Schwab Enters Agreement to Settle All Claims in YieldPlus Fund Class Action

Company Reserves Additional $14 Million for the First Quarter

Wednesday, May 5, 2010 4:36 pm PDT

Dateline:

SAN FRANCISCO

Public Company Information:

NYSE:
SCHW

SAN FRANCISCO--(BUSINESS WIRE)--The Charles Schwab Corporation announced today that it has entered an agreement with plaintiffs to settle all claims in a civil class action lawsuit related to the Schwab YieldPlus Fund®, including a California state law claim not included in an earlier settlement with plaintiffs announced on April 20, 2010. The combined settlement agreement remains subject to preliminary and final court approval. Related regulatory matters also remain open.

The combined settlement, in which the company, without admitting liability, would pay $35 million to settle California state law claims in addition to the previously disclosed $200 million for plaintiffs’ federal claims, allows the company to avoid the distraction and uncertainty of a trial, and the further possibility of a protracted appeals process.

As disclosed previously, the company is the subject of consolidated class action litigation filed between March and May 2008, and regulatory investigations relating to the investment policy, disclosures, and marketing of the Schwab YieldPlus Fund, an ultra-short bond fund (“Bond Fund”). The Bond Fund was designed to invest in a variety of fixed income instruments, including corporate bonds, asset backed securities, mortgage-backed securities, and other fixed income investments. The credit crisis that began in mid-2007 led to a decline in the value of a majority of fixed income investments market wide. As a result, certain Schwab clients who chose to invest in the Bond Fund experienced a decline in their investments, leading to the litigation.

Impact on First Quarter Results

Based on the settlement agreement entered into today, the company has increased the contingency reserve previously established in connection with the litigation by $14 million pre-tax, which is net of expected insurance coverage. Together with previously reported reserves of $182 million pre-tax in connection with the federal and state claims, the combined reserve reduces first quarter 2010 net income by approximately $120 million, or $0.10 per share. Applicable accounting rules require the company to include the impact of the settlement in its first quarter results.

The company will continue to evaluate the reserve pending final resolution of the litigation. The actual liability could be higher or lower than the amount reserved.

Other related regulatory matters disclosed previously also remain pending. As discussed previously, the company is unable to predict the outcome of these matters or to estimate the range of any potential liability, and therefore has not established an associated reserve.

Forward Looking Statements

This press release contains forward looking statements pertaining to the company’s contingency reserves for Bond Fund litigation and to related regulatory matters that reflect management’s current expectations and are subject to risks and uncertainties that could cause actual results to differ. Important factors that may cause such differences include, but are not limited to, final court approval regarding settlement of the federal and California state law claims; amounts recovered on insurance policies; and adverse developments in litigation or regulatory matters.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 300 offices and 7.8 million client brokerage accounts, 1.5 million corporate retirement plan participants, 768,000 banking accounts, and $1.49 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Named Highest in Investor Satisfaction with Self-Directed Services by J.D. Power and Associates in 2009, its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and mortgage services and products. More information is available at www.schwab.com.

Contact:

Charles Schwab
Greg Gable, 415-667-0473 (Media)
Rich Fowler, 415-667-1841 (Investors/Analysts)

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