H&R Block Inc, the largest U.S. tax preparer, said on Tuesday it will fire 575 workers at its Option One Mortgage Corp subprime lending unit, on top of 615 job losses announced on May 15.
The cuts were announced as H&R Block tries to salvage a sale of at least part of Option One to private equity firm Cerberus Capital Management LP.
H&R Block expects to incur a $19 million pretax charge in the year ended April 30, 2008 for the latest cuts. The charge includes $11 million of termination benefits, $5 million to end leases and $3 million of other costs.
Kansas City, Missouri-based H&R Block disclosed the latest cuts and the charge in a U.S. Securities and Exchange Commission filing. It said Option One expects to complete its restructuring by year end and that more cuts are possible.
Subprime lenders make home loans to people with poor credit. Dozens of mortgage lenders have quit the industry this year as defaults rose, home prices stopped rising, and investors stopped buying home loans they now consider too risky. More than 50,000 U.S. mortgage job cuts have been announced this year.
Irvine, California-based Option One has already slashed loan volume by more than 90 percent and H&R Block has said the unit plans to stop offering home loans. The unit made $29.8 billion of subprime loans last year, according to National Mortgage News.
In April, H&R Block agreed to sell Option One to Cerberus in a transaction valuing the mortgage lender at perhaps $1 billion. But on August 30, H&R Block said Cerberus might buy only Option One's loan servicing business.
Losses at Option One were largely responsible for H&R Block's net loss of $736.2 million in the 15 months ended July 31.
Last Thursday, former SEC Chairman Richard Breeden, now an activist investor, won three seats on H&R Block's board of directors. He had complained that H&R Block's forays into mortgage lending and banking distracted it from its tax preparation business and hurt its share price.
H&R Block did not immediately return a call on Tuesday seeking comment. Its shares closed up 16 cents at $19.81 each on the New York Stock Exchange. They have fallen 14 percent this year.