H&R Block Chairman and CEO Mark Ernst has stepped down two weeks after the company CFO resigned, as the company faces losses from its subprime mortgage operations.
He is being replaced as chairman by former SEC Chairman Richard C. Breeden, who led a proxy battle to put a group of three dissident shareholders on the Block board. Breeden, whose investment fund Breeden Capital Management started buying shares in Block last year, was elected to the board in September along with two of his associates, Robert Gerard and Edward Shaw. He has argued that the company should focus on its tax prep business instead of mortgages and banking.
"For more than 50 years H&R Block has successfully served the tax-related needs of millions of Americans and thousands of businesses, as well as helped clients meet their financial objectives," said Breeden in a statement. "Our actions today reflect a determination to focus on those activities where H&R Block can generate significant shareholder value."
Replacing Ernst as CEO on an interim basis is former Aetna CFO Alan M. Bennett, who retired earlier this year. Bennett has a background in public accounting and finance, and is on the audit committee of Halliburton. He is moving to Block's headquarters in Kansas City on a temporary basis as the board launches its search for a permanent CEO.
Ernst had been facing challenges as Block experienced heavy losses in the subprime mortgage market, losing $736.2 million in the 15 months ending July 31, according to Reuters. "As I have been assessing my career in the last several months it has become apparent to me that the time for me to move on has come," said Ernst in a note to employees. "I will take the time I will need to assess what I will do next in my life."
Breeden wants to return the company to its roots as the largest tax processor in the U.S. The company has been trying to sell off its Option One Mortgage Corp. unit to Cerberus Capital Management. The company had agreed to sell Option One in April for an estimated $1 billion, but the agreement has hit some snags as the subprime mortgage market has continued to decline.
"We announced at the end of August that we were in discussions with Cerberus Capital to modify some of the terms of the transaction agreement, and we said at the time we wouldn't have any comment on the status until those discussions were concluded," said Block spokesman Nick Iammartino. "We have not commented since then."
Despite the troubles with its mortgage operation, Block had $4.0 billion in revenue and net income of $374.3 million in fiscal year 2007.
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