File this one under "no surprise there." After months of wrangling for a better deal, Cerberus Capital has finally gotten out of its deal to purchase the ailing mortgage unit of battered tax-prepper H&R Block (NYSE:HRB). You can hardly blame the firm, which is named after the three-headed hound of Greek mythology who guarded the gates of Hades. Not even that multi-mouthed beast could have swallowed Block's all-but-dead mortgage biz without performing what we referred to in college as the "reverse-eat maneuver."
Block's Option One Mortgage Corporation is, in fact, not making more loans. And, true to the model adopted by such other mortgage-lender losers as Novastar Financial (NYSE:NFI), it's even getting rid of its loan-servicing biz. What's left? Not making loans ... not servicing loans ... I'm gonna have to answer: not much. No wonder Cerberus blew chunks.
Remember, Cerberus knows very well what it's like to consume a sickened mortgage lender. It's the lead dog in the consortium -- which included multiple credit-crunch clod Citigroup (NYSE:C) -- that purchased 51% of GM's (NYSE:GM) lousy lending business, GMAC. Recent results there have shown just how unsavory that morsel turned out to be. For the first three quarters of this year, GMAC's ResCap business (the real-estate portion of GMAC) lost $3.2 billion, overwhelming the $1.2 billion profit from the automotive finance division. See for yourself.
Much of that was a $455 million "impairment" charge to goodwill at ResCap, which is simply an admission that the biz is worth half a billion bucks less than they thought previously. Well, half a billion and then some. The quarter also had a much larger, much murkier, $840 million write-off for "... our Commercial Finance business, equity interest in Capmark, certain corporate activities related to mortgage activities, and reclassifications and eliminations between the reporting segments."
That's a lot of billions down the drain, with only about a year since Cerberus made the buy. You can see why the hound would be a little shy about gobbling up another lender in a mortgage market that's virtually dead. (GM's auto sales haven't been breaking any records lately, either.) Foolish investors looking at banks and lenders as "value" plays might consider themselves warned.
