(The following statement was released by the rating agency)
Oct 10 - Standard & Poor's Ratings Services today said its ratings and outlook on H&R Block Inc. (BBB/Negative/A-2) remain unchanged following the company's disclosure that it may cease to be a savings and loan holding company (SLHC) because of Federal Reserve capital requirements. Given this development, it is unclear how and if the company will continue the financial services products it currently offers through its H&R Block Bank subsidiary over the long term and what effect this will have on its business volumes and profitability. We believe these products, such as the "Emerald Advance" line of credit, not only contribute revenues, but also help attract customers to the company's core tax business. Any major change to H&R Block Bank or the origination of the company's financial services products could also entail operational risks that could affect the rating. At this point, we are expanding the scope of our negative outlook on H&R Block to include these risks. Once management decides on any strategic changes to its business or products, we will assess the impact on the rating.
The Dodd-Frank Act requires the Federal Reserve to essentially hold SLHCs to the same capital requirements as bank holding companies. The Federal Reserve published "a notice of proposed rulemaking" in June, partially on this topic, with a comment period ending on Oct. 22, 2012. Absent a change in the proposal, H&R Block likely would not currently comply with the capital requirements and could have to raise equity to remain in good standing as a SLHC.
(Caryn Trokie, New York Ratings Unit)