J.P. Morgan to Pay $2 Billion in WorldCom Settlement
Updated from 3:51 p.m. EST
J.P. Morgan Chase
(JPM) - Get Report
, the last big bank in the
WorldCom
investor class-action, will pay $2 billion to settle the litigation.
The nation's second-largest bank agreed to the settlement one day after a federal jury convicted former WorldCom CEO Bernie Ebbers on securities fraud charges.
Jury selection was scheduled to begin tomorrow in the WorldCom class action.
"Given recent developments, we made a decision to settle rather than risk the uncertainty of a trial," the company said in a release. "We can now put this litigation behind us and continue to focus on our goal of making J.P. Morgan Chase the best financial services company in the world."
A spokesman for New York State Comptroller Alan Hevesi couldn't be reached for comment. Hevesi's office is a trustee for the lead plaintiff in the lawsuit, a New York public pension fund.
The settlement amount is the second-biggest payout by WorldCom's former bankers. Last year,
Citigroup
(C) - Get Report
paid $2.65 billion to settle the litigation. In all, the investors have negotiated nearly $6 billion in settlements with roughly a dozen banks that were originally named as defendants in the lawsuit.
J.P. Morgan will record a $900 million pretax charge in the first quarter to pay for the settlement.
A year ago, J.P. Morgan moved to boost its legal reserve by $2.3 billion to pay for possible settlement in the WorldCom class action and the still pending Enron class action. Before today's announcement, the bank was believed to have about $4.7 billion in reserve for litigation.
Up until this point, the nation's second-biggest bank has contended it was fooled, along with everyone else. J.P. Morgan had maintained it knew nothing about the massive $11 billion accounting fraud at WorldCom when it arranged billions of dollars in loans and bonds for the telecom.
But people familiar with the bank's legal strategy said it decided it had no choice to settle after the trial judge in the case ruled on Monday that J.P. Morgan, as one of the lone defendants, could potentially be on the hook for up to $10 billion in damages.
The irony is that if J.P. Morgan had settled last year using the same formula that Citigroup had negotiated with the investors it could have paid a lot less, about $1.4 billion. But the bank decided to roll the dice and wait, believing it could get off easier.