Fed Headache Causes H&R Banking Selloff

H&R Block
Scott Eelis | Bloomberg | Getty Images

Tax services provider H&R Block said it will sell its banking assets to a unit of Republic Bancorp as it looks to avoid a sharp rise in costs associated with the introduction of stricter banking rules by the Federal Reserve.

H&R Block said last October it was weighing its options regarding its banking business as the Fed proposed rules for higher capital requirements on savings and loan holding companies to implement changes required by the Dodd-Frank Act.

Following the news, H&R Block shares ticked higher in early trade. (Click here to track H&R Block stock.)

"The proposed rules would require us to hold significant levels of additional capital, which does not properly align with our capital-light business model," H&R Block CFO Greg Macfarlane said.

The company will sell certain assets and transfer certain liabilities of H&R Block Bank to Republic Bank and Trust, which would act as the bank for H&R Block's core financial services products as part of the deal.

The deal is expected to cost H&R Block about 3 cents to 4 cents in fiscal 2014 and reduce its earnings by about 6 cents to 9 cents per share on an annual basis.

Republic Bank estimates the agreement to add to its earnings by 57 cents to 75 cents per share per year.

Goldman Sachs and First Annapolis Consulting were the financial advisors to H&R Block, while Stinson Morrison Hecker and Morrison & Foerster were its legal advisors.

—By Reuters.