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Enron lawsuit deal places pressure on banks

HOUSTON - Now the pressure's really on.

News that bankers JPMorgan Chase & Co. and Citigroup will pony up a collective $4.2-billion to make a conglomeration of Enron Corp. shareholder lawsuits go away lights a fire under other banks and brokerages named as defendants, legal experts said.

"There will be scrambling among the remaining banks to settle now," said Thomas Ajamie, a securities lawyer in Houston. "There's clearly enough money to fund the litigation from here to eternity and that just adds more and more pressure."

But shareholders won't see checks in the mail any time soon, because who gets how much must be calculated and then approved by a judge.

Enron spiraled into scandal-ridden bankruptcy in December 2001 upon revelations of hidden debt, inflated profits and widespread accounting tricks. Thousands of workers lost their jobs and its once high-flying stock became worthless.

JPMorgan Chase said Monday it would pay $2.2-billion to settle allegations that the bank colluded with Enron to skirt accounting rules when the energy company counted loans as income to puff up reported earnings.

Last week, Citigroup said it would pay $2-billion to settle similar allegations of participating in dubious deals.

Both institutions said they struck the deals to put the litigation behind them. Those who have followed the Enron scandal and other corporate quagmires, such as the WorldCom collapse, say that reasoning isn't just a public relations ploy.

"To me, it doesn't relate to the merits of the Enron case. The possible outcomes are very murky, and it's going to take years to litigate this," said Paul Brown, professor of accounting at New York University's Stern School of Business. "In the meantime, it's a drag on the firm from a stock price perspective, a drag on morale and you end up with a tainted name. These firms have concluded that the drag is too big a price to pay."

An additional $491.5-million in deals have been reached with Lehman Brothers Holdings Inc., Bank of America Corp., Andersen Worldwide, 17 former Enron outside directors and former Enron vice chairman Ken Harrison.

[Last modified June 17, 2005, 00:34:18]