The bank sued the insurers, which include subsidiaries of Chubb and Allianz, late last year. The case only came to court during the past month, with the parties reaching settlement late yesterday. The insurers had claimed that the bank used the complex commodities deals to hide loans to Enron between 1998 and 2000. JP Morgan Chase countered that the insurers were trying to avoid payment that covered the deals, and knew all along that they were participating in financing Enron.
JP Morgan Chase also said it had put aside $900 million in reserves to cover potential costs from a raft of private litigation and regulatory probes related to Enron and other matters. The amount includes the $80 million the bank will pay as part of a $1.4 billion settlement reached by the top 10 Wall Street investment banks and regulators following probes that they failed to employ proper barriers between their investment banking and equity research business units in the late 1990s. JP Morgan Chase’s payments were far lower than some of its rivals, with Citigroup Salomon Smith Barney facing the biggest bill at $400 million.
The deal with the insurers does not include a dispute related to a pre-paid contract that was backed by a letter of credit (l/c), JP Morgan Chase said. This £165 million l/c backed an Enron-related swap and was written by “a European financial institution”, according to the bank. Those close to the deal told RiskNews that the counterparty was West LB, but the German bank has consistently declined comment on the matter. JP Morgan Chase said its capital base remained strong and its tier 1 capital ratio on a pro forma basis would have been 8.4% on September 30, 2000.