Updated from 8:01 p.m. EDT
J.P. Morgan Chase
has agreed in principle to settle a pending federal class-action lawsuit brought on behalf of Enron security holders.
Under the terms of the settlement, J.P. Morgan will make a payment of $2.2 billion to the settlement class, the company said in a statement late Tuesday. Plaintiffs' attorneys' fees will be paid out of the settlement.
It's the second $2 billion settlement for J.P. Morgan, the nation's third-largest bank, in just three months. In March, the firm
paid out that sum to aggrieved investors in WorldCom, the other poster child for this decade's corporate malfeasance.
J.P. Morgan expects to take a pretax charge of about $2 billion or about $1.25 billion after taxes this quarter to cover the Enron settlement and increase litigation reserves for its other remaining legal matters. After taking the charge into account, J.P. Morgan said it will remain well-capitalized, with a Tier 1 capital ratio within the firm's targeted ratios of 8% to 8.5%.
The Enron settlement doesn't include any admission of wrongdoing by J.P. Morgan, which said it agreed to the settlement solely to "eliminate the uncertainties, burden and expense of further protracted litigation." The class-action settlement must be approved by the University of California Board of Regents (the lead plaintiff in the case) and J.P. Morgan. It is also subject to the approval of the U.S. District Court for the Southern District of Texas.
"We are working hard to put the uncertainty of litigation risk behind us," said William B. Harrison Jr., chairman and CEO. "In this regard, the firm appreciates the efforts of the regents of the University of California and its advisers. By settling this case and increasing reserves for our remaining legal issues, the firm can better focus its energies on building our great company and serving our clients and shareholders."
The Associated Press
, some 50,000 Enron stock and bond holders, led by the University of California's board of regents, filed claims as part of the suit, which alleges that a number of banks and brokerages helped Houston-based Enron operate and raise money even as it was collapsing.
The suit claimed J.P. Morgan helped Enron falsify financial statements and hide debt, while the bank's analysts were issuing falsely positive and misleading reports, according to
The Wall Street Journal
. It said the bank underwrote Enron securities and lent the company more than $1 billion, while helping to syndicate more than $4 billion of bank loans.
Of the $2 billion addition to J.P. Morgan's litigation reserves, about one half is associated with the potential costs of Enron-related matters, including the cost of settling this class action, J.P. Morgan said. The rest represents management's current best estimate associated with remaining legal actions, proceedings and regulatory inquiries pending against the firm.
J.P. Morgan's settlement comes just four days after
, the nation's largest financial services firm, agreed to pay Enron investors $2 billion to settle its portion of the suit.
The settlement is the sixth made in the long-running Enron debacle, with agreements still pending with
Credit Suisse First Boston
Toronto Dominion Bank
Royal Bank of Canada
Royal Bank of Scotland
Before the Citigroup settlement, attorneys had settled for $491.5 million in deals with
Bank of America
, Andersen Worldwide, Enron's outside directors and Enron's former vice chairman, Ken Harrison.
"We continue to pursue other defendants, including other banks that have been charged with knowingly participating in the scheme to defraud Enron investors," William Lerach, the lawyer representing the University of California, told the
. "Beyond today's agreement, the lawsuit continues to proceed very satisfactorily and further large recoveries are anticipated."