CIBC to settle with SEC in Enron probe: Report

Still faces class-action lawsuit in U.S.
Bank has $109 million reserve set aside

Toronto Star - December 20, 2003
by Rob Ferguson

CIBC and the U.S. stock-market watchdog appear on the verge of a legal settlement over the bank's involvement with Enron Corp., the disgraced Houston-based energy giant that failed two years ago.

Details could be announced as early as Monday, Reuters News Agency reported yesterday , citing a source familiar with the investigation by the U.S. Securities and Exchange Commission.

The Canadian Imperial Bank of Commerce was one of many banks in Canada, the United States and overseas to lend money to Enron. The company went under owing $205 million to CIBC.

Officials at the bank were reluctant to comment on a possible settlement yesterday — just as chief executive John Hunkin was a month ago when he revealed CIBC set aside another $49 million in its Enron reserve, boosting the total to $109 million.

"We were in discussions with the SEC, but those continue,'' bank spokesperson Robert Waite said yesterday.

He would not elaborate.

Investors weren't spooked by the development. CIBC shares gained 51 cents to close at $63.50 in Toronto yesterday, just $1 shy of their all-time high reached last month. The shares are up 46 per cent this year as the bank rebounded from heavy loan losses in 2002.

The increased reserve to deal with Enron-related matters was based on the assessment of officials from CIBC and its auditors, Hunkin said last month as the bank reported profits rose to slightly more than $2 billion in the fiscal year ended Oct. 31.

"I really can't say anything more," he told reporters and analysts during a conference call.

CIBC is also one of several banks named in a major class-action lawsuit in the United States for its part in the collapse of Enron. The lawsuit filed by institutional investors says they lost $330 million (U.S.) when Enron collapsed or $440 million (Canadian).

CIBC, and other banks, have said they did not know about Enron's accounting fraud and therefore did nothing wrong.

However, Enron examiner Neil Batson has said CIBC helped Enron executives manipulate financial statements covering transactions from 1997 to Dec. 2, 2001, the day Enron filed for bankruptcy protection. Batson found CIBC was involved in 11 so-called "special purpose entities" that were created to inflate Enron's cash flow and hide debt.

Other Canadian banks named by Enron examiners include the Royal Bank of Canada and the Toronto Dominion Bank.

Both banks have been accused of "aiding and abetting" Enron executives in manipulating financial statements and both have denied any wrongdoing, with Royal saying some of the conclusions in the reports are based on faulty assumptions.

TD Bank chief executive Ed Clark said last month that his bank learned from the Enron scandal that it is "not sufficient to rely on assurances from clients and their internationally known auditors" that a company's books aren't cooked.

Enron collapsed two years ago after a combination of secret debt, inflated profits and accounting hocus-pocus made the energy-trading giant seem more successful than it was.

Thousands of employees lost their jobs and their life savings as Enron shares became worthless. The collapse cost investors a total of $25 billion (U.S.).

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