JPMorgan Chase announces settlement of surety case with all 11 insurance companies; expects to collect 60% of insurance payments
New York, January 2, 2003 – J.P. Morgan Chase & Co. (NYSE: JPM) announced it has now settled its dispute with all eleven insurance companies that had issued Enron-related surety bonds and will receive approximately 60% of the principal amount of $965 million. In connection with this agreement, and one additional case that is still pending related to a prepaid contract that was backed by a letter of credit, the firm will take a pre-tax charge of approximately $400 million ($260 million after-tax) in its fourth-quarter 2002 earnings. The firm is also announcing today that it is establishing a reserve of $900 million ($600 million after-tax) related to other litigation and regulatory matters.
Commenting on the settlement, William McDavid, General Counsel of the firm, said, "We strongly believe our firm acted appropriately in all of the transactions involving the insurance companies. Nevertheless, given the uncertainty of jury verdicts in complex matters, we believe it was prudent to accept this settlement. We were also pleased that, prior to the settlement, the judge dismissed a separate claim that JPMorgan Chase aided a financial fraud on the insurance companies by Enron."
Under the settlement agreement, the insurance companies have the option of satisfying up to $85 million of their settlement obligations by assigning claims they have against Enron entities relating to the bonds, with such claims being valued for this purpose at 13% of their principal amount, reflecting current market values.
The $900 million reserve established today represents anticipated costs associated with the various private litigation and regulatory inquiries involving Enron and the other material legal actions, proceedings and investigations in which the firm is involved. This reserve represents management's best estimate, after consultation with counsel, of the current probable aggregate costs associated with these matters. This amount includes $80 million with respect to the settlement with regulators related to equity research. The establishment of this reserve will result in an after-tax charge to 2002 fourth-quarter earnings of approximately $.30 per share.
In view of the inherent difficulty of predicting the outcome of legal matters, particularly where claimants seek very large or indeterminate damages or where the cases present novel legal theories or involve a large number of parties, the firm cannot state with confidence what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss related to each pending matter will be. Thus, the reserve may be subject to revision in the future.
The firm anticipates that, excluding the items discussed above, 2002 fourth-quarter earnings will fall in the range of analysts’ consensus estimates and its Tier 1 capital ratio will remain strong. On a proforma basis, the Tier 1 capital ratio at September 30, 2002 would have been 8.4%.
J.P. Morgan Chase & Co. is a leading global financial services firm with assets of $742 billion and operations in more than 50 countries. The firm is a leader in investment banking, asset management, private banking, private equity, custody and transaction services, and retail and middle market financial services. A component of the Dow Jones Industrial Average, JPMorgan Chase is headquartered in New York and serves more than 30 million consumer customers and the world's most prominent corporate, institutional and government clients.