June 21, 2007 / 2:00 PM / 12 years ago

H&R Block subprime mortgage unit's value falls

NEW YORK (Reuters) - H&R Block Inc. (HRB.N), which is selling its money-losing subprime mortgage unit to buyout firm Cerberus Capital Management, said on Thursday the unit’s net asset value fell to $1.1 billion as of April 30.

File photo of three homes displaying "For Sale' signs in a row on Palma Bonita Lane in Perris, California May 2, 2007. H&R Block, which is selling its money-losing subprime mortgage unit to buyout firm Cerberus Capital Management, said on Thursday the unit's net asset value fell to $1.1 billion as of April 30. REUTERS/Mark Avery

Chief Financial Officer Bill Trubeck, speaking to analysts on a conference call, said the unit, Option One Mortgage Corp., had $1 billion of current assets, $705 million of noncurrent assets and $610 million of liabilities. That yields an estimated net asset value of $1.1 billion.

That means the takeover value of the business dropped by $300 million, or 21 percent, since Block announced a deal on April 20 to sell the unit to Cerberus.

“This was a really rough quarter for the subprime industry overall,” H&R Block Chief Executive Mark Ernst said.

Ernst noted the unit’s value was written down to reflect the continued deterioration of the subprime mortgages market, where defaults among riskier home buyers have risen.

H&R Block investors are watching the subprime market closely because the unit’s final sale price, under the agreement, will be whatever its assets are worth on the day of closing less $300 million.

H&R Block also will receive up to $300 million of Option One’s profit for the first 18 months after the sale.

Block, the largest U.S. tax preparation company, earlier on Thursday reported a consolidated quarterly net loss of $85.6 million after absorbing a loss of $808 million on Option One and other businesses up for sale.

Ernst said the market deterioration is not enough to scotch the sale, which is expected to be completed in the quarter ending October 31.

“I would tell you there’s nothing in these numbers that would affect our ability to close,” Ernst said.

H&R Block bought Option One from Fleet Financial Group, now part of Bank of America, in 1997 for $190 million.

The company previously told investors it expected to receive at least the book value of the business, which was $1.27 billion on January 31, but the rapid downturn in subprime mortgage assets has made it difficult for Block to exit and avoid further losses.

Reporting by Joseph Giannone

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