Trustmark Corp. in Jackson, Mississippi, has agreed to pay $100 million to settle claims arising from the Allen Stanford Ponzi-scheme scandal of more than a decade ago.
The settlement will result in a significant reduction in the $17.2 billion-asset Trustmark's earnings and capital levels, but a company spokeswoman said it will also eliminate long-running cost and other burdens tied to the legal fight.
"Since the inception of the Stanford litigation in August of 2009, the case has required significant time and financial resources of our company, senior management, Board of Directors and Legal department, not to mention our outside counsel," Melanie Morgan, director of corporate communications and marketing, wrote Monday in an email. "There is no way to estimate the number of hours spent over the course of the past 13 years as this case has ebbed and flowed other than to say the magnitude of time and attention devoted to this complex litigation has been tremendous."
"We are pleased to have reached this agreement so that we can move forward with full focus on our 2023 strategic initiatives," Morgan added.
Trustmark, which continues to deny any wrongdoing or liability in connection with the Stanford scandal, said it would account for the settlement as a noninterest expense in its fourth-quarter results. Through the first nine months of 2022, Trustmark reported earnings totaling $106 million.
The settlement still requires judicial approval. It would dismiss Trustmark from a number of lawsuits stemming from the Stanford scandal and protect it from "all current or future claims arising from or related to Stanford," Trustmark stated Monday in a report filed with the Securities and Exchange Commission.
More important, perhaps, the settlement relieves Trustmark of the risk of losing in court. In November, a Minnesota jury ordered BMO Harris Bank to
One of the Stanford-related lawsuits is set to go to trial on Feb. 27 in the U.S. District Court for the Southern District of Texas.
In addition to Trustmark, two other U.S.-headquartered banks, TD Bank and McKinney, Texas-based Independent Bank Group, are among the defendants in Stanford-related litigation. A TD spokesman said the company, a subsidiary of the Toronto-based TD Bank Group, does not comment on litigation. A spokeswoman for Independent had not responded to a request for comment at deadline.
Plaintiffs in the actions against the banks, which date back to August 2009, claimed the institutions either knew or should have known about the fraud, and that they received substantial fees for the correspondent and basic banking services they provided Stanford International Bank.
Interestingly, the liquidators for Allen Stanford's former bank, Stanford International Bank, sought more than $4 billion from TD in a case heard in Ontario. They were rebuffed by the trial judge, who ruled in April of 2021 that TD had no prior knowledge of Stanford's fraudulent activities.
Michael Rose, who covers Trustmark for Raymond James, referred to the Mississippi company's settlement amount as an "eye-popping" number Monday.
Involvement in the Stanford litigation "has been in their financial reports for many years. You become numb to it," Rose said.
In a research note, Rose estimated that the settlement would reduce Trustmark's tangible book value per share by nearly 8%, to $17.09 per share from the $18.39 level reported at the end of the third quarter. The tangible common equity ratio would drop by 47 basis points to 6.2%.
The settlement "does put the issue behind the company and should act as a clearing event of sorts," Rose wrote in his research note.
Hovde analyst David Bishop said the settlement "was definitely a hit to earnings" but added the $100 million payout reflects Trustmark's belief that "the tail risk of not settling and having this go to trial were too big to ignore."
"There's got to be a dollar value" on eliminating the long-running drain on management time and bandwidth, Bishop added.
Trustmark shares closed at $34.77 Monday, off just 14 cents, or 0.40% from the previous close. The stock appears to be "outperforming" the potential hit to tangible book value, Bishop said.
In 2009, the SEC accused Stanford, a Texas-born financier whose Stanford Financial Group holding company was based in Antigua, of operating a Ponzi scheme, using misleading marketing materials to sell certificates of deposit valued at $7.2 billion to unwitting investors attracted by the high rates his Stanford International Bank was offering. Though Stanford claimed it was investing CD proceeds in safe, liquid instruments, the cash was actually used to back more speculative real estate and private equity ventures.
Stanford was convicted of fraud in June 2012 and sentenced to 110 years in federal prison.
