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