Mark Ernst has resigned as chairman, president and chief executive of H&R Block Inc., the tax preparation and accounting services company that is reeling from its foray into the collapsing subprime mortgage business.
The company said Tuesday that Ernst’s replacement as chairman is Richard Breeden, the former head of the Securities and Exchange Commission, who led a dissident shareholder group that won three seats on the H&R Block board.
A retired Aetna Inc. chief financial officer, Alan Bennett, was named interim CEO while H&R Block looks for a permanent replacement.
Breeden has criticized the company’s diversification into mortgage lending, investment advising and banking, saying it had robbed momentum from its core tax preparation and accounting services business.
Ernst’s departure follows the resignation of Chief Financial William Trubeck earlier this month. H&R Block has been restructuring in an effort to survive the collapse of the mortgage markets caused by rising interest rates and falling home prices.
It has also been hurt by rising loan defaults at its subprime mortgage lending unit, Option One Mortgage Corp. Subprime loans are made to customers with poor credit histories.
A proposed sale of Option One to private equity firm Cerberus Capital Management is in jeopardy because of falling values, but H&R Block is attempting to renegotiate the sale.
In September, investors replaced three members on H&R Block’s board of directors with Breeden and two of his appointees.
Ernst led the company’s proxy fight with Breeden over the new board members.
Ernst took over as CEO in January 2001 and was elected chairman in September 2002. He joined H&R Block in 1998 and was first elected to the board in 1999 when he was appointed president.
Before H&R Block, Ernst worked as a senior executive with American Express Co. for 12 years.
Breeden will serve as non-executive chairman. He has said he would speed up the process of selling Option One and may shed other divisions outside the tax business, such as the year-old H&R Block Bank.
Breeden, who joined the company’s board in September, was chairman of the SEC from 1989 to 1993. Since 1996 he has led his own firm that has advised companies and boards on capital markets issues, financial restructurings and corporate governance.
Interim CEO Bennett said he does not want to be considered for the permanent job.
Kathleen Shanley, an analyst with Gimme Credit, said her firm has been critical of Block’s “disingenuous financial disclosure about its subprime exposure and for running up $1.625 billion of bank debt” while waiting to sell Option One.
“Cerberus, with bigger fish to fry elsewhere (GMAC) and a demonstrated willingness to walk away from deals (United Rentals), told (H&R Block) in August that it was unwilling to move forward under the original terms because Option One couldn’t meet the closing conditions of the deal.
“We expect that with Mr. Ernst out of the way, (H&R Block) will finally come clean with the full extent of its losses on Option One, and the picture won’t be pretty,” Shanley said.
H&R Block spokesman Nick Iammartino would not comment Tuesday on the company’s plans for Option One, saying its last statement was in its Aug. 30 earnings release.
“We said we were in discussion with Cerberus, and we’re continuing the discussions, and we said we weren’t going to have any comments while they are still in discussion,” Iammartino said.
H&R Block shares gained 25 cents, or 1.3 percent, to close at $19.32 in trading Tuesday.