JP Morgan Chase & Co. has now settled its dispute with the 11 insurance companies that had issued Enron-related surety bonds (DC World News, 2 January 2003).

It has however filed several more suits, all related to a US$500 million letter of credit (L/C) that the bank issued in May 2001 to the collapsed energy giant.

Insurance settlement

In its dispute with the insurance companies, J P Morgan will receive approximately 60 per cent of the principal amount of US$965 million. The insurance companies had argued that they should not pay out on the sums insured because loans to Enron had been "disguised" by the bank when it switched from L/Cs to surety bonds to guarantee the Enron's energy trades.

In connection with this settlement, and one more case that is still pending related to a L/C-backed prepaid contract JP Morgan will take a pre-tax charge of approximately US$400 million in its fourth-quarter 2002 earnings. The bank has also said it is establishing a reserve of US$900 million related to other litigation and regulatory matters.

Improper drawings

The suits related to a US$500 million L/C that JP Morgan issued to Enron seven months before it's collapse include two lawsuits filed on 24 December 2002 against Enron to recover some US$184 million it loaned for five power projects.

Separately, JP Morgan filed several suits against privately owned power company Cogentrix Energy and subsidiaries for US$55 million for what it said was improperly drawing down on J P Morgan credit lines for power projects, the suits said.

Unjustly enriched

The suits against Cogentrix relate to its work at power plants to be built by Enron subsidiary Nepco. The bank claims that Cogentrix improperly drew down more than was justified on the JP Morgan L/C while the power plant projects were under way.

The bank claimed that Cogentrix was "unjustly enriched" at JP Morgan's expense. The money should be returned to the issuing bank according to one of the Cogentrix suits.

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