Procter & Gamble Co. and Bankers Trust New York Corp. have settled their high-profile derivatives case, with the consumer goods company agreeing to pay about $50 million of the $195 million in dispute.
Both sides claimed victory. The case centered on two derivatives contracts that soured when rates rose in 1994. P&G shares rose $1.375, to $85.625, on the news, and Bankers Trust gained 12.5 cents to close at $70.25.
"We are very pleased to have put behind us this last major dispute with a client," said Frank N. Newman, Bankers Trust's new chief executive officer, "and to have done so in a way that serves the interests of all the concerned parties, including those of our shareholders."
P&G will pay Bankers Trust $35 million in cash and assign to Bankers Trust the benefits of an interest rate swap that Bankers Trust values at about $14 million, the bank said in a press release.
The settlement will have no effect on Bankers Trust's earnings because it had treated the disputed amount as a bad loan and charged it against loan-loss reserves.
"P&G is paying Bankers Trust a smaller percentage of the amount in question than Gibson Greetings did" in another derivatives dispute, said Raphael Soifer, a bank analyst at Brown Brothers, Harriman & Co. "Given that Gibson Greetings was a case in which regulators found fault with Bankers Trust, and regulators have not found fault with Bankers Trust in this case, it seems like P&G got a good bargain here."
The settlement came less than two weeks before trial was to begin in Cincinnati.
In recent weeks, momentum seemed to have shifted in Bankers Trust's favor. Procter & Gamble suffered a setback Thursday when U.S. District Judge John Feikens threw out a deceptive practices claim.
Previously, Judge Feikens had denied a motion by P&G to dismiss one of the contracts in dispute. He also ruled that P&G had to prove fraud before pursuing racketeering charges that could have led to treble damages.
Keefe, Bruyette & Woods Inc. analyst David Berry hailed the settlement as a "dramatic victory" for Bankers Trust.
A series of tapes of conversations among Bankers Trust's traders had been made public, seeming to support P&G's claim that the bank's sales practices were deceptive. Bankers Trust had maintained that P&G was a sophisticated investor and should have known the risks.
