Schwab’s about-face on lawsuit triggers downgrade
FBR Capital Markets lowered its rating Wednesday on shares of Charles Schwab Corp. on concerns the stock broker could face more litigation from investors.
FBR Capital Markets lowered its rating Wednesday on shares of Charles Schwab Corp. on concerns the stock broker could face more litigation from investors.
FBR analysts said they were concerned about Charles Schwab’s recent decision to terminate a settlement agreement that would have ended a class action lawsuit from investors the company advised. The move spurred FBR to lower its rating on the broker to “market perform” from “outperform.”. It maintained its $17 price target for the company’s shares.
FBR said Schwab is exposing shareholders to material risks by backing out of a settlement agreement that would have ended a class action lawsuit over the company’s YieldPlus bond fund. The fund lost 30 percent of its value between 2007 and 2008, and investors claim Schwab improperly hid the bond fund’s risks.
Schwab’s settlement would have required the company to pay $35 million to settle California state law claims and another $200 million for the plaintiffs’ federal claims. But Schwab decided to drop the agreement after plaintiffs claimed they would still have the right to sue the company after the settlement was signed, FBR said in a note to clients.
Backing out of the settlement means the case will go back into litigation with an uncertain outcome, FBR said.
Learn more about reprints and licensing for this article.
