Royal Bank anticipates $500 million U.S. hit

Bank setting up litigation reserve for Enron suits Move ‘appropriate and prudent,’ chief executive says

The Royal Bank of Canada will take a fourth quarter pre-tax charge of $500 million ( U. S.), or $255 million after tax, to account for the impact of Enron Corp. litigation, Canada’s largest bank revealed yesterday. The Royal said it would take the charge in its latest quarter ending Oct. 31, joining several other banks that have taken a hit on their books over lawsuits filed in the wake of Enron’s collapse a few years ago. The Royal is a defendant in a number of pending Enron- related actions, including a securities class- action lawsuit in a federal court in Texas.

“After careful consideration and consultation, we have concluded it is appropriate and prudent to establish a litigation reserve for Enron- related matters at this time,” chief executive Gordon Nixon said in a release.

“ In light of our financial strength, this litigation reserve will not affect our ability to pursue our ongoing business strategies.”

Beja Rodeck, a spokeswoman for the bank, said the Royal was establishing the reserve because it was “appropriate and prudent,” but was not concerned about it affecting the bank’s ongoing operations.

“ We felt strongly that our limited dealings with Enron were lawful and proper and that this reserve reflects the uncertain and challenging litigation environment in the U. S.,” she said. The Royal is the third big Canadian bank — joining CIBC and TD — to take charges on their books over Enron, the defunct Houston-based energy trader that collapsed after a massive accounting scandal in 2001. A number of U. S. banks also face legal claims in the Enron collapse, which wiped out tens of billions of dollars in U. S. investors’ stock value, revealed lax business accounting standards and led to demands for a better business ethics and a cleanup of corporate practices. Enron executives were convicted in the scandal, as were those of other companies such as telecom giant WorldCom Inc. and cable TV operator Adelphia Communications Inc. as prosecutors, shareholders and others pushed hard for a crackdown on corporate fraud. Banks on both sides of the border who helped raise money for Enron or advised the company on its corporate accounting or financing practices have been caught up in the crackdown that is sweeping corporate North America.

In August, CIBC posted the biggest quarterly loss in its 138- year history as the battered bank’s costly cleanup of Enronrelated lawsuits wiped out revenue. The CIBC’s loss for the third quarter of fiscal 2005 ended Aug. 31 amounted to $ 1.9 billion and translated into $5.77 per share, diluted, and stood in sharp contrast to a profit of $596 million or $ 1.60 a share during the comparable 2004 period. The Toronto- based bank’s loss included a $ 2.53 billion aftertax charge for settlement of litigation related to Enron.

Meanwhile, Toronto Dominion Bank’s third- quarter profit slumped to $ 411 million from $565 million a year earlier, as the company took a hefty charge related to Enron- related litigation. TD Bank said it raised its contingent reserve by $300 million ( U. S.) for a class- action over Enron. That resulted in a $238 million ( Canadian) after- tax charge in the quarter. The suit was filed by Enron’s shareholders.