J.P. Morgan Settles Surety Cases with All 11 Companies

January 3, 2003

J.P. Morgan Chase & Co. has now settled its dispute with all 11 insurance companies that had issued Enron-related surety bonds and will receive approximately 60 percent of the principal amount of $965 million.

In connection with this agreement, and one additional case that is still pending related to a prepaid contract that was backed by a letter of credit, the firm will take a pre-tax charge of approximately $400 million ($260 million after-tax) in its fourth-quarter 2002 earnings. The firm also announced that it is establishing a reserve of $900 million ($600 million after-tax) related to other litigation and regulatory matters.

William McDavid, General Counsel of the firm, noted, “We strongly believe our firm acted appropriately in all of the transactions involving the insurance companies. Nevertheless, given the uncertainty of jury verdicts in complex matters, we believe it was prudent to accept this settlement. We were also pleased that, prior to the settlement, the judge dismissed a separate claim that JPMorgan Chase aided a financial fraud on the insurance companies by Enron.”

Under the settlement agreement, the insurance companies have the option of satisfying up to $85 million of their settlement obligations by assigning claims they have against Enron entities relating to the bonds, with such claims being valued for this purpose at 13% of their principal amount, reflecting current market values.

The $900 million reserve established today represents anticipated costs associated with the various private litigation and regulatory inquiries involving Enron and the other material legal actions, proceedings and investigations in which the firm is involved. This reserve represents management’s best estimate, after consultation with counsel, of the current probable aggregate costs associated with these matters.

This amount includes $80 million with respect to the settlement with regulators related to equity research. The establishment of this reserve will result in an after-tax charge to 2002 fourth-quarter earnings of approximately $.30 per share.

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