Aug 152011
 

The Wall Street Journal reported that Stifel Financial Corp., a financial holding company, had an 84% reduction in quarterly profits in Q2.  According to the company’s Q2 earnings release, profits were significantly impacted by the ongoing civil litigation with five southeastern Wisconsin School Districts and a related regulatory investigation.  In addition to the litigation cost associated with those cases the company had significant expenses related to its merger with Thomas Weisel Partners Group, Inc.  Stifel reported that these combined expenses accounted for a $27.9 million decrease in net profits.  

The Wall Street Journal reported that Stifel’s litigation costs related to the sale of collateral debt obligations (CDOs) sold to the Wisconsin school districts.  The school districts reportedly set up a trust comprised of $200 million worth of CDOs.  After the CDOs became worthless the school districts sued Stifel and Royal Bank of Canada, who created the securities.

In addition to the civil lawsuit, the SEC has initiated an investigation into the sale of the CDO by Stifel.  In April, it was reported that Stifel received a Wells notice from the SEC, indicating that the commission is considering a lawsuit against it.  The legal costs related to these matters were the main factor in the sharp decline in Stifel’s profits.