Charles Schwab Corp. said it has agreed to pay $200 million to settle a federal class-action lawsuit related to its YieldPlus ultra-short bond fund.
The discount broker said that without admitting liability, the deal "allows the company to avoid the distraction and uncertainty of a trial and the further possibility of a protracted appeals process."
The settlement is expected to reduce previously reported first-quarter earnings by about $105 million, or 9 cents a share, from boosting its reserve for a potential deal by $172 million. Schwab last week reported earnings fell to $119 million, or 10 cents a share.
Schwab said the fund was designed to invest in various fixed-income instruments, including corporate bonds, asset-backed securities and mortgage-backed securities. As the credit crisis worsened, YieldPlus investors saw their investments decline, "leading to the litigation," Schwab said.
"We believe that bringing this aspect of the case to a constructive conclusion is in the best interests of all parties, including the company, its stockholders, and clients," said President and Chief Executive Walt Bettinger.
Schwab said other "related regulatory matters" as well as a California state law claim remain open.
Shares were up 0.7% to $19.20 in premarket trading. As of Monday's close, the stock had risen 14% in the past year.