Under the terms of the settlement agreement, which is subject to final documentation and court approval, JPMorgan Chase will make a payment of $2 billion to the investors of WorldCom. Plaintiffs’ attorneys’ fees will be paid out of the settlement.
In connection with the settlement, JPMorgan Chase expects to take a charge to earnings of approximately $900 million pre-tax ($560 million after tax) in the first quarter of this year.
JPMorgan is the last of the 12 banks implemented in the lawsuit to agree terms for settlement. The deal represents a significant discount on the $10 billion JPMorgan, the second biggest US bank, could have had to pay out if found liable at the end of a trial.
JPMorgan was facing court action because investors in WorldCom, which collapsed in 2002 after an $11 billion fraud, claimed banks including JPMorgan failed to carry out appropriate checks on the telecoms business’ finances before underwriting stock and bond issues.
Given recent developments, we made a decision to settle rather than risk the uncertainty of a trial, said William Harrison, chairman and CEO. We can now put this litigation behind us.
JPMorgan’s decision follows Citigroup’s agreement to pay $2.65 billion last year and, including other settlements that have been agreed by other financial institutions, the total payout to investors has now reached $6 billion.
On Tuesday, a Manhattan jury convicted former WorldCom chief executive Bernard Ebbers of conspiracy, fraud and filing false documents. He is awaiting sentencing.
