H&R Block shares drop on bank sale delay

Shares in H&R Block Inc., fell nearly 6 percent Monday after it said the proposed sale of its banking unit to BofI Federal Bank was slowed by the regulatory-approval process.

Shares of the company, which gained 9 percent this year through Oct. 3, fell $1.75 or 5.85 percent to $29.91 Earlier in the day, the shares fell as low as $29.62, the biggest decline in more than two years.

Because of the regulatory setback, H&R Block will continue offering financial-services products to clients through the bank unit during the coming tax season, the Kansas City tax preparation firm said in a statement.

When the sale to BofI was announced in April, Block had predicted that it would be done in time for the tax season. Block had said it wanted out of the business to avoid what it called costly regulatory capital requirements. By selling the bank, Block hoped to free up to $250 million in capital.

“I am obviously extremely disappointed, and frankly I am surprised in this development,” Chief executive officer Bill Cobb, said on a conference call Monday. “However, I want to be very clear: We remain committed to exiting our bank.”

Cobb said “there can be no assurances” regarding the likelihood of the sale eventually being approved, though he said “we feel that on its merits” the transaction will go through.

The deal is H&R Block’s second attempt to sell the unit after the Fed proposed rules requiring savings and loans to hold more capital. An agreement with Republic Bancorp Inc. collapsed last year as that firm withdrew a regulatory request to convert to a national bank from a state bank.

Unwinding Block’s bank ownership involved a complex three-stage transaction, each of which required regulatory approval. The transaction also called for BofI to offer H&R Block branded financial products, like the Emerald Prepaid MasterCard. The companies did not disclose a purchase price.

Now, approval for the sale to BofI isn’t expected in 2014, H&R Block said.

BofI is based in San Diego and operates principally as an online bank called Bank of Internet USA.

“We remain committed to forming a long-term relationship with H&R Block,” BofI Federal Bank chief executive Greg Garrabrants said in a separate statement. “While the regulatory approval process has taken longer than expected, we are encouraged by the progress made to date.”

This story was originally published October 6, 2014 at 9:57 AM with the headline "H&R Block shares drop on bank sale delay."