December 24, 2009 / 11:46 AM / 10 years ago

UPDATE 3-Jackson Hewitt's tax-refund loans in doubt, shrs tank

* Says ability to provide refund anticipation loans hit

* Shares down more than 24 percent

* Says Pacific Bancorp unit unable to originate loans

* Says seeking alternative means for funding (Recasts throughout, adds Jackson Hewitt comments, updates share movement)

BANGALORE, Dec 24 (Reuters) - Jackson Hewitt Tax Service Inc JTX.N said the bank that originated its refund anticipation loans to taxpayers in the past would be unable to do so in the coming tax season, casting doubt on the tax preparer’s ability to offer the lucrative loans.

Shares of Jackson Hewitt fell more than 24 percent after the company said about 75 percent of its overall funding for 2010 depended on the loan from a unit of Pacific Capital Bancorp PCBC.O.

Tax preparers like Jackson Hewitt extend refund anticipation loans at high interest rates to taxpayers who expect to receive refunds from the government.

In a regulatory filing, Jackson Hewitt said it had expected Pacific Capital’s Santa Barbara Bank & Trust (SBBT) unit to match its 2009 contribution to refund anticipation loans in the coming year.

Jackson Hewitt did not respond to emails seeking comment.

Separately, loss-making lender Pacific Capital Bancorp said it was seeking to sell its tax division to a private equity firm after regulators notified it earlier this month that it would not receive approval to originate any refund anticipation loans in 2010.

Jackson Hewitt said the potential sale of Pacific Capital’s division now forces the tax preparer to seek other alternatives for funding.

“If no alternative sources are obtained or if such sale is not consummated, it would have a material adverse effect on our business, financial condition and results of operations,” Jackson Hewitt said.

Jackson Hewitt said it was working with the bank to prevent any interruption in its financial product program for the 2010 tax season.

Pacific Capital’s tax division, or the e-filing financial services division, offers refund anticipation loans and refund transfer tax products, the Santa Barbara, California-based company said in a statement.

The bank expects to sign a definitive agreement with the prospective buyer prior to the start of 2010 tax season in January but did not disclose any details about the financial terms of the proposed deal.

The prospective buyer is working with a number of institutions to replace the parent company as the originating bank for the tax products, and has indicated that the entire management team of the tax division will be retained, Pacific Capital said.

Shares of Parsippany, New Jersey-based Jackson Hewitt were trading down 24 percent at $4.46 late Thursday morning on the New York Stock Exchange. They touched a low of $4.41 in early trade. Pacific Capital shares were up 1 percent at $1.06 on Nasdaq. (Reporting by Anurag Kotoky and Archana Shankar in Bangalore; Editing by Unnikrishnan Nair, Dinesh Nair)

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