Canadian bank to pay $2.4 billion over Enron

Investors had claimed CIBC helped hide huge accounting losses of energy giant

It is largest class action securities settlement


Canadian Imperial Bank of Commerce agreed yesterday to pay $2.4 billion to settle claims that it helped hide accounting losses at Enron Corp., raising to $7.1 billion the sum that banks and other defendants have thus far agreed to pay to compensate investors.

The agreement follows settlements a few weeks ago by Citigroup of $2 billion and J.P. Morgan Chase of $2.2 billion, as part of a sprawling case in federal court in Houston that accuses financial institutions and others of helping Enron pull off accounting deceptions that preceded its bankruptcy filing in 2001.

The amount makes it the largest class action securities settlement on record and puts pressure on the remaining defendants in the lawsuit to settle.

Canadian Imperial, based in Toronto and known as CIBC, is a far smaller bank than Citigroup or Chase, and had previously set aside about $246 million for its Enron risk, a spokesman said. The bank said yesterday that it would record a pretax charge of about $2.3 billion in its third quarter ended July 31 to cover the settlement and "remaining Enron-related legal matters."

For fiscal 2004, which ended Oct. 31, CIBC had net income of about $1.8 billion.

The latest settlement is a victory for plaintiffs, led by the University of California, which is represented by the law firm of William S. Lerach.

The Enron lawsuit accused CIBC and other firms of creating false investments in elaborate and complex Enron partnerships that had the effect of deceiving investors and moving billions of dollars of debt off the company's balance sheet.

Investors lost tens of billions of dollars on Enron, as the once high-flying energy company collapsed. Under the settlement, investors who bought Enron's stock and bonds from September 1997 to December 2001 - institutions, individuals and Enron employees - are expected to receive pennies on every dollar of their losses.

Lerach, in comments in a conference call with reporters and in an interview, seemed to be trying to push the remaining defendants to settle. They include Merrill Lynch, Deutsche Bank, Credit Suisse First Boston and Barclays Bank.

"We said all along that those who settled earlier would do better," he told the reporters.

A lawyer for one bank that has not settled, declining to be identified because of possible settlement negotiations and other litigation issues, said the CIBC agreement put the other institutions in a difficult position.

James E. Holst, general counsel for the University of California, said on the call with reporters: "It sets the stage for very important additional progress."

Lerach said settlement talks were continuing. "We still have a lot of work to do," he said. "It's sort of up to whoever wants to settle for the next lowest price. We're always talking with somebody."

A trial is scheduled for October 2006 for defendants that do not settle.

As lead counsel, Lerach's firm will get the biggest piece of legal fees. In total, Lerach said law firms will receive 8 percent of the first $1 billion, 9 percent of the second $1 billion and 10 percent of any recoveries after that, indicating that fees so far total about $680 million. The fees must be approved by the court when the case is completed.

Until CIBC's agreement, the biggest class action securities settlement occurred in the WorldCom case, in which $6.2 billion was recovered for investors, Lerach said.

CIBC said a crucial measure of capital, its cushion against losses, would fall from 10.7 percent of assets to 7.5 percent, still above regulatory requirements, as a result of the big charge. The bank expects profits to rebuild its capital base to 8.5 percent of assets by mid-2006, it said in a statement. CIBC said that it admitted no wrongdoing in the Enron matter and that it settled to avoid uncertainties of further litigation.

In a civil settlement in December 2003 with the Securities and Exchange Commission, CIBC agreed to pay $80 million for its role in deceiving investors.

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