H&R Block to File Late, Big Loss Tied to Mortgage Exit

December 11, 2007 No Comments »

H&R Block said Tuesday that it won’t file its second-quarter earnings on time due to an accounting firm delay, but expects a loss of $502.3 million, or $1.55 a share.

That figure far exceeds the estimated loss of 35 cents per share analysts polled by Thomson Financial had expected, and is markedly higher than the loss of $156.5 million, or 49 cents, a year earlier.

Much of the expected loss is tied to the winding down of its subprime mortgage unit, Option One Mortgage, which had been a burden on the company for much of the last year and change.

The company said roughly $366 million, or $1.13 a share of the loss was from discontinued operations.

H&R Block decided to shut down the ailing mortgage lender last week after the proposed sale to Cerberus Capital Management LP finally fell through.

The tax preparer’s pretax loss from discontinued operations was $551.2 million, including a $252 million net loss on the sale of $3 billion in mortgages and related trusts.

The results include a $123 million impairment charge related to mortgage and servicing assets, a $62 million impairment charge tied to remaining interests on mortgage securities, a $61 million writedown of Option One assets, and $53 million in other operating losses.

“We continue to move resolutely to end our participation in the subprime mortgage business,” said Richard Breeden, H&R Block’s chairman, in a statement.

“We have completed $3 billion of whole loan sales since Aug. 1 of this year,” he said. “While we incurred a painful loss in exiting these positions, we determined to take our lumps and move forward.”

The company, which will file full quarterly results by December 14, also said fiscal 2008 earnings would come in toward the lower end of its previous estimate of $1.35 to $1.45 because of higher borrowing costs.

Shares of the nation’s largest tax preparer were down 13 cents, or 0.65%, to $19.82 in midday trading on Wall Street.

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