H&R Block may drop its banking operation in face of Dodd-Frank regulations

H&R Block, Inc., the nation’s largest tax preparer, announced this week that it is exploring strategic alternatives for its small banking operation to avoid the sharp rise in costs that will accompany Dodd-Frank supervision.

Companies with small banking units face costly oversight by the U.S. Federal Reserve as a result of Dodd-Frank. MetLife, Inc., agreed last year to sell its deposit business to General Electric Capital rather than face increased supervision costs, Reuters reports.

H&R Block Bank, which works mainly with the company’s tax clients, held cash balances of $341 million as of July 31.

In a regulatory filing, H&R Block said that continuing as a bank holding company would lead to restrictions in capital allocation decisions.

“Such regulatory constraints are inconsistent with our strategic plans, operational needs and growth objectives,” the regulatory filing said, according to Reuters.

The potential loss of the banking operation led to a fall of more than five percent for H&R Block shares in heavy trading, with investors citing worry that losing the bank would hurt revenue and keep the company from attracting customers to its tax preparation business.

Standard & Poor’s warned of “operational risks” for H&R Block if it lost the banking business, saying that it was unclear how services like lines of credit could be provided without the bank, Reuters reports.

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