Much like the deluded house flippers who brought them so much business, H&R Block seems to be expecting full book value for its Option One subprime unit.
H&R Block Chairman and Chief Executive Mark Ernst said “we are progressing as planned” with the anticipated sale of Option One and “remain committed to announce results and further steps by the end of this month.” He previously has told analysts and investors that the Kansas City, Mo., company would expect the sale price of the mortgage arm to exceed its book value of $1.3 billion.
But skeptics abound. “It seems hard to believe that they can command anything near the price they are talking about for Option One in this market, if they can sell it at all,” said analyst Kathleen Shanley at GimmeCredit, which says investors should “avoid” buying H&R Block bonds.
Brian Horey, president of investment-management firm Aurelian Management LLC, said “the $1.3 billion value is a pipe dream.” Given the rapid deterioration in the subprime market over the past two months, led by lenders including New Century Financial Corp., Fremont General Corp. and Accredited Home Lenders Holding Co., he said, “it’s the worst possible time to try to sell the business.”
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