Charles Schwab Corp. agrees to pay plaintiffs $200 million

Charles Schwab Corp. on Tuesday agreed to pay $200 million to aggrieved investors who claimed the company had deceived them, but shares rose as investors had feared the final settlement costs would be much higher.

The company agreed to repay customers in its YieldPlus Fund, which the plaintiffs said deceived them about the nature of short-term investments that lost them a lot of money when the credit crisis struck.

Plaintiffs in the case had been claiming up to $890 million in damages. Schwab would not admit liability under the settlement, which needs final court approval.

The deal nearly wiped out San Francisco-based Schwab’s first-quarter net profit, reducing it from the $119 million, or 10 cents a share, to $14 million, or 1 cent a share.

YieldPlus became a poster child for the financial collapse in 2008, as the fund lost heavily due to holdings of mortgage-backed securities — which made up about half the portfolio.

After taking heavy losses, investors protested that the ultra-short bond fund had deceived investors about the underlying risks and liquidity issues associated with the mortgage-backed securities.

YieldPlus lost 35 percent in 2008 as the credit markets fell, and then a further 10.5 percent in 2009, according to Morningstar Inc. data. The fund is up 0.3 percent so far this year.

Schwab said in a statement that the settlement “allows the company to avoid the distraction and uncertainty of a trial, and the further possibility of a protracted appeals process.”

Schwab added that related regulatory issues and a California state law claim remain open. It is in discussions with the Securities and Exchange Commission regarding the case.

 

Fiat appoints Agnelli heir as new company chairman

Fiat named Agnelli family heir John Elkann to become chairman as Italy’s biggest carmaker prepares to spin off the auto unit from truck and tractors.

Elkann, 34, will replace Luca Cordero di Montezemolo in the top position, the Turin-based company said Tuesday. Fiat has revived a plan to separate the car division, according to two people with knowledge of the matter who asked not to be identified prior to an announcement.

Elkann, the grandson of former Chairman Giovanni Agnelli, is currently Fiat vice chairman and head of the family’s holding company. With a separation of the auto operations, Chief Executive Officer Sergio Marchionne would have an entity to facilitate future alliances, and a share sale would generate cash to expand. The unit accounted for 56 percent of 2009 sales.

Marchionne has said only the largest carmakers will survive in the long term and has sought to grow Fiat through acquisitions. Fiat bought a 20 percent stake in Chrysler in June, helping the third-largest U.S. carmaker emerge from bankruptcy. The CEO unsuccessfully bid last year to buy General Motors’s Opel unit in Germany.

Fiat Automobile, not including Fiat’s Chrysler stake, is worth about $8.5 billion, or 53 percent of Fiat’s market value, said Stephen Pope, chief global strategist at Cantor Fitzgerald in London.

 

Target to stop issuing Visa, will offer own cards instead

Target Corp. will stop issuing Visa credit cards to its shoppers and will instead offer new card holders access to the company’s proprietary credit card, the retailer known for its cheap-chic designs said Tuesday.

The change, which takes effect April 29, won’t affect current Target Visa card holders. That group makes up about 70 percent of the retailer’s total credit card holders.

Target said its research shows that shoppers who use the in-house credit cards, which it began issuing in 1995, tended to spend more money than those with the Visa cards.

“The whole purpose is to drive retail sales, and this is doing that,” said spokesman Eric Hausman.

In a statement, Visa Inc. said it “respected” Target’s decision.

Target is one of the few retailers to retain its own credit card business, which can be profitable for merchants but also increases their risk of being liable for customers’ bad debt.