Two Banks to Pay $480 Million to Resolve Enron Claims
JPMorgan Chase & Co. and Toronto-Dominion Bank said Tuesday that they agreed to settle claims that they helped Enron Corp. commit fraud. They will pay a combined $480 million.
Enron, the world’s largest energy trader before its December 2001 bankruptcy filing, said JPMorgan would pay $350 million, and agreed to drop claims against the company valued at $660 million. Toronto-Dominion, Canada’s second-largest bank, will pay $70 million, plus $60 million for claims it had transferred to third parties. Payments will go to Enron creditors.
JPMorgan’s payment is on top of the $2.2 billion it agreed in June to pay to resolve an investor class-action lawsuit over Enron’s collapse. Toronto-Dominion has not settled its part of that lawsuit, but added $300 million to its litigation reserve.
“The companies want to get these issues behind them,” said Arvind Sachdeva, a senior portfolio manager at Victory Capital Management in Cleveland. “It’s a distraction to management, though I expect a lot of the litigation exposure is already priced into the stocks.”
Houston-based Enron has settled with five of the 10 banks in its so-called MegaClaims litigation, and reduced the value of the five banks’ claims by about $3 billion. JPMorgan is the first U.S. bank to settle.
Enron emerged from Chapter 11 bankruptcy protection in November, and now exists to liquidate assets and pay debts.
“These are tremendous results for creditors, and they will certainly add to their distributions,” Enron Chairman John Ray said.
The settlements “give us momentum” in the ongoing talks with banks that haven’t settled, he said. Ray is also managing director of Avidity Partners, a restructuring firm.
The 10 banks were accused of helping Enron hide debt and inflate results. Enron’s bankruptcy is the second-largest in U.S. history after WorldCom Inc.
JPMorgan Chief Executive William Harrison said: “We have put behind us another significant piece of our Enron exposure.”
The bank, which reported a $994-million second-quarter profit, said its settlement would not materially hurt earnings.
Toronto-Dominion Chief Executive Ed Clark said his bank’s settlement would reduce the cost and uncertainty of litigation.
Among other settlements in the MegaClaims litigation, Canadian Imperial Bank of Commerce will pay $250 million and Royal Bank of Scotland Group $41.8 million. Banks that haven’t settled include Barclays and Citigroup Inc.
In the investor lawsuit, CIBC agreed to pay $2.4 billion, and Citigroup $2 billion. The University of California, the lead plaintiff in that case, has recovered $7 billion from several banks on behalf of Enron investors.
