The 'hero' is
getting cold feet after undoubtedly getting screwed by the American Home
$50 Bil in Pay Option ARM servicing. I knew buying the servicing on $50
Billion in Pay Option ARM from American Home hurt
him in no time. Remember, when he bought
AHM, the Pay Option ARMs were not defaulting to any great degree yet. Since
then, they have surged. I actually sent him a letter last year with many
reasons not to. How the hell was he thinking he could pay advances on $60
billion in HRB (Option One) subprime with
a current 40% default rate and a 50% recovery maximum on top of AHM's
issues?
HRB carries a lofty valuation and have come through the subprime crisis with their stock price unscathed. But if not for the $1.1 Bil valuation they place of Option One and $1 Billion Good Will carry, these guys would have a major negative book and NO CREDIT LEFT. They owe SEVERAL Billion in short-term debt that they won't be able to roll and just sold $600 mil in 5-year notes so they are likely out of firepower. Best of all, their income is totally predictable and could take a nice hit going into recession meaning they have no way of a large surprise like 'the new HRB Phone'.
This could be the end of HRB. Option One was in the top 5 of all subprime lenders for YEARS running. No other company that did as much subprime as they did through Option One has skated through the subprime crisis without nearly collapsing and I suspect HRB will end up being along the same story lines. Maybe when this deal falls apart they will be forced to tell us about their off-balance sheet subprime loan exposure they have kept so secretive. I have heard from a couple of reliable sources their trusts own some $25 - $30 bil in subprime STILL, which would match up to their production levels in the 2nd half of 2006 when the secondary market fell apart for subprime loans into the later half of 2007 when they stopped doing subprime. They could be carrying an entire years production. - Best, Mr Mortgage
HRB carries a lofty valuation and have come through the subprime crisis with their stock price unscathed. But if not for the $1.1 Bil valuation they place of Option One and $1 Billion Good Will carry, these guys would have a major negative book and NO CREDIT LEFT. They owe SEVERAL Billion in short-term debt that they won't be able to roll and just sold $600 mil in 5-year notes so they are likely out of firepower. Best of all, their income is totally predictable and could take a nice hit going into recession meaning they have no way of a large surprise like 'the new HRB Phone'.
This could be the end of HRB. Option One was in the top 5 of all subprime lenders for YEARS running. No other company that did as much subprime as they did through Option One has skated through the subprime crisis without nearly collapsing and I suspect HRB will end up being along the same story lines. Maybe when this deal falls apart they will be forced to tell us about their off-balance sheet subprime loan exposure they have kept so secretive. I have heard from a couple of reliable sources their trusts own some $25 - $30 bil in subprime STILL, which would match up to their production levels in the 2nd half of 2006 when the secondary market fell apart for subprime loans into the later half of 2007 when they stopped doing subprime. They could be carrying an entire years production. - Best, Mr Mortgage
why the heck is this stock up. I lost 5k on HRB puts unless it unravels this next two weeks - the company has no book value and a business growing at 1% and it trades at 25 X the most rosy view of earnings. no one uses them for taxes if they have a brain and they pay way too much for office space.
Posted by: miriam | April 10, 2008 at 07:05 AM
HRB is truly a piece of crap. They will get theirs. Stay with that trade. I stayed with TMA for months and when it paid, it paid huge. HRB is up for same reason all the financials are up...they have to get some air under these stocks before the earnings reports come next week and wipe out everyone.
-No Pos. in HRB currently
Posted by: Mr Mortgage | April 10, 2008 at 08:23 AM
Check out FED and DSL - their entire capital will be dwarfed by NPAs in the next few months. THe FDIC will have to shut them down.
Posted by: metal | April 10, 2008 at 12:23 PM
If HRB is truly in trouble, then why does the Chairman (a former SEC chief) keep buying the heck out of the common? He bought another 2M shares filed yesterday... I don't know much about the situation, but that aspect by itself doesn't seem to add up.
Posted by: Pangaea | April 11, 2008 at 01:29 PM