TD paying US$130M , adds US$330M to reserve TD paying US$130M to settle Enron claims; adds US$330M to reserve ANDREW FLYNN
Tue Aug 16, 3:48 PM ET
TORONTO (CP) - Despite disavowing any wrongdoing in the Enron affair, TD Bank has agreed to pay $130 million US to settle some of the legal fallout surrounding the U.S. energy giant's collapse.
"In making this settlement, we denied any wrongdoing or liability," CEO Ed Clark said in a conference call after the announcement Tuesday . "We have agreed to a negotiated settlement because we thought it was preferable to the time, expense and unpredictability of litigation."
Under the settlement, TD Bank will make a pre-tax payment of $50 million US in cash to Enron Corp. to resolve alleged common-law claims related to the "megaclaims" lawsuit filed by Enron in relation to its bankruptcy.
Toronto-based TD (TSX:TD - news) also said it will add $300 million US to its reserve for a securities class-action lawsuit pending in Texas, resulting in an after-tax charge of $238 million Cdn, to be recorded in the third quarter.
In the U.S., JPMorgan Chase & Co. announced Tuesday it will pay $350 million US to settle its part of the megaclaims suit. JPMorgan agreed in June to pay $2.2 billion US to Enron shareholders to settle its part of the class-action suit.
Earlier this month, Canadian Imperial Bank of Commerce (TSX:CM - news) agreed to pay $250 million US in the megaclaims suit, while also agreeing to a $2.4-billion-US settlement - the largest so far - in the class action.
And in late July, Royal Bank of Canada (TSX:RY - news) agreed to pay $25 million in a megaclaims settlement, plus $24 million so its bankruptcy claims against Enron would no longer be subordinated.
Enron has sued 10 banks, alleging they "aided and abetted fraud" and could have prevented the company's collapse.
The former energy trader, which filed for bankruptcy in 2001, is liquidating its operations and restructuring its business units for distribution to its creditors. Money from Tuesday's settlements will also go to creditors.
New York-based JPMorgan said it does not expect its settlement, which is still subject to approval by the bankruptcy court, to have a "material adverse impact" on earnings.
"With today's agreement, we have put behind us another significant piece of our Enron exposure," said William Harrison, JPMorgan's chairman and CEO, in a prepared statement.
And TD's Clark said: "I want to be clear that agreeing to this settlement does not change our view of where TD stands with respect to Enron. "We did not have a close relationship with Enron.
"Indeed, Enron itself noted that TD had a modest role relative to others in this case."
The Canadian bank will also pay $20 million US "to resolve alleged bankruptcy avoidance claims." The claims relate to payments made by Enron to creditors in the three years before Enron declared bankruptcy.
And it will pay $60 million US so that Enron will allow about $320 million US in claims against the former energy trader that TD had transferred to third parties.
TD made those two payments "because the economics remained favourable to do so," Clark said.
Dominion Bond Rating Service called the settlement "modestly positive as litigation risk is reduced, although the class-action suit remains outstanding."
"DBRS believes the resolution of class action lawsuits remains unpredictable," the agency said in a release, noting that TD's capital levels are "reasonable and some reserves are in place."
Standard & Poor's Ratings Services maintained its ratings on TD Bank bonds of A+/Stable/A-1, saying the bank's expected charge to earnings was "within our expectations."
TD shares lost five cents Tuesday on the Toronto Stock Exchange to close at $55.51.
"I wish I could give you certainty as to the outcome of the Enron securities class action, but the reality is that I don't have certainty," Clark said. "What I can tell you is that we have a very strong basis to differentiate TD from the players who have settled and from many who have not settled."
The Enron case "has been upsetting to anybody involved in it," Clark said.
"It's clear to me. . . that no one at TD did anything wrong, but we have been swept up in a system which is causing even innocent participants to pay. This is a real economic cost to the bank, and for that I am truly sorry."
TD also said Tuesday it will waive distributions on a remaining $55 million US worth of claims that TD had already written off.
Enron said the settlements announced Tuesday bring payments in the megaclaims case to $735 million. In addition, banks have agreed to forgo or pay to pursue claims valued at around $3 billion.
Financial institutions still to settle the megaclaims suit include Barclays PLC, Citigroup Inc., Credit Suisse First Boston Inc., Deutsche Bank AG and Merrill Lynch & Co.