If at first you don't succeed, try, try again. U.S. tax prep specialist H&R Block (NYSE:HRB) will try once more to shed its banking business, announcing that BofI Holding (NYSE:AX) will buy it for an undisclosed sum, though it anticipates that the deal will generate excess capital of about $200 million to $250 million.
Block originally announced the decision to sell its banking operations in October 2012 and attempted to unload the unit on Republic Bancorp (NASDAQ:RBCAA) last year, but the financial institution backed out at the last minute after failing to win regulator approval.
Because Block was deemed a savings-and-loan holding company by the passage of the Frank-Dodd Act of 2010, it came under strict Federal Reserve oversight and was required to hold significantly higher levels of capital than previously mandated. Moreover, the law weakened federal pre-emption rules that suddenly exposed similar non-bank "banks" to state consumer protection laws that created new levels of difficulty for compliance, which is why Block chose to exit the business.
In addition to acquiring H&R Block Bank, which offers traditional banking services including checking and savings accounts, IRAs, and CDs, BofI's Federal Bank unit will receive about $450 million to $550 million in customer deposits and balances on prepaid cards, while offering Block-branded financial services under a program management agreement between the two. BofI, which operates Bank of Internet USA and claims it's the oldest online bank in the country, expects to generate revenues of between $26 million and $28 million annually from that portion of the deal alone.
Block said it anticipates taking one-time charges of about penny per share and will recognize a loss of $0.03 per share this year on the unit's sale. Divesting itself of the bank will also reduce net income by $0.07 to $0.09 per share in fiscal year 2015. While certain bank assets won't be sold, Block will give up its bank charter once the deal is complete.