A hedge fund manager who cashed in on an early bet against subprime mortgages has turned his attention to for-profit school operators including Santa Ana-based Corinthian Colleges Inc.
Steve Eisman, who runs Morgan Stanley’s FrontPoint Partners LLC of Greenwich, Conn., said at a conference Thursday that he believes earnings at Corinthian and its rivals could drop by half if the Department of Education adopts new rules capping how much debt students can carry.
The report dampened shares of Corinthian and others on an otherwise up day on Wall Street. Corinthian’s shares closed down nearly 4% on a market value of about $1.2 billion.
Eisman minced few words in taking aim at for-profit education companies, calling his presentation at the Ira Sohn Investment Research Conference in New York “subprime goes to college.”
The hedge fund manager is known for betting against subprime mortgages before their crash and was chronicled by author Michael Lewis in his bestselling book “The Big Short.”
For-profit school operators seek out the most desperate members of society and lure them into expensive programs and tie them down with debt, Eisman said.
“In a sense, these companies are marketing machines masquerading as universities,” Eisman was quoted as saying in a Dow Jones story.
Coverage of Eisman’s comments caps a tough week for Corinthian.
On early Tuesday, an analyst at Argus Capital downgraded Corinthian from “buy” to “hold,” citing regulatory risks and slowing enrollment growth.
Corinthian runs more than 100 campuses in the U.S. and Canada offering degrees in healthcare, criminal justice and other areas.
The company, which saw a surge in enrollment during the recession, has seen concerns about students defaulting on loans.
Corinthian also is dealing with an Education Department review that found one of its colleges made misrepresentations to students, breached its fiduciary duty and intentionally evaded a requirement that only 90% of funding come from federal student loans.
The company disputes the findings.
Corinthian’s shares have fallen sharply in recent weeks and now are down 2% for the year after being up as much as 40% in early May.
