H&R Block is exploring strategic alternatives for its banking unit to avoid the increased capital requirements of operating a savings and loan company.
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The tax prep giant has hired Goldman Sachs to advise the Kansas City-based company on strategic alternatives for H&R Block Bank. However, the company's existing financial products and related services would remain in fiscal 2013, and financial products and related services would remain key part of company's strategy. Block expects no material impact on fiscal 2013 earnings, strategy or execution
In a regulatory filing Tuesday with the Securities and Exchange Commission, Block announced it is exploring strategic alternatives for H&R Block Bank that could result in H&R Block Inc. no longer being regulated by the Federal Reserve as a savings and loan holding company. In June 2012, the Federal Reserve announced proposed rules that would impose higher capital requirements on savings and loan holding companies such as H&R Block, Inc. The Federal Reserve proposed the rules in order to implement changes required by the Dodd-Frank Act.
“Evaluating strategic alternatives for H&R Block Bank demonstrates management’s continued commitment to deliver on a shareholder-friendly capital allocation strategy,” H&R Block president and CEO Bill Cobb said in a statement Wednesday.
These proposed capital requirements, if enacted, would require H&R Block, Inc. to retain significant additional capital, Block noted. The company believes the regulatory constraints that would result from these proposed rules and the manner in which the company believes they will be implemented are inconsistent with its strategic plans, operational needs, and growth objectives. In light of this, the company has engaged Goldman Sachs to explore strategic alternatives for H&R Block Bank that could result in H&R Block, Inc. ceasing to be regulated by the Federal Reserve as a savings and loan holding company.
“We are a tax preparation company that offers financial products and related services as an added value to our clients, but operating within the regulatory constraints of these proposed rules would be cumbersome,” said Cobb. “At this point, we're working with Goldman Sachs on a number of alternatives to find the best long-term solution for our company and the implementation of our financial services strategy. We will have the ability to offer existing financial products and related services to our clients in fiscal 2013 and we do not expect this to materially impact our fiscal 2013 earnings or our ability to execute against our strategy in the upcoming tax season.”