H&R Block CEO Quits After Subprime Losses
H&R Block, the largest U.S. tax preparer, said that Chairman and Chief Executive Mark Ernst had resigned, following mounting losses tied to subprime mortgages.
Richard Breeden, 57, a former U.S. Securities and Exchange Commission chairman, was named chairman.
Alan Bennett, 57, who retired this year as chief financial officer of health insurer Aetna, was named interim chief executive.
Now an activist investor and principal at Breeden Capital Management in Greenwich, Connecticut, Breeden won three seats on H&R Block's board in September, after a proxy fight in which he argued that the company should focus on tax preparation, and quit banking and subprime mortgage lending.
"This validates Breeden's strategy of focusing H&R Block on tax-related businesses," said David Roberts, a principal at Harvest Investment Advisors in Tallahassee, Florida, which owns the company's shares. "This calls into question whether H&R Block should remain in banking. It's a distinct possibility that H&R Block will be broken up."
Ernst's resignation is effective immediately, but he will remain with H&R Block as a consultant. H&R Block said it had formed a search committee to find a permanent chief executive, and that Bennett does not want to be considered for that job.
H&R Block was not available for immediate comment.
Ernst, 49, became chief executive in January 2001 and chairman in September 2002. His departure came 15 days after William Trubeck, H&R Block's chief financial officer, also resigned.
Breeden led the SEC from 1989 to 1993. He and colleagues L. Edward Shaw and Robert Gerard were elected to H&R Block's board on Sept. 6.
"Our actions today reflect a determination to focus on those activities where H&R Block can generate significant shareholder value," Breeden said in a statement.
In the 15 months that ended July 31, H&R Block lost $736.2 million, largely from losses in its Option One Mortgage Corp subprime lending unit.
H&R Block had agreed in April to sell Option One for an amount estimated at $1 billion to private equity firm Cerberus Capital Management. That agreement collapsed as the U.S. housing slump deepened. H&R Block has been trying to salvage a sale of at least part of the unit.