H&R Block's sale of its bank to Republic did not materialize, but the intention of the national tax preparer remains in place. Block still wants to re-direct its assets toward its core competency and away from the
additional regulations required to run a thrift.
So who will step up to acquire the institution that has the exclusive right to sell financial products across tens of thousands of retail stores? Who would have the appetite to offer a very non-traditional set of services? Who would be ready to think creatively with consumer finance?
The answer is that lots of banks might want to do that. MetaBank, Urban Trust, US Bank and several others come to mind. But there are hurdles to the first two in terms of their recent regulatory interactions and US Bank could be fine staying solely within the payroll card space.
But one candidate recently announced its intention to issue a new round of common shares. That maneuver would dilute its EPS by half. That amounts to much more than any entity would want to have on hand in order to reward its executives with stock options.
B of I Federal Bank recently did just that and they make by the bank that steps in to buy Block Bank. B of I has lots of experience operating in unusual lines of business. They make structured settlement loans, specialize in apartment loans, and generally show a willingness to take on lots of innovations.
Moreover, they briefly danced with Jackson Hewitt on an agreement that might have led to the bank to offer tax products. That didn't work out. But the bank did reveals its interests for the space. It is a huge opportunity. One non-bank lender told me that he sees tax shops as the largest missed opportunity in all of consumer finance.
Watch for more soon. B of I will have an investor meeting tomorrow.
It will be a second-best outcome for Block. The company got a good price with Republic but now they have clearly lost some credibility. Moreover, the immediate earnings on now put off until 2015 , so returns on the investment face more hurt on their discount rate. But Block has wanted to do this for a long time.