JP Morgan Settles Suit for $600m

JP Morgan Chase said yesterday it would receive about $600m (£400m) in a settlement with insurers of a disputed $1bn in losses from deals the bank hatched with Enron, the bankrupt energy firm.

The bank also said it would set up a $900m reserve related to other outstanding litigation against the firm stemming from Enron and other issues. It warned that it could be another four years before all the cases were put behind it.

Yesterday's agreement was reached with all 11 of the insurance firms that issued surety bonds against the deals with Enron.

The settlement ends a month-long court battle that has done little to repair Wall Street's tarnished image.

The firm will take a $400m charge against fourth quarter earnings for the sum it has failed to recover.

JP Morgan sued the insurance firms after they refused to pay the guarantees on oil and gas trades arranged between Enron and an offshore subsidiary of the bank, Mahonia, after the energy firm filed for bankruptcy in December 2001.

The insurance firms argued that JP Morgan had misrepresented the deals as transactions when they were nothing more than disguised loans.

The pivotal moment of the case appeared to occur when the judge, Jed Rakoff, ruled a few days before Christmas that internal bank emails describing derivatives transactions as "disguised loans" could be admitted as evidence. JP Morgan claimed the emails did not refer to the Enron transactions in question.

"We believe our firm acted appropriately but, given the current environment and the uncertainty of jury verdicts, we felt it was prudent to accept the settlement," the bank said. The jury was due to begin deliberations yesterday.

Losing the case outright would have wiped out much of the $2.1bn in profits JP Morgan has made over the first nine months of its financial year.

Shares in the bank had risen 6% to $25.23 by lunchtime in New York.

Like other Wall Street banks, JP Morgan is eager to put the financial scandals of last year behind it.

In the dying weeks of 2002, the bank agreed to pay $80m as part of the $1.4bn industry-wide settlement of allegations that investors had been deliberately misled during the stock market boom.

JP Morgan, Citigroup and Merrill Lynch have been grilled in congressional hearings, and investigations into the collapse of Enron are continuing.

The bank last week launched a lawsuit against Enron in an attempt to recover $184m in loans that the bank alleges the disgraced energy firm has no claim over.

The suit argues that the cash was part of a $500m line of credit to an Enron subsidiary which was advanced in order to fund the building of five power plants and should not be included as an asset of the bankrupt energy firm.