First Marblehead gets clobbered

First Marblehead (FMD) is the latest financial firm buffeted by fears that defaults will soar on all sorts of loans as the economy slows. Shares extended their recent free fall early Friday, dropping 8% after the student lender cut its dividend by more than half and said it won’t try to sell any securities backed by its loans this quarter. Earlier this week, Moody’s said it would review First Marblehead’s ratings; last week, Fitch cut its ratings on First Marblehead’s financial guarantor affiliate, on worries that the unit won’t have enough capital to sustain a sharp rise in defaults on First Marblehead loans.

Worries about the soundness of First Marblehead’s loans have sent the stock down 70 percent this year, in an arc resembling the plunges in financial intermediaries like MBIA (MBI) and Radian (RDN). But at the Motley Fool, Christopher Singley ventures that it may be time to buy First Marblehead. He says the lender has a first-class franchise in an area that’s got strong growth and may be somewhat more insulated from consumer spending worries than, say, car loans or credit cards - two areas where delinquencies have spiked lately. He also notes that at recent trading prices, the stock trades at a price-to-earnings multiple of about 6. “I don’t know about you,” he writes, “but to me, that sounds very, very cheap.”