CIBC Shares Drop After $2.4bn Enron Settlement

The Canadian bank last night agreed to pay $2.4 billion to settle allegations that it was involved in the Enron fraud. The sum, the largest settlement in the case so far, boosts the total sum to be returned to former shareholders of the collapsed energy giant to a record $7 billion.

Canadian Imperial Bank of Commerce (CIBC) agreed to pay the sum after striking a deal with the University of California, lead plaintiff in the Enron class action lawsuit, which lost tens of millions of dollars from its pension fund when Enron collapsed.

Last night’s deal follows the payment in June of a $2.2 billion settlement by JPMorgan Chase and $2 billion by Citigroup, another former defendant in the case. Lehman Brothers and Bank of America paid some $290 million between them to settle the same allegations. As was the case with the CIBC settlement, none of the banks admitted or denied any wrongdoing.

The total payout in the case is a record for a securities class action settlement, according to lawyers for the University of California.

The settlement exceeds the record $6 billion paid out by more than a dozen Wall Street banks over the WorldCom scandal.

Funds that invested in Enron were celebrating the record payout last night and hoped that it might prompt others to make offers. Merrill Lynch, Credit Suisse First Boston, Barclays and Royal Bank of Scotland remain defendants in the case.

It is estimated that investors lost $45 billion when Enron collapsed amid a giant fraud. The banks were accused in the lawsuit of setting up partnerships and offshore companies to disguise loans and of helping Enron to disguise the false sale of phantom assets.

The $7 billion of settlements will sit in an interest-earning account until it is split among investors who bought Enron shares or debt between September 1997 and December 2001.

The settlement, one of Canada’s biggest-ever, pushed the stock down C$6.30, or 7.8 percent, to C$74.34 as of 1:20 p.m. in Toronto Stock Exchange trading. Should the shares end at today’s C$73.80 low, the 8.5 percent decline would be CIBC’s biggest since October 1998.