recession and the repayment lapses, and long before Terracciano came on board, the public was taking a long look at Sallie Mae and not liking what it saw. Accusations that Sallie Mae was bribing universities to push higher interest loans hit the press, and hit home with many students.
Further claims of incompetence and mismanagement have been piling up. Websites have blossomed on which students air grievances about payments being taken but not applied to their loans. Percentage points, others say, have mysteriously been raised in the middle of the payback periods.
Is it possible that an institution can be simply too big to manage itself properly? This is a question Terracciano and the new leadership of SLM Corporation will have to address, and address quickly.
Perhaps more than any other nation, America puts its hopes in its children. We are a nation of immigrants, most of whom have sacrificed a fair amount on our shores, striving to improve the lot of their sons and daughters.
We will not take kindly to our children’s education funds being handled any way other than absolutely scrupulously. We deserve it. We depend on it. And hopefully Terracciano and Sallie May can continue to make these educational dreams a reality.
— Bart Jackson