H&R Block boosts loss on subprime woes
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H&R Block Inc., the largest U.S. tax preparer, said on Wednesday its decision to write down the value of its Option One Mortgage unit, a subprime lender now up for sale, increased the company’s third-quarter net loss by $15.5 million. The company also disclosed in a regulatory filing that it does not expect Option One to meet covenant terms for eight warehouse credit facilities when its waivers expire at the end of April. The unit did not meet net income requirements as of January 31, but obtained waivers from lenders through April 27. Without the waivers, warehouse facility providers would have the right to terminate future funding obligations, Block said. The company expects it can get waivers from enough lenders to continue certain activities. |
“While this termination could adversely impact OOMC’s ability to fund new loans, we believe this risk is mitigated by options available to H&R Block,” the company said. The increased third-quarter loss came after H&R Block on Tuesday trimmed the book value of Option One by $29.2 million before taxes. That increased the net loss for the quarter ended January 31 to $60.3 million, or 18 cents a share. “In light of the extreme volatility in the mortgage market, we conducted a rigorous review of the carrying value of all the assets of our Option One Mortgage Corp. subsidiary,” H&R Block Chief Executive Mark Ernst said in a statement. Shares of Kansas City-based H&R Block dropped to $18.31, the lowest level since May 2003, before trading down 22 cents, or 1.1 percent, at $19.83 at mid-afternoon. H&R Block showed signs of the current meltdown in the subprime mortgage market last year, when it began reporting rising defaults from mortgages extended to people with poor credit. Block also was forced to buy back sour loans it had sold to Wall Street banks. These setbacks, and pressure from shareholders, prompted Block in November to announce it would consider a sale of the mortgage unit. Block says there has been a lot of interest in the business, which it expects will fetch more than its $1.3 billion carrying value.
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