Citigroup succumbed yesterday to the creditors of Enron, the energy group that collapsed in 2001, and agreed to pay $1.66 billion (£827 million) to settle accusations that it conspired with officials at the company to manipulate the group's finances.

While America's biggest bank denies any wrongdoing, the settlement draws to a close the so-called “Mega Claims” lawsuit that was originally filed in 2003 against 11 banks and broking firms by the Enron Creditors Recovery Corporation, the rump of the bankrupt former energy trading giant that is trying to recover assets for creditors.

The creditors group has alleged that for the past five years the 11 banks helped to conceal the true state of Enron's finances with the use of questionable accounting practices and by setting up structured finance deals.

Citigroup is the last of the group of 11, and leaves creditors with more than $5 billion, made up of the banks' settlements and $1.7 billion of remaining cash reserves held by Enron. The creditors group said the sum equated to 37.4cents of every dollar that was owed to them.

Shares in the banking giant dropped 6 per cent to $22.02 as it emerged that yesterday's settlement had wiped out more than half of the litigation reserves that it was holding at the end of last year.

The bank had been expected to request that the lawsuit be rejected, however, the settlement represents a significantly smaller figure than creditors, which include former employees and small companies, had been trying to extract from Citigroup.

It is estimated that the total claim against the bank from creditors was about $21 billion.

Yesterday's agreement brings Citigroup's total Enron-related settlements to $3.66 billion — in June 2005, Citigroup agreed to pay $2 billion to settle a class-action lawsuit with investors in Enron. That class-action lawsuit on behalf of Enron investors, which is separate from the creditors lawsuit, has extracted $7.2 billion from banks such as Citigroup, Bank of America and JPMorgan Chase.

Part of the Citigroup settlement includes a clause where the bank has agreed to waive $4 billion worth of claims it made against Enron itself. The bank said it has agreed to a separate settlement for investors that owned Enron bonds but would not disclose the amount.

Fallen giant

— Houston-based Enron was a $66 billion blue-chip energy company that employed about 22,000 people at its peak

— It filed for bankruptcy protection in 2001. It emerged that several of its executives had helped to inflate sales and profits falsely

— The scandal led the accounting firm Arthur Andersen to dissolution

— Enron emerged from bankruptcy in 2004 and is seeking to maximise returns to creditors

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