JPMorgan to pay 2.2 billion to settle Enron case

JPMorgan and other banks have been pressured to follow suit after Citigroup Inc. last June 10 said it will pay $2 billion to Enron Corp. 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 recently, J.P. 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.

J.P. 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.

JPMorgan 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.

JPMorgan'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 & Co. analyst Guy Moszkowski in a research note, and should be sufficient to handle another $2 billion hit.

In fact, more than a dozen Wall Street banks agreed to pay about $6 billion to settle allegations they failed to adequately examine WorldCom's financial health when they sold securities in 2000 and 2001. Citigroup was the first bank to settle in May 2004, agreeing to pay $2.58 billion.

If JPMorgan were to take a charge related to Enron in the second-quarter, it would come amid what is widely expected to be a very weak performance for the bank.

Dimon said earlier in June that the bank's trading results in the second quarter may be the weakest it has experienced in some time as it was hurt by bets made with its own cash and dismal markets.

About 12 financial institutions are involved in the Enron case, of which Bank of America (BAC.N: Quote, Profile, Research) and Lehman Brothers (LEH.N: Quote, Profile, Research) have already agreed to settle for $69 million and $222.5 million respectively.