Saying it was cleaning up the last of major problems from the early '90s, Hibernia Corp. agreed to settle a class action for a maximum of $20 million.
The settlement is not expected to affect the bank's bottom line this year. New Orleans-based Hibernia had reserved for the cost two years ago, executives said.
Hibernia, which has $6.3 billion of assets, said last Wednesday that it had settled a class action suit from the early '90s, when the bank was under previous management. The suit, Gila Feinberg v. Hibernia, was brought on behalf of investors who lost money in Hibernia stock between March 19, 1990, and July 31, 1991.
Hibernia president and chief executive Stephen A. Hansel said the bank continued to deny liability for the claims alleged in the suit but viewed the settlement as "reasonable in light of the uncertainties of litigation and significant management time and legal expense that would be required to further contest it."
Mr. Hansel added: "This removes the last of major problems that surfaced at Hibernia in the early '90s and allows us to focus more attention on improving results for shareholders and strengthening Hibernia's franchise."
Hibernia reserved for the Feinberg suit in the last three quarters of 1993, setting aside a total of $11.5 million. Executive vice president and controller Ron Samford said Hibernia expects to draw down the litigation reserve to about $1.5 million if all potential claimants file. Several thousand shareholders are expected to participate.
The remaining $10 million of the settlement will be paid by Hibernia's insurer, National Union Fire Insurance Co. of Pittsburgh, according to Mr. Samford. "They'll split it 50-50 with us," Mr. Samford said. "If the settlement turns out to be only $15 million, a portion will be ours and a portion will be National Union's."
Mr. Samford said Hibernia has incurred "millions" in legal fees from the case during the past two years and will see some continuing expense in the first quarter. But this expense will not be material, he said.
"The financial impact is all in the past," Mr. Samford said.
Analysts, who had expected Hibernia to settle, were delighted that the bank had finally disposed of the case. "I'm glad to see the company putting it behind them, because it's not a question any more," said Peter Tuz, with Morgan Keegan in Memphis.
The suit was filed in 1990 by Gila Feinberg of Brooklyn, N.Y., who accused Hibernia of inflating its stock price by misrepresenting its true financial situation. After 64 quarters of record earnings, Hibernia lost $25 million in the first quarter of 1990. For all of 1991, losses reached $165 million.
Hibernia's stock price, which had traded as high as $25 a share in 1989, plunged to $2 in 1991. The company eliminated its dividend in 1991 and didn't resume the quarterly payout until the fall of 1993.
Anyone who bought stock in the 16-month period between March 19, 1990, when Hibernia closed at $17.875 a share, and July 31, 1991, when it sold at $3.875, is eligible to participate in the settlement. Jack Benjamin, a New Orleans lawyer representing the plaintiffs, said there were an estimated 28 million trades during this period.