CIBC has agreed to pay US$2.4 billion, the largest amount to date, to settle fraud claims by investors who lost money in Enron. Investors have previously reached settlements of US$2.2 billion with J.P. Morgan Chase and US$2 billion with Citigroup
CIBC announced today that it has reached an agreement in principle to settle the Enron class action litigation entitled Newby v. Enron Corp., brought on behalf of Enron security purchasers. The lawsuit is currently pending in the United States District Court for the Southern District of Texas, Houston Division.

Under the terms of the settlement, CIBC will pay U.S. $2.4 billion to the settlement class. Plaintiffs’ attorneys’ fees will be paid out of the settlement.

The settlement does not include any admission of wrongdoing by CIBC. CIBC stated that it agreed to the settlement solely to eliminate the uncertainties, burden and expense of further protracted litigation.

The class action settlement must be approved by the Board of Regents of the University of California, the lead plaintiff in the case, before it is submitted to the United States District Court for the Southern District of Texas.

CIBC also announced that it expects to take a charge to earnings of approximately $2.8 billion (pre-tax) or approximately $2.5 billion in the quarter ended July 31, 2005 to increase its litigation reserves to cover this settlement and its remaining Enron-related legal matters.

After taking this charge into account, CIBC expects that its Tier 1 capital ratio will be approximately 7.5% as at July 31, 2005, above the regulatory requirement of 7.0% for a well-capitalized financial institution, but below the bank’s objective of 8.5% or higher.

CIBC believes that its future earnings generating capability will restore the Tier 1 capital ratio to 8.5% or higher by mid-2006.

“We are working in a number of areas to move CIBC forward. A key priority for us is to resolve this case and substantially reduce our litigation risk. By settling this case and maintaining what we believe are adequate reserves for our remaining Enron related legal issues, we can better focus our energies on our other priorities,” said Gerry McCaughey, president and CEO, in a release.

Royal Bank of Canada and Toronto-Dominion Bank have yet to disclose how they will settle.