Loss-making lender Pacific Capital Bancorp
signed a letter of intent to sell its tax division to a private equity fund, as its regulators barred it from originating any refund anticipation loan in 2010.

The tax division, or the e-filing financial services division, offers refund anticipation loans and refund transfer tax products, the Santa Barbara, California-based company said in a statement.

Separately, Jackson Hewitt Tax Service Inc said Pacific Capital's tax division was to provide about 75 percent of Jackson Hewitt's overall financial products for the 2010 tax season, and a sale of the division now forces the tax preparer to seek other alternatives.

If no alternative sources are obtained or if such sale is not consummated, it would have a material adverse effect on our business, financial condition and results of operations, Jackson Hewitt said in a regulatory filing.

The company said it was working with the bank to prevent any interruption in its financial product program for the 2010 tax season, it said.

Pacific Capital said its regulator, the Office of the Comptroller of the Currency, notified it earlier this month that it would not receive regulatory approval to originate any refund anticipation loan in 2010.

Pacific Capital expects to sign a definitive agreement with the prospective buyer prior to the start of 2010 tax season in January.

The company did not disclose any details about the financial terms of the proposed deal.

The prospective buyer is working with a number of institutions to replace the parent company as the originating bank for the tax products, and has indicated that the entire management team of the tax division will be retained, Pacific Capital said.

Pacific Capital posted a $40.7 million quarterly loss last month, its sixth in a row, as like other California banks with heavy exposure to the housing market, it struggles to remain profitable amid declining real-estate prices and soaring defaults.

Pacific Capital shares closed at $1.05 Wednesday on Nasdaq. They had traded as high as $17.47 at the start of the year.

Jackson Hewitt shares closed at $5.84 Wednesday on the New York Stock Exchange.

(Reporting by Anurag Kotoky in Bangalore; Editing by Unnikrishnan Nair)