Archive

YieldPlus suits could cost Schwab $400M: Analyst

The online brokerage may need to raise additional capital to pay off investor suits and meet a planned increase in its banking-related capital, according to a research report

The Charles Schwab Corp. may need to raise additional capital to pay off investor suits and meet a planned increase in its banking-related capital, according to a research report issued today by analysts at Sandler O’Neill + Partners LLP.
Depending on various assumptions, Schwab might need $385 million to $635 million, the report said.
Richard Repetto, one of the Sandler analysts, in an interview said he estimates that investor lawsuits against Schwab over its YieldPlus mutual funds might end up costing the firm $400 million, half of what plaintiff’s lawyers are claiming.
“We’re not saying they would have to [raise capital],” Mr. Repetto said. “We’re just saying if everything lined up against them, this is something [investors] should pay attention to.”
Issuing stock could result in dilution of existing shareholders from 1.7% to 2.8%, the Sandler analysts wrote. The analysts also noted that Schwab has many sources of capital if it needs to raise funds.
“There are far too many variables and unknowns in the equation at this time to be able to draw these particular conclusions,” Greg Gable, a Schwab spokesman, wrote in an email.
Sandler issued the updated report on Schwab in response to a federal court decision Tuesday finding that Schwab violated the law in not getting shareholder approval before boosting holdings of mortgage-backed securities in its YieldPlus funds. (See the story here.)
The court decision affects pending class actions against Schwab. Many investor plaintiffs are also pursuing individual arbitration claims.