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Block Loses US$1bn, Sacks Bosses

by Mike Godfrey,, New York

23 November 2007

H and R Block, the USA's biggest tax preparation firm, which has incurred more than US$1bn of losses on its sub-prime mortgage subsidiary, Option One, has replaced Chairman Mark Ernst with Richard Breeden, a former head of the SEC.

The new temporary CEO will be Alan M Bennett, who retired this year as Chief Financial Officer and a Member of the Office of the Chairman of Aetna Inc. The company said it had formed a search committee to recruit a new CEO on a permanent basis. Mr. Bennett has informed the search committee that he does not wish to be considered as a candidate for the new CEO search.

Richard Breeden, who served as Chairman of the Securities and Exchange Commission from 1989 to 1993, and controls nearly 2% of Block's shares, won a seat on the board in September after a proxy fight and has waged a campaign to force Block to stem the losses at Option One. Block had arranged a deal with Cerberus Capital last March which has fallen apart due to the problems in the sub-prime mortgage market.

“For more than 50 years H&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&R Block can generate significant shareholder value,” said Mr. Breeden. “H&R Block has long offered customers a combination of market-leading expertise, advice and quality products and services. By refocusing on our core strengths and market-leading capabilities, we will work to generate strong growth in shareholder value.”

H&R Block is the world’s largest tax services provider, having prepared more than 400 million tax returns since 1955. The company and its subsidiaries reported revenues of $4.0 billion and net income from continuing operations of $374.3 million in fiscal year 2007. The company has continuing operations in three principal business segments: Tax Services (income tax return preparation and related services and products via in-office, online and software solutions); Business Services (accounting, tax and business consulting services primarily for midsized companies); and Consumer Financial Services (brokerage services, investment planning and related financial advice along with full-service consumer banking).

It seems that the company moved into these sectors unrelated to its main business in an attempt to make better year-round use of staff and facilities that were grossly under-used except during the peak tax preparation period each year.

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