JP Morgan Chase agreed to pay $2.2 billion to settle a class-action lawsuit with investors in collapsed energy firm Enron, the bank and lead plaintiff University of California said yesterday.
JP Morgan and other banks have been pressured to follow suit after Citigroup Inc. last Friday said it will pay $2 billion to Enron stock and bond investors who accused it of helping the energy trader in a massive accounting fraud.
Citigroup did not admit any wrongdoing in agreeing to settle the suit.
Enron collapsed in December 2001. Under the terms of the settlement announced yesterday, JP Morgan Chase will make a payment of $2.2 billion to the settlement class, and plaintiffs' attorneys' fees will be paid out of the settlement.
JP Morgan Chase also expects to take a $2 billion pretax charge to cover this settlement and to increase its litigation reserves for its other remaining legal matters.
Of the roughly $2 billion addition to the litigation reserves, about half is associated with the potential costs of Enron-related matters, including the cost of settling this class action.
The balance represents its best estimate of the expected additional costs associated with the remaining legal actions and inquiries pending against the firm.
JP Morgan President and Chief Operating Officer Jamie Dimon is known to want to resolve outstanding litigation issues as quickly as possible so the New York company can move forward without the financial uncertainty of legal clouds over its head.
JP Morgan's reserves - which were boosted after the bank agreed to pay $2 billion to resolve WorldCom litigation - stand at about $3.5 billion, wrote Merrill Lynch analyst Guy Moszkowski in a research note, and should be sufficient to handle another $2 billion hit.