H&R Block to Sell Bank Assets to Exit Fed Oversight

H&R Block Inc. (HRB), the biggest U.S. tax preparer, plans to sell its bank assets to Kentucky’s Republic Bancorp Inc. in an effort to exit Federal Reserve oversight.

The deal will reduce earnings by about 6 cents to 9 cents a share on an annual basis and result in one-time expenses of 3 cents to 4 cents in the fiscal year ending April 2014, Kansas City, Missouri-based H&R Block said yesterday in a statement.

H&R Block hired Goldman Sachs Group Inc. last year to evaluate options for its banking unit amid new Fed rules requiring savings and loans to hold more capital. Financial-services firms including insurers MetLife Inc. and Allstate Corp. also have retreated from banking after passage of the 2010 Dodd-Frank Act.

“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 Chief Financial Officer Greg Macfarlane said in the statement. “It is in the best strategic interests of our company and our shareholders to cease being regulated as a savings and loan holding company.”

A Republic Bancorp subsidiary will assume about $470 million in customer deposits if regulators approve the deal, the Louisville, Kentucky-based bank said yesterday in a separate statement. The companies also are negotiating an agreement under which Republic would provide H&R Block-branded financial services to the tax firm’s customers.

H&R Block advanced 61 percent this year through yesterday’s close of trading.

Goldman Sachs and First Annapolis Consulting Inc. provided financial advice to H&R Block, and JPMorgan Chase & Co. advised Republic. Stinson Morrison Hecker LLP and Morrison & Foerster LLP were legal counsel for the tax preparer, and Goodwin Procter LLP for Republic.

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editors responsible for this story: Christine Harper at charper@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net

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