H&R Block president and CEO Mark Ernst resigned Tuesday as the prospect of selling its money-losing subprime mortgage unit Option One looked increasingly bleak.
Ernst will be replaced by Richard Breeden, a former SEC chairman who currently heads a hedge fund that includes H&R Block as a major investment.
Breeden, whose proxy battle led to the sale of Option One, had been strongly opposed to the mortgage business, and suggested that H&R Block focus on its bread and butter, tax and accounting services.
“Our actions today reflect a determination to focus on those activities where H&R Block can generate significant shareholder value,” Breeden said in a statement.
Alan. M. Bennett, a former CFO of Aetna Inc., has been named interim chief executive, and will serve until a permanent replacement can be found.
The proposed sale of mortgage lender Option One to private equity firm Cerberus Capital for $800 million (formerly $1 billion) agreed upon earlier this year is expected to fizzle as the credit markets continue to breed uncertainty.
Cerberus already backed out of a deal to buy Affiliated Computer Services Inc., and is currently attempting to withdraw its offer for United Rental.
At this point, H&R Block may look to sell off Option One’s servicing unit to Cerberus, which could lead to the closure of the ailing mortgage unit.
Option One, which was ranked the sixth largest subprime lender through September 30, had been a big source of profit for H&R Block in past years, but recently began chalking up big losses as the mortgage boom went bust.
Over the last year, Option One laid off hundreds of employees and saw many of its credit lines pulled back or cut completely.
In 2006, Option One made a staggering $29.8 billion in subprime mortgages, according to National Mortgage News.
Two weeks ago, H&R Block CFO William Trubeck resigned amid similar concerns involved with the wavering sale of the ailing subprime unit.
Update: John Hewitt, who built Jackson Hewitt Tax Service Inc., said he is interested in taking the helm at H&R Block.