The sub-prime crisis has taken another casualty. Mark Ernst the embattled CEO, Chairman and President of H and R Block HRB (NYSE), the nation's largest tax preparation firm, resigned today effective immediately. Ernst's resignation comes shortly after William Trubeck, the company's CFO resigned. The company appointed Richard Breeden chairman a
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcaS_5wtoxYJT-KzUxfLldiOlLiYnetYWh3MrtnBGvlKueOk0wr78WCdMxzbLy7g3MgdePfUrOw40vRFcFe3Yvm9MHdLdvEMO6KFXquOS4xxruXol-DlJeNAc-gZWLRwph1XqsWrFFHgD3/s320/hrblock.gif)
nd Alan Bennett, who retired earlier this year as CFO of Aetna, as interim CEO. Bennett will serve until a permanent replacement can be found. He has said he does not wish to serve as a permanent CEO.
Despite H&R Block's primary business - tax preparation - over the years the company became involved in a number of other financial-related businesses, banking and sub-prime mortgage lending. As the sub-prime market began to sour, the company was put under increased pressure to rid itself of that business, handled under the auspices of Option One.
Pressure continued to grow over the last year for changes at the company when activist hedge fund investor and former head of the SEC, Richard Breeden, whose investment fund held a sizable stake in the company, pushed a proxy fight to change the board of directors and the company's strategic overall direction.
Ernst remained totally opposed to Breeden and pushed hard to fight his proposals. A Reuters piece back in July stated,
In the proxy filing, H and R Block also urged shareholders to disregard any proxy card from Breeden. His firm Breeden Capital Management LLC said it owns 1.86 percent of H and R Block shares.
Breeden ... nominated himself and two associates, Robert Gerard and L. Edward Shaw, to fill the three seats up for election on H&R Block's 11-person board.
He has cited disappointment with H and R Block's financial performance and management decisions to stray into areas outside tax preparation, including subprime mortgage lending.
In September, Breeden managed to get the upper hand. He and two allies, Robert Gerard and L. Edward Shaw were elected by shareholders to be H and R block directors. Breeden from the start had pushed the firm to do something about Option One.
Back in April H and R Block managed to work a deal with private equity firm Cerberus Capital Management to sell Option One for an estimated $800 million far less than the $1.3 billion Ernst originally claimed it was worth. The deal, however, fell apart as the US housing market went into a slump. The breakdown in the deal paved the way for Breeden and his allies to succeed and get on the board with the goal to change the direction of the firm. Even after the breakdown of the deal H and R Block has continued to work to salvage a part of the deal but so far there have not been any tangible results.
According to a piece by Jeffrey Cane in
Portfolio.com Breeden stated the following today after Ernst resigned and he became Chairman,
"For more than 50 years H and R Block has successfully served the tax-related needs of millions of Americans and thousands of businesses, as well as helped clients meet their financial objectives. Our actions today reflect a determination to focus on those activities where H and R Block can generate significant shareholder value," Breeden said.
The real question remains can Breeden and Bennett find the right formula to solve H and R Block's problems. Stay tuned the firm is still in for a rough ride. One positive, Breeden's reputation is on the line and you can expect him to pull out all the stops.
For more:
Deal Journal (Update Dec 11)Seeking Alpha (Update Dec 10)BusinessWeekKansas City StarWall Street JournalTheStreet.comBloombergCNN MoneyReutersRTT TradingBloggingstocks