Squawk on the Street

Monday - Friday, 9:00 - 11:00 AM ET
Squawk on the Street

H&R Block CEO 'Very Comfortable' With Subprime Exposure

H&R Block

The CEO of H&R Block told CNBC the company remains confident its Option One Mortgage business, which is up for sale, will weather the current storm in the subprime lending industry.

"We continue to believe that high quality assets such as Option One Mortgage are going to fare very well in this environment and will come out the other end as a stronger business," CEO Mark Ernst told CNBC's "Squawk on the Street" on Wednesday.

"We have found that there are very sophisticated investors who recognize that as the reality and are very interested in this business."

The nation's largest tax preparer, on Wednesday said its decision to write down the value of its Option One Mortgage business, which is up for sale, increased the company's net loss in the fiscal third quarter by $15.5 million to $60.3 million.

The increased loss came after H&R Block reduced the carrying value of Option One by $29.2 million before taxes. As a result, the net loss for the quarter that ended Jan. 31, was $60.3 million, or 18 cents a share, the company said.

"We have done a very, very thorough job of understanding if there was any exposure to the valuations what that exposure was," he said. "I'm very comfortable with where we're at."

Ernst says they are not having the kinds of big problems that others in the subprime lending business are seeing today since they identified industry downtrends last summer.

Subprime Lender

"We have always taken a much more conservative approach to this business, therefore I think in this very volatile environment, we don't have the kinds of big problems that a lot of other people are suddenly coming to and concluding they have," he said.

"For the last three months in a row, we've seen our first payment default levels coming down very consistently, consistent with underwriting changes that we made last summer."

Setbacks in the subprime mortgage lending business and pressure from shareholders prompted the company to announce in November it was looking to sell the Option One unit.

"We know that our investors in H&R Block stock, while they have enjoyed the investment that we've had in this business, also recognize that it's been quite volatile and it adds to volatility and that is not what investing in H&R Block stock is really all about," said Ernst.

"So we believe that there is a better home for this asset and this business in today's environment."