Wednesday, March 21, 2007

CIBC Defends Its Enron Settlement

Financial Post, Duncan Mavin, 21 March 2007

Executives at Canadian Imperial Bank of Commerce are standing by the bank's 2005 decision to settle its Enron Corp.-related problems early, for $2.4-billion, despite a ruling in a United States court this week that may reduce the likelihood of further Enron payouts being imposed on a group of banks that have not yet settled claims against them, including two of CIBC's Canadian rivals.

"[Monday's] decision has no impact or relevance to settlements already reached with CIBC," said a spokesman for the bank yesterday.

Less than two years after CIBC agreed to its massive Enron-related payout, a New Orleans court ruled on Monday that former Enron investors cannot launch a class action against other banks accused of a role in the collapse of the once mighty Houston-based energy company.

That means individual investors would each have to pursue independent claims against the banks for their alleged role in the collapse of the energy giant.

Robert Zito, a class-action lawyer with New York law firm Schiff Hardin, said banks that settled their Enron-related legal troubles early could now be second-guessing that decision.

"[The ruling] makes the other investment banks that settled for a lot of money look like they acted precipitously," said Mr. Zito.

CIBC's executives defend their decision to settle because, they say, it brought certainty to the bank's Enron liability and because the circumstances around the Enron-related claims against CIBC were not the same as those against some other banks.

Facing possible criminal indictments against CIBC from the U.S. Department of Justice in 2003, the bank acknowledged wrongdoing by some of its employees and agreed to pay a relatively inexpensive US$80-million settlement to the Securities and Exchange Commission.

However, that settlement also meant CIBC could not defend itself from shareholder suits, leading to the mammoth payout in 2005.

The situation contrasts with the U.S. court decision this week that may have eased the Enron headaches of a number of other banks.

The court ruled investors cannot file a class action claim against a group of banks including Merrill Lynch & Co., Credit Suisse Group and Barclays PLC.

"It's an incredible win for Merrill Lynch and all the investment banks," said Mr. Zito. "It demolishes any real exposure that might have been there."

Canada's Royal Bank of Canada and Toronto-Dominion Bank were watching the case closely because they are also faced with potential class actions related to Enron.

RBC has set aside $500-million to cover its potential costs from litigation, while TD has set aside $300-million.

Executives at both Canadian banks said they are looking positively at the New Orleans court ruling, though TD spokesperson Simon Townsend also noted a word of caution, pointing out that the counsel for the former Enron shareholders has indicated he intends to appeal the decision of the New Orleans court.