H&R Block saw its plans to disentangle itself from the subprime mess (perhaps
we could just start call it the SPM) evaporate this week as a tentative deal
to sell its Option One Mortgage Company to Cerberus Capital
Management LP dissolved under the worsening mortgage conditions.
Option One had accounted for about half of the HRB profits as recently as three
years ago. The tax-preparation service had gotten into the mortgage business
because it offered a way to even out the seasonal nature of the company's
The deal to sell to Cerberus
was struck in April; six months
after HRB put Option One on the market. Subprime problems were emerging at that
time but were yet to start killing off companies by the dozens and the proposed
sale was for a little less than $1 billion, about $300 million below what Option
One's CEO had predicted the sale would bring. Within two months HRB announced
a pretax loss of $192.8 million on its mortgage division and Cerberus started
renegotiating the deal.
While it will continue to market Option One to possible buyers, HRB has announced
it will shut down the origination portion of the business while
continuing its servicing activities and will eliminate 620 jobs at a pretax
cost of about $75 million.