KANSAS CITY, Mo. - H&R Block Inc. said it will buy back 12 million shares to offset a hit to earnings because of moves it made to limit liabilities in its wholesale mortgage operations.
The world's largest tax-preparation company said it has gotten $2 billion of commitments to finance subprime mortgage production this year - from Warburg Dillon Read, Bank of America Corp., and Greenwich Capital Markets.
Allowing the financial companies to fund the loans made through its Option One unit is expected to have a negative effect of 5 cents to 7 cents a share on H&R Block's earnings for fiscal year 2001. The agreements also end, for now, the company's effort to sell the unit.
"We received multiple expressions of interest concerning a purchase, but none resulted in an offer that we considered to be in the best interest of our shareholders," chief executive Frank Salizzoni said in a statement.
Separately, the company said it has commitments from two unidentified investment banks to buy subprime mortgage loans ranging from $2.5 billion to $6 billion over the next year.
Analysts and investors had praised the company's plan to separate its wholesale mortgage operations because they do not coincide with H&R Block's focus on customers and they expose the company to the risks of the mortgage-backed securities market.
H&R Block put the wholesale mortgage operations of Option One up for sale in July, saying it wanted to focus more on its retail business. The company did sell NCS Mortgage Services LLC, which originated 5% of H&R Block's total loans.
Company spokesman Brian Schell said H&R Block is not ruling out an eventual sale of Option One.
"Obviously this business is not strategically aligned with the rest of our operations," he said.
The new treatment of Option One is expected to hurt earnings for fiscal 2001, which ends April 30, 2001. H&R Block is expected to earn $2.87 a share this fiscal year, the average of seven analysts' estimates in a survey by IBES International. It earned $215.4 million, or $2.36 a share, the previous year.