"Since the market started its downturn early this year, I have avoided all financial stocks and resisted the temptation of value plays," says Dave Dyer.

In his Dave Dyer's Newsletter, he explains, "Well, it is now time to violate both of those prohibitions at once." Here, he looks at a new buy for SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, the nation's largest provider of college loans and savings programs."

"There must be some financial areas that have predictable, growing demand, willing customers who actually have low default rates, and securitization processes that do not involve the type of financial engineering that is only intended to hide risk.

"Well, there is such an area, and it even involves a product that it makes sense to finance since it will actually increase in value over time. I'm talking about student loans.

MAJOR PAPERS:

• UBS AG (NYSE: UBS) is launching an initiative to reduce proprietary risk taking by its investment banking division, the Financial Times reported. In an internal memo, UBS CEO Marcel Rohner wrote that the bank would cut by 50% the number of its employees in its real estate and securitization division, and move its troubled mortgage investments into a separate unit.

• The UK Times reported that British music company EMI Group PLC (OTC: EMIPY) has made a bid for Chrysalis, one of Britain's last big independent music companies.
• Student loan giant SLM Corporation (NYSE: SLM), also known as Sallie Mae, said it would lay off 350 employees, or about 3% of its workers, the Washington Post said.
• France Telecom (NYSE: FTE) CEO Didier Lombard said sales of Apple Inc's (NASDAQ: AAPL) iPhone device are going better than expected in France, the Associated Press reported.

Having recently returned to the CEO's role in the wake of a failed leveraged buyout, Sallie Mae (NYSE: SLM) Chairman and CEO Albert Lord will give up the chairman's.

According (subscription required) to the Wall Street Journal, "Anthony P. Terracciano, 68 years old, with a history of finding capital for troubled companies -- and a reputation for helping to sell them -- will serve as chairman of SLM, also known as Sallie Mae, as he seeks to bolster its credit rating and investor confidence."

Additionally, former executive Jack Remondi is returning to the company as vice chairman and CFO.

Part of the reason for Lord's departure from the Chairman's role may be his exceptionally poor handling of a recent conference call that culminated in his rejoicing that they could "get the (expletive) outta here" because there were no more questions.

But questions still surround Mr. Lord. Why was he so eager to sell the company? Was he aware of troubles on the horizon and sought to dump the mess on someone else?

Investor perception of the company would probably strengthen considerable if Mr. Lord left entirely. But for now, separating the chairman and CEO jobs is always a good move for corporate governance.

Investors liked the news, sending the stock up more than 8%.

SLM (NYSE: SLM) closed $16.67 Friday, a seven-year low.

SLM disclosed last week it will decrease the production on loan origination and purchases because of a new federal law that reduces subsidies to commercial lenders to distribute federal loans to students.

SLM January option implied volatility is 101; February is at 95; above its 26-week average of 49 according to Track Data, suggesting larger price movements.

Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

SLM (NYSE: SLM) is recently at $20 in pre-open trading below its close of $22.13.

SLM said it will sell $2.5 billion in stock and other securities to raise cash needed to settle contracts under which it effectively bet that its own stock would not decline by a large amount in price.

Thomas Weisel lowered its price target on SLM from $31 to $25.

SLM January option implied volatility is at 79; February is at 85; above its 26-week average of 47 according to Track Data, suggesting larger price movements.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Sallie Mae (NYSE: SLM) is raising $2.5 billion through a secondary stock offering to pay off bets it made on its own stock price. Sallie Mae said it has already paid the money to Citibank. According to the New York Times, "Under the agreement with Citibank, SLM will pay $1.99 billion to buy back 44,039,890 shares of stock. It had signed contracts requiring it to buy back the stock over the next several years, but the company's falling stock price last week gave the banks the right to force immediate purchase of many of the shares. SLM negotiated the deal with Citibank to delay the purchase."

There are some issues here that the company's board of directors need to be looking at: First and foremost, why did the company feel a need to repurchase its stock in such an unusual manner? Was it appropriate to create the risk of a large loss by repurchasing shares with a forward purchase contract? What was the point of this deal? Having to raise money through a public offering to cover a bet on your own share price is pretty unusual.

Sallie Mae (NYSE: SLM)'s earnings conference call went a little off-kilter. Reminiscent of former Enron CEO Jeff Skilling's "a**hole" comment, the Washington Post tells the story. After a bad quarter that sent the stock plummeting, CEO Albert Lord offered few details of his plans for the company on the conference call.

William Kavaler, a managing director of the French bank Societe Generale: "We're trying to figure out what your stock is going to be worth, and you've got to give us some guidance, you've got to give us some numbers."

Lord: "You should give Steve (head of investor relations) a call."

Kavaler: "But you're the CEO. You're the guy who just took over the company."

Lord: "Yeah ... that's exactly right. I'm the CEO. You should give Steve a call. Next question."

SLM Corp. (NYSE: SLM), a manager of $160 billion in education loans that serves nearly 10 million student and parent customers, is recently trading down $2.04 to $20.83. SLM announced today that it has entered into a series of transactions with its equity forward contract counterparties at Citibank (NYSE: C). SLM call option volume of 39,244 contracts compares to put volume of 16,830 contracts. SLM January option implied volatility of 110 is above its 26-week average of 43 according to Track Data, suggesting larger price movements.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MAJOR PAPERS:

• As dozens of patents on drugs expire over the next five years, generics will replace about $70B of drug company sales, reported the Wall Street Journal. Those hard hit will include Pfizer Inc (NYSE: PFE), whose $13B sales cholesterol lowering Lipitor will face stiff generic competition, and Merck & Co Inc (NYSE: MRK), which will see generics battle against its three best sellers.
• Hopes for a $100B "super fund" to help ease a worldwide credit crisis, and the brainchild of Citigroup Incorporated (NYSE: C), Bank of America Corporation (NYSE: BAC), and JP Morgan Chase & Co (NYSE: JPM), has failed to attract significant interest parties to make it a reality, according to the Wall Street Journal.
• According to sources and reported by the FT's dealReporter, despite ongoing litigation, a consortium led by JC Flowers remains interested in taking SLM Corporation (NYSE: SLM).

• The Economic Times reported that three bidders for Ford Motor Company's (NYSE: F) Jaguar and Land Rover units, Tata Motors, M&M and One Equity, submitted their final "competitive" bids Wednesday. The bids are rumored to be in the range of $1.5B-$2B, but may undergo revisions at some point.

Sallie Mae (NYSE: SLM) is sick of having sand kicked in its face by its potential buyer, JC Flowers, and Flowers' banks.The private equity firm that agreed to pay $25 billion for the student loan company has come back with a lower price, claiming that Sallie Mae's financial future has gotten much worse. Now, Sallie Mae is suing to get its break-up fee of $900 million

According to Reuters, "The suit seeks a declaration that Sallie Mae may terminate the merger agreement and collect the damages, that the buyer group has repudiated the merger agreement, and that no material adverse effect has occurred." SLM is arguing that there has been no meaningful change in its business since Flowers made its offer. The buyout firm and its banks make the case that legislation slashing subsidies to student lenders and a serious credit squeeze have cut Sallie Mae's value. Flower's banks are JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC).

The move by SLM may usher in a new wave of litigation as private equity buyers walk away from buyouts that they no longer think make financial sense. If Sallie Mae can win in court and collect its $900 million, a number of legal actions could follow brought by public companies that watched buyouts fall apart.

While it may seem odd, it is possible that the legal system will slow buyouts as much as the current credit crunch.

Douglas A. McIntyre is a partner at 24/7 Wall St.