enron mentions fall of a power giant : bailout is unlikely if enron goes under , as u . s . thinks impact would be limited
the wall street journal , 11 / 29 / 01
enron ' s woes may ripple out to others - - - if energy company files for bankruptcy , results are likely to be messy
the wall street journal , 11 / 29 / 01
fall of a power giant : bailout is unlikely if enron goes under , as u . s . thinks impact would be limited
the wall street journal , 11 / 29 / 01
enron ' s meltdown may also be felt by big mutual funds
the wall street journal , 11 / 29 / 01
why credit agencies didn ' t switch off enron - - - s & p cries ` junk , ' but the warning comes too late
the wall street journal , 11 / 29 / 01
why credit agencies didn ' t switch off enron - - - energy trading bears the brunt of enron woes
the wall street journal , 11 / 29 / 01
fall of a power giant : chairman ' s deep political connections run silent
the wall street journal , 11 / 29 / 01
dynegy and chevrontexaco slide along with plunge in enron stock
the wall street journal , 11 / 29 / 01
dollar declines against yen and euro amid growing doubts on u . s . economy
the wall street journal , 11 / 29 / 01
dynegy ' s move to disconnect enron merger powers volatility spike as investors seek cover
the wall street journal , 11 / 29 / 01
enron asks staff to drop 401 ( k ) suits for severance
the wall street journal , 11 / 29 / 01
nvidia to replace enron in s & p
the wall street journal , 11 / 29 / 01
enron collapses as suitor cancels plans for merger
the new york times , 11 / 29 / 01
a bankruptcy filing might be the best remaining choice
the new york times , 11 / 29 / 01
an implosion on wall street
the new york times , 11 / 29 / 01
citigroup and j . p . morgan are left with bruised egos and exposure to loans
the new york times , 11 / 29 / 01
in turbulent bond market , enron ' s woes exacerbate turmoil
the new york times , 11 / 29 / 01
a big fall evoking nasty old memories of a run on a bank
the new york times , 11 / 29 / 01
foundation gives way on chief ' s big dream
the new york times , 11 / 29 / 01
market that deals in risks faces a novel one
the new york times , 11 / 29 / 01
investors pull back as enron drags down key indexes
the new york times , 11 / 29 / 01
debt rankings finally fizzle , but the deal fizzled first
the new york times , 11 / 29 / 01
global investing - bond mutual funds suffer as enron ' s troubles deepen .
financial times , 11 / 29 / 01
companies & finance the americas - sec filing triggered merger crisis .
financial times , 11 / 29 / 01
companies & finance the americas - financial system braces for a chain reaction .
financial times , 11 / 29 / 01
companies & finance the americas - traders avoid exposure to junk status fallout .
financial times , 11 / 29 / 01
companies other firms reasuring investors
houston chronicle , 11 / 29 / 01
bankruptcy filing by enron could be largest ever
houston chronicle , 11 / 29 / 01
ballpark place project stopped dead in tracks
houston chronicle , 11 / 29 / 01
fall of a power giant : bailout is unlikely if enron goes under , as u . s . thinks impact would be limited
by greg ip and jathon sapsford
staff reporters of the wall street journal
11 / 29 / 2001
the wall street journal
al 0
( copyright ( c ) 2001 , dow jones & company , inc . )
washington - - if enron corp . goes under , the government is unlikely to throw it a lifeline .
at its peak , enron was a major participant in the country ' s financial and energy markets . but economic and financial policy makers say they aren ' t worried about any broader blow to markets or business activity . despite frequent comparisons to long - term capital management , the hedge fund whose 1998 nose dive panicked global financial markets and triggered an unusual bailout brokered by the federal reserve , there has been so far no public sign of any attempt by the fed , the treasury or energy regulators to take similar action on behalf of enron or its creditors .
officials from a range of economic and regulatory agencies have insisted in recent days that while they have been closely monitoring enron ' s situation , they haven ' t seen any reason to be concerned about possible ripple effects . enron " is just one piece of a very big market , " said john mielke , chief of market surveillance at the commodity futures trading commission . mr . mielke said he saw no evidence that enron ' s problems have disrupted trading on the futures exchanges monitored by the cftc .
" these are deep and pretty big markets that enron is in , " echoed william gilmer , an economist at the federal reserve bank of dallas .
it is too soon to say exactly what the total damage from enron ' s potential demise will be . one danger is that a blowup in the company ' s complex , largely unregulated portfolio of derivatives could infect financial markets in wide and unpredictable ways , just as ltcm ' s did . another worry : that the collapse of a major middleman in natural - gas and power markets could disrupt supplies .
enron does share some characteristics with ltcm , including widespread activities in complicated financial instruments in numerous markets , with little detailed public explanation of those activities , and little regulatory oversight of those trades .
its public disclosures suggest enron ' s exposures are substantial . a quarterly filing listed $ 18 . 7 billion in assets and an equal amount of liabilities related to " price risk management activities " as of sept . 30 . the filing gives no description or breakdown of those amounts and little detail about the derivatives in which enron transacts as a normal part of business . ( a derivative is a financial contract whose value is designed to track the return on stocks , bonds , currencies or other benchmark . ) an enron spokeswoman didn ' t return a call seeking comment .
as enron ' s woes deepened , the government ' s hands were tied in even assessing the situation , in part because the company was part of a coalition of energy companies and banks that lobbied successfully three years ago against cftc efforts to expand regulation of the over - the - counter energy market . enron also worked behind the scene to head off cftc ' s direct regulation of the energy concern ' s enrononline trading operation .
there have been some signs in markets of concerns about enron fallout . interest rates on bonds of utilities and energy companies rose by one - to two - tenths of a percentage point relative to treasurys yesterday . by day ' s end , the dow jones industrial average was off 160 . 74 points , a decline blamed in part on the enron news .
those are relatively small hiccups . the betting is the impact of enron ' s troubles on the financial system will be widespread but thin . enron was a favorite borrower among lenders , and its loans were among the most widely syndicated among the banking system , both at home and abroad . for example , a $ 2 . 25 billion credit facility arranged for enron in may by citigroup inc . and j . p . morgan chase & co . was distributed to 50 different institutions , according to loan pricing corp . , a credit - market research company . those syndication members sold off chunks of that debt to other investors , according to a banker at one of the underwriters .
j . p . morgan chase said in a statement that it has $ 500 million of unsecured exposure to enron entities , including loans , letters of credit and derivatives . it said it also has secured exposures , including $ 400 million in loans secured by enron pipelines . while this exposure is expected to smart , it represents a small fraction of j . p . morgan chase ' s total assets of $ 715 billion . citigroup declined to comment on its exposure to enron , but officials familiar with the matter said the bank ' s exposure is similar to that of j . p . morgan chase .
beyond financial fallout , a concern is the potential impact on energy markets and what that could do to the economy . enron ' s troubles could hamper efforts to end the recession if the company ' s difficulties make it impossible for it to deliver natural gas or electricity to its customers .
natural - gas prices rose sharply yesterday in the minutes after three major credit - rating agencies downgraded enron ' s rating and dynegy inc . said it was calling off its purchase . but the move quickly reversed when traders digested gas - inventory numbers released in the afternoon that showed utilities have stored enough gas to meet demand ahead of the winter heating season .
" we ' ve seen no interruptions in physical deliveries and no pricing reaction in the futures markets that you could attribute to enron , " said scott miller , director of market development for the federal energy regulatory commission . " revenues and transactions are occurring normally as far as we can tell . "
- - -
michael schroeder , chip cummins and john fialka contributed to this article .
copyright ? 2000 dow jones & company , inc . all rights reserved .
enron ' s woes may ripple out to others - - - if energy company files for bankruptcy , results are likely to be messy
by henny sender and richard b . schmitt
staff reporters of the wall street journal
11 / 29 / 2001
the wall street journal
a 3
( copyright ( c ) 2001 , dow jones & company , inc . )
the sudden , deep financial troubles of enron corp . , the once aggressive , many - tentacled energy conglomerate , could have widespread consequences for scores of companies across the economy .
if enron files for protection under chapter 11 of the federal bankruptcy code , as many investors and financial experts now expect , it is likely to be one of the messiest , most complex bankruptcy cases ever , lawyers say .
that is because of the multifaceted nature of enron ' s once highflying operations , which combined a global energy business with a massive financial - trading operation involving tens of billions of dollars in complex contracts . yesterday , amid the unraveling of a last - ditch merger with dynegy inc . , the company ' s credit was downgraded to " junk " status by rating agency standard & poor ' s corp . enron has about 800 trading partners or creditors .
the stock market , signaling that a bankruptcy filing is expected , hammered enron stock , which was halted for a time yesterday , and knocked lower some of its financial backers ' shares . enron shares closed at 4 p . m . in new york stock exchange composite trading at 61 cents , down $ 3 . 50 , or 85 % . enron bonds also fell sharply , dropping to 50 cents on the dollar from around 55 cents , reflecting concerns over how much creditors might receive if the company does seek bankruptcy - court protection . j . p . morgan chase and citigroup , which have invested hundreds of millions of dollars in hopes of keeping the enron - dynegy deal alive , also saw their stocks fall . at 4 p . m . in nyse composite trading , j . p . morgan shares were down $ 2 . 30 to $ 37 . 50 , while citigroup shares were down $ 2 . 75 to $ 47 . 80 .
j . p . morgan chase said in a statement it has about $ 500 million of unsecured exposure to enron entities , including loans , letters of credit , and derivatives . it said it also has secured exposures , including $ 400 million in loans secured by enron pipelines .
other companies also disclosed their exposures to enron . exelon corp . , an energy concern in chicago , said its power - trading arm has a direct net exposure to enron of less than $ 10 million , based on its current book of business and existing market prices . exelon said its direct gross exposure based on sales to enron is less than $ 20 million . exelon said this is partly offset by $ 10 million that it owes to enron .
still , while the fallout from a potential bankruptcy filing would be widespread , federal regulators appear little concerned that it could inflict significant damage to the u . s . economy . ( see related article on page al 0 . )
the scale of the enron collapse is huge , experts say . " there is nothing to compare it to , " said edward tillinghast , a bankruptcy specialist with coudert brothers in new york . " the business was so large . there were so many different kinds of operating entities under the enron umbrella . "
in a way , he added , a filing would represent all the challenges of two of the biggest bankruptcies in recent years - - this past spring ' s chapter 11 filing by pg & e corp . ' s pacific gas & electric utility unit , and the demise of drexel burnham lambert , the wall street securities firm that failed more than a decade ago . a filing by enron , with about $ 13 billion in debt , would rank among the largest bankruptcy filings ever .
bankruptcy lawyers and creditors ' rights specialists , already swamped with a wealth of work from a boom in chapter 11 filings during the last 18 months , said they had been contacted by worried banks and other lenders to enron , seeking to retain them in the event of a chapter 11 filing . enron spokeswoman karen denne said the company is exploring its options and wouldn ' t comment on whether it has retained bankruptcy counsel .
but lawyers said the company was already in discussions about retaining its own counsel . among the likely advisers is new york law firm weil gotshal the idea is to protect all parties from market risk as the value of those contracts can fluctuate from day to day , and to avoid a larger financial meltdown .
that means enron ' s counterparties are free to close out such transactions , rather than file claims in a bankruptcy proceeding reflecting the total notional amount of any trades . in other words , a securities firm that is a counterparty to enron in many financial contracts would tally up how much it owes enron under such contracts and how much enron owes it , offsetting the amounts against each other . but this process is ripe for conflicts , as disputes easily could arise over the value of the contracts .
" it is an incredibly complex piece of financial engineering , " andrew rahl , a bankruptcy lawyer at anderson kill & olick in new york , said of the process .
how much collateral those counterparties could seize isn ' t at all clear , either . enron was considered very aggressive in negotiating agreements such as swaps , where a party trades an obligation to pay a floating interest rate for a fixed interest rate on given securities . the speed with which the company ' s finances have deteriorated further reduces the odds that its trading partners will be able to get paid anytime soon . without any security , counterparty claims would go into the probably massive general pool of claims from unsecured creditors .
besides banks and bondholders , dozens of companies , municipalities and utilities that had signed multiyear power contracts with enron may be left in the lurch . over the years , the likes of retailer j . c . penney co . , and shopping - mall company simon property group , of indianapolis , signed on with enron , as it undercut local utilities in newly deregulated markets .
any bankruptcy also is likely to trigger collateral lawsuits , as aggrieved parties look for alternative deep pockets . one possible target , analysts said , could be advisers that helped enron establish off - balance - sheet vehicles and other debt related to troubled investment partnerships , which have triggered massive losses in recent weeks . moreover , enron directors themselves could be vulnerable , too .
yesterday , enron named raymond s . troubh , a new york financial consultant , to its board as chairman of a newly formed special litigation committee to evaluate claims in shareholder and other derivative lawsuits .
at the same time , any filing would give enron some advantages , most notably greater ease in securing financing . this is because once companies file for protection , any new cash infusion from the banks has an overriding claim on any of the company ' s assets , at the expense of previous lenders .
in addition , potential buyers for enron businesses may be more likely to emerge once the company is operating with court protection and the depth of its problems are known .
" there is a certain comfort level that buyers have when buying a business in a chapter 11 case that doesn ' t exist when a company is struggling outside of bankruptcy , " said keith shapiro , a bankruptcy lawyer at greenberg traurig in chicago .
copyright ? 2000 dow jones & company , inc . all rights reserved .
fall of a power giant : bailout is unlikely if enron goes under , as u . s . thinks impact would be limited
by greg ip and jathon sapsford
staff reporters of the wall street journal
11 / 29 / 2001
the wall street journal
al 0
( copyright ( c ) 2001 , dow jones & company , inc . )
washington - - if enron corp . goes under , the government is unlikely to throw it a lifeline .
at its peak , enron was a major participant in the country ' s financial and energy markets . but economic and financial policy makers say they aren ' t worried about any broader blow to markets or business activity . despite frequent comparisons to long - term capital management , the hedge fund whose 1998 nose dive panicked global financial markets and triggered an unusual bailout brokered by the federal reserve , there has been so far no public sign of any attempt by the fed , the treasury or energy regulators to take similar action on behalf of enron or its creditors .
officials from a range of economic and regulatory agencies have insisted in recent days that while they have been closely monitoring enron ' s situation , they haven ' t seen any reason to be concerned about possible ripple effects . enron " is just one piece of a very big market , " said john mielke , chief of market surveillance at the commodity futures trading commission . mr . mielke said he saw no evidence that enron ' s problems have disrupted trading on the futures exchanges monitored by the cftc .
" these are deep and pretty big markets that enron is in , " echoed william gilmer , an economist at the federal reserve bank of dallas .
it is too soon to say exactly what the total damage from enron ' s potential demise will be . one danger is that a blowup in the company ' s complex , largely unregulated portfolio of derivatives could infect financial markets in wide and unpredictable ways , just as ltcm ' s did . another worry : that the collapse of a major middleman in natural - gas and power markets could disrupt supplies .
enron does share some characteristics with ltcm , including widespread activities in complicated financial instruments in numerous markets , with little detailed public explanation of those activities , and little regulatory oversight of those trades .
its public disclosures suggest enron ' s exposures are substantial . a quarterly filing listed $ 18 . 7 billion in assets and an equal amount of liabilities related to " price risk management activities " as of sept . 30 . the filing gives no description or breakdown of those amounts and little detail about the derivatives in which enron transacts as a normal part of business . ( a derivative is a financial contract whose value is designed to track the return on stocks , bonds , currencies or other benchmark . ) an enron spokeswoman didn ' t return a call seeking comment .
as enron ' s woes deepened , the government ' s hands were tied in even assessing the situation , in part because the company was part of a coalition of energy companies and banks that lobbied successfully three years ago against cftc efforts to expand regulation of the over - the - counter energy market . enron also worked behind the scene to head off cftc ' s direct regulation of the energy concern ' s enrononline trading operation .
there have been some signs in markets of concerns about enron fallout . interest rates on bonds of utilities and energy companies rose by one - to two - tenths of a percentage point relative to treasurys yesterday . by day ' s end , the dow jones industrial average was off 160 . 74 points , a decline blamed in part on the enron news .
those are relatively small hiccups . the betting is the impact of enron ' s troubles on the financial system will be widespread but thin . enron was a favorite borrower among lenders , and its loans were among the most widely syndicated among the banking system , both at home and abroad . for example , a $ 2 . 25 billion credit facility arranged for enron in may by citigroup inc . and j . p . morgan chase & co . was distributed to 50 different institutions , according to loan pricing corp . , a credit - market research company . those syndication members sold off chunks of that debt to other investors , according to a banker at one of the underwriters .
j . p . morgan chase said in a statement that it has $ 500 million of unsecured exposure to enron entities , including loans , letters of credit and derivatives . it said it also has secured exposures , including $ 400 million in loans secured by enron pipelines . while this exposure is expected to smart , it represents a small fraction of j . p . morgan chase ' s total assets of $ 715 billion . citigroup declined to comment on its exposure to enron , but officials familiar with the matter said the bank ' s exposure is similar to that of j . p . morgan chase .
beyond financial fallout , a concern is the potential impact on energy markets and what that could do to the economy . enron ' s troubles could hamper efforts to end the recession if the company ' s difficulties make it impossible for it to deliver natural gas or electricity to its customers .
natural - gas prices rose sharply yesterday in the minutes after three major credit - rating agencies downgraded enron ' s rating and dynegy inc . said it was calling off its purchase . but the move quickly reversed when traders digested gas - inventory numbers released in the afternoon that showed utilities have stored enough gas to meet demand ahead of the winter heating season .
" we ' ve seen no interruptions in physical deliveries and no pricing reaction in the futures markets that you could attribute to enron , " said scott miller , director of market development for the federal energy regulatory commission . " revenues and transactions are occurring normally as far as we can tell . "
- - -
michael schroeder , chip cummins and john fialka contributed to this article .
copyright ? 2000 dow jones & company , inc . all rights reserved .
enron ' s meltdown may also be felt by big mutual funds
11 / 29 / 2001
the wall street journal
cl 3
( copyright ( c ) 2001 , dow jones & company , inc . )
new york - - some of the largest mutual funds in the country that jumped on enron corp . shares when they were soaring now may be feeling the pain of the stock ' s meltdown .
the energy - trading company ' s stock was held in funds managed by fidelity investments , stilwell financial inc . ' s janus capital corp . , alliance capital management and putnam investments , according to the funds ' most recent securities and exchange commission filings . vanguard group held the stock in various portfolios , including its giant passively managed index funds , according to its filings .
one of the biggest supporters of the stock has been alliance premier growth fund , an $ 11 billion portfolio that had about 4 % of its assets in enron shares as of sept . 30 , according to fund tracker morningstar inc . based on the sept . 30 filing , the fund ' s stake had dropped in value by about $ 445 million through yesterday .
of course , alliance premier and other funds may have sold or bought enron shares since they made their latest government filings . an alliance spokesman declined to comment .
other funds reporting big stakes in enron recently included janus mercury fund , which had 3 . 6 % of its assets invested in enron stock on april 30 . a janus spokeswoman said its funds had sold all of their enron shares by mid - november .
copyright ? 2000 dow jones & company , inc . all rights reserved .
credit markets
why credit agencies didn ' t switch off enron - - - s & p cries ` junk , ' but the warning comes too late
by gregory zuckerman and jathon sapsford
staff reporters of the wall street journal
11 / 29 / 2001
the wall street journal
cl
( copyright ( c ) 2001 , dow jones & company , inc . )
at 10 : 57 a . m . est yesterday , an announcement came out that effectively scuttled dynegy inc . ' s proposed takeover of enron corp . it was issued not by the two companies or their bankers , but by a behind - the - scenes player that was pivotal in the deal from the start .
the news came from standard & poor ' s , which lowered enron ' s credit rating to " junk " status , because of concern about the energy trading company ' s financial condition . the move , followed by similar downgrades by moody ' s investors service inc . and fitch inc . several hours later , prompted dynegy to announce that it was walking away from the multibillion dollar deal .
the downgrades highlight the key role that credit - rating agencies - - which are sometimes only bit players - - are having in one of the biggest wall street dramas in years . before they became deal breakers , the ratings agencies had emerged as unlikely deal makers just a few weeks ago , by leaving enron little choice but to seek a merger partner or face a downgrade that would have made it difficult to keep running its business .
throughout the enron saga , the rating agencies found themselves the target of repeated and intense lobbying by enron , dynegy and their bankers at j . p . morgan chase & co . and citigroup inc . all tried - - and ultimately failed - - to come up with assurances that the merger would bolster enron and thus protect bondholders and lenders from suffering losses .
the dramatic downgrades are sure to increase scrutiny over the role of the rating agencies in the enron situation . critics say that , in waiting until enron ' s bonds already had plummeted in value , the ratings agencies failed in their job of anticipating a company ' s financial problems and giving investors an early warning .
it now seems clear that the rating agencies , like most securities analysts , seem to have too easily accepted enron ' s murky financial reporting , which gave the impression that the company ' s balance sheet was stronger than it was . as recently as late october , both moody ' s corp . ' s moody ' s and mcgraw - hill cos . ' s & p had a solid investment - grade rating on enron ' s debt .
but since credit - rating agencies often have access to company information that securities analysts often don ' t have , the rating agencies could take some heat for not anticipating the financial difficulties . bond investors , for instance , say s & p was prematurely upbeat about enron ' s outlook earlier this month , and long ago should have demanded more information from the company . " if the rating agencies were privy all along to information that , as near as i can tell , was nonpublic regarding these off - balance - sheet liabilities , then their judgment looks even more faulty , " says carol levenson of gimme credit , a chicago - based analyst .
others wonder whether the ratings executives should have lowered the rating to junk days ago , when enron ' s problems became obvious . while such a move would have crippled the company ' s ability to find a suitor , holding off on the ratings move hurt stock and bond investors left holding the securities .
" i don ' t think the consequences of a rating action should have anything to do with whether one takes that rating action or not , if one feels it ' s warranted , " ms . levenson says . " i don ' t think there was any doubt enron was a junk credit . "
the ratings agencies counter that enron ' s financial condition , while weakened , became precarious only in the past few days , and given the consequences of a downgrade they needed to be prudent .
indeed , every party to the deal - - until yesterday - - kept working to provide financial infusions to enron to keep the deal alive . enron executives were particularly desperate to hold off a ratings downgrade . once the debt was lowered to junk status from investment grade , a whopping $ 3 . 9 billion of debt immediately became due , jeopardizing enron ' s ability to stay afloat .
worries about such a debt downgrade weeks ago pushed enron into the merger with dynegy , despite reservations from some enron executives about whether the deal was right . enron pledged some of its best assets to secure a $ 500 million investment from j . p . morgan chase and citigroup ' s citibank , and agreed to strict terms demanded by banks to get an emergency $ 1 billion credit line from various banks . in recent days , the two companies worked to restructure their merger and to raise still more liquidity for enron .
by 4 p . m . tuesday , the credit agencies agreed to hold off on a downgrade , convinced the two sides were making progress in restructuring the deal and drumming up new money for enron . in a conference call , ron barone , a managing director at s & p , told enron executives he was willing to wait on a decision , aware of the serious consequences of a downgrade .
" we ' ll be very patient and diligent " because of the progress being made , he told them , according to someone familiar with the conversation .
as late as 10 : 30 p . m . tuesday , a new deal still seemed in sight . but at about 2 a . m . yesterday , the talks broke down . instead of being briefed about terms of a new merger agreement , the credit - agency executives became doubtful a resolution would ever be reached .
in a late morning phone call to jeff mcmahon , enron ' s chief financial officer , mr . barone broke the news that the company ' s credit would be downgraded . " we lost confidence the deal would be consummated in a way that would keep the rating intact , " mr . barone says in an interview . " enron ' s credibility and viability continued to diminish . they were aware of our concerns . "
s & p downgraded enron ' s corporate - credit rating two full grades to single - b - minus , near the lower end of the junk - bond world , from triple - b - minus , the lowest investment - grade level . moody ' s lowered the debt to b 2 from baa 3 .
in a late - afternoon conference call with investors , s & p executives said the rating could still be lowered further , on the heels of the official announcement that the merger with dynegy was off .
responding to criticism that the credit agencies should have downgraded enron ' s debt sooner , mr . barone of s & p notes that the rating agency wasn ' t " privy to everything . " still , he adds , until yesterday " we were confident it was an investment - grade company , and that the merger would give it the security to enable enron to function at an investment - grade level . "
on the flip side , of course , if enron is forced into bankruptcy , the rating agencies may well catch heat that their impact was too drastic , effectively killing the deal .
treasurys
treasurys ended slightly higher . at 4 p . m . , the benchmark 10 - year treasury note was up 1 / 32 point , or 31 cents per $ 1 , 000 face value , at 100 15 / 32 to yield 4 . 938 % . the 30 - year treasury bond ' s price also was up 1 / 32 point , at 100 9 / 32 to yield 5 . 355 % .
the dow jones industrial average ended with a loss of 160 . 74 points . investors often shift funds to the relative safety of the government securities market at times when stocks are weak . a treasury sale of $ 21 billion of two - year notes drew less demand than expected . the bid - to - cover ratio , a gauge of demand comparing the dollar value of bids received with those awarded , was 1 . 51 , well below the 2 . 53 average of the past 12 auctions .
also somewhat bearish for the bond market was release of the fed ' s beige book report , an assessment of economic conditions around the country in advance of policy meetings . policy makers are to meet again dec . 11 .
although the report cited weakness in the economy , it didn ' t encourage people in the bond market to expect further rate cuts by the fed , analysts said . " not everybody is in the camp that the fed ' s going to ease again , " said kevin flanagan , market strategist at morgan stanley .
two - year notes
here are results of yesterday ' s treasury auction of two - year notes .
all bids are awarded at a single price at the market - clearing yield .
rates are determined by the difference between that price and the face
value .
applications . . . . . . . . . . . . . . . . . . . . . . . . $ 31 , 761 , 220 , 000
accepted bids . . . . . . . . . . . . . . . . . . . . . . . $ 21 , 000 , 020 , 000
bids at market - clearing yld accepted 14 . 96 %
accepted noncompetitively . . . . . . . . . . . $ 774 , 120 , 000
accepted frgn noncomp . . . . . . . . . . . . . . . $ 0
auction price ( rate ) . . . . . . . . . . . . . . . . 99 . 985 ( 3 . 008 % )
interest rate . . . . . . . . . . . . . . . . . . . . . . . 3 %
cusip number . . . . . . . . . . . . . . . . . . . . . . . . 9128277 gl
the notes are dated nov . 30 , 2001 , and mature nov . 30 , 2003 .
( see related article : " commodities : energy trading bears the brunt of enron woes " - - wsj nov . 29 , 2001 )
copyright ? 2000 dow jones & company , inc . all rights reserved .
commodities
why credit agencies didn ' t switch off enron - - - energy trading bears the brunt of enron woes
by peter a . mckay
staff reporter of the wall street journal
11 / 29 / 2001
the wall street journal
cl
( copyright ( c ) 2001 , dow jones & company , inc . )
less than a month ago , enron corp . ' s electronic trading system was the largest of its kind in the world , accounting for a quarter of all the natural gas and electricity delivered in the u . s .
yesterday , the system was shut down , a victim of enron ' s failed deal with dynegy inc .
while the rise and sudden fall of enron rippled throughout financial markets yesterday , nowhere was it more immediately evident than in energy trading , an arena utterly transformed by enron in recent years .
since the late 1990 s , enrononline had established itself as the dominant electronic energy marketplace - - and major competitor of the traditional futures exchanges - - as it grew to handle an average of 5 , 400 trades a day , with a value of about $ 2 . 8 billion .
but a flight away from enron began weeks ago , as initial news of the company ' s woes began to spread . because enron itself guaranteed trades on its platform , fears grew that the company might not be able to complete many of the transactions .
the exodus of trading activity from enrononline accelerated throughout the day yesterday , culminating in the system ' s shutdown around midday , when quotes on the system ' s internet trading screens simply went blank .
by 3 : 30 p . m . est , some trading had resumed in natural gas , though spokesman eric thode declined to say whether enron ' s markets would be open today . " that ' s part of an evaluation that ' s ongoing , " he said .
on the floor of the new york mercantile exchange , a traditional floor - based futures market , natural - gas trading volume almost doubled yesterday to 116 , 000 contracts . while enron ' s woes were the main driver behind the surge , the market also reacted to important storage data from the american gas association .
natural - gas prices jumped about 25 cents yesterday morning on an initial reaction to the enron news , near $ 3 per million british thermal units , then slipped back as the aga announced that gas storage had grown by 16 billion cubic feet to an all - time high . the nearby december contract fell 29 cents to $ 2 . 315 per million btus .
" anyone who jumped into the gas market on the enron news is praying right now [ that prices recover ] , " guy gleichmann , senior energy trader at barkely financial . " it should only be a short - term factor in the market . "
he said enron ' s collapse has helped gas prices because it is mainly seen as a threat to the overall gas supply . traders assume enrononline ' s problems won ' t affect actual energy deliveries , because whoever takes over enron ' s assets is expected to honor those commitments .
meantime , anticipating potential fallout from the enron problems , energy firms also have been reducing their financial risk in the energy markets by unwinding complex derivatives bets , either by hedging against them or taking delivery of the physical commodity .
in the future , those firms are likely to favor straightforward cash transactions for energy as a result of the enron meltdown . " if anything , the enron situation has really simplified this market , " mr . gleichmann said .
yesterday on the , enron ' s primary electronic rival , traders waited up to five minutes to log in , said jeff sprecher , the online market ' s chief executive .
he said it seemed most traders were just jockeying for position at first , assessing the newfound risk before actually making any trades . within the first 15 minutes after standard & poor ' s initial downgrade of enron , mr . sprecher said , the number of bids and offers on dropped by almost a third , to 2 , 200 .
" by the end of the day , though , we expect this will probably be a record day for us , " said mr . sprecher , who estimated the system ' s overall volume is up 45 % this month .
he expects much of that gain to be permanent on ice , although he cautioned that a loss of enrononline from the marketplace would have a downside , since its presence created opportunities to trade spreads between the two platforms .
nymex president j . robert collins warned it is still too early to declare enrononline dead . but he said its difficulties bode well for his exchange ' s internet - based system , dubbed enymex , now in development .
" because of credit issues involving enron , companies might be more hesitant to trade there , " he said . " so we have a better shot with enymex than we did three or four months ago . "
ronald j . barone , managing director for energy research at ubs warburg , said enrononline ' s value to prospective acquirers will drop quickly in coming days , if the business continues to decline .
" dynegy really liked enrononline , but look at how much business the platform ' s been losing , " said mr . barone , who downgraded enron ' s stock yesterday to a hold . " there ' s also a question of how many more skeletons there are in the closet . "
in commodity trading yesterday :
grains : futures prices on corn , wheat and soybeans all fell again at the chicago board of trade as what was described as a technical - based selloff accelerated . december - delivery corn futures sank to $ 1 . 9850 a bushel late in the session , which wiped out the old contract low . the contract ended up settling down five cents at $ 1 . 9875 a bushel .
crude oil : crude - oil futures slipped 26 cents to $ 19 . 22 a barrel after weekly inventory data showed a larger - than - expected five - million - barrel build in distillates supplies , which include heating oil . high refinery runs and imports were behind the build , analysts said . the contract might have fallen even more , except for a modest drop reported for crude - oil stocks .
- - -
dyanna decola contributed to this article .
( see related article : " credit markets : s & p cries ` junk , ' but the warning comes too late " - - wsj nov . 29 , 2001 )
copyright ? 2000 dow jones & company , inc . all rights reserved .
fall of a power giant : chairman ' s deep political connections run silent
by bob davis
staff reporter of the wall street journal
11 / 29 / 2001
the wall street journal
al 0
( copyright ( c ) 2001 , dow jones & company , inc . )
for years , enron corp . chairman kenneth lay has been george w . bush ' s best friend in the board rooms of america ' s top corporations .
since 1993 , mr . lay and enron have donated nearly $ 2 million to mr . bush ' s political career , making them mr . bush ' s biggest backers . when mr . bush was texas governor , mr . lay , a houston resident , helped him win passage of a state education - reform plan that brought mr . bush national acclaim . during that fight , mr . lay got to know aides who became power players in the bush white house .
mr . lay was confident enough of his friendship with mr . bush that he even needled him for needing arthroscopic surgery to repair a jogging injury . " i want you to know that at least one jogger [ me ] got past 50 without that surgery , " mr . lay scribbled in a note to then governor in 1997 .
still , as enron faces its greatest crisis , mr . lay ' s influence and personal relationships with the administration have amounted to little . there appears to be no effort by the white house or congress to bail enron out of its difficulties , which are widely seen as self - inflicted . the white house had no comment on mr . lay ' s predicament , a spokeswoman said . indeed , short of an actual bailout to help enron meet its obligations - - such as an aid package approved by congress or organized by government officials from private sources , similar to the rescue of the long term capital management hedge fund - - there is little washington can do at this stage to help the company . nor is there likely to be a bailout , since enron has burned many bridges on capitol hill with its history of strong - arm lobbying tactics , some congressional aides say .
that may reassure a cynical public , says robert mosbacher , commerce secretary in the first bush administration and a longtime friend of the current president as well as mr . lay . " i don ' t see anybody being let off the hook , " he said .
mr . mosbacher says he introduced mr . lay to the bush family around 1987 , when he persuaded mr . lay to help raise money for george h . w . bush ' s successful presidential bid in 1988 . mr . lay contributed $ 461 , 000 to the younger mr . bush ' s two successful gubernatorial campaigns . he also made enron ' s fleet of corporate jets available to mr . bush and won his help in lobbying officials in other states considering enron projects .
his influence with then - gov . bush was based on more than money . mr . lay was one of the state ' s leading business executives and deeply involved in texas politics . under mr . bush ' s predecessor , democrat ann richards , mr . lay headed the governor ' s business council , a state advisory board . mr . bush asked him to stay on the job to help develop an educational reform plan and sell it to the texas legislature .
in that capacity , mr . lay became close to several bush aides , including political guru karl rove and communications adviser karen hughes , who have taken positions at the white house . he also got to know another leading texas businessman : dick cheney , then ceo of dallas oil concern halliburton co . , who would become mr . bush ' s pick for vice president .
against this backdrop , mr . lay was widely considered a top candidate for treasury secretary in the younger bush ' s administration . ultimately though , he was disqualified , bush insiders say , as too closely identified with mr . bush , mr . cheney and others who worked in the texas energy business for an administration that wanted to show it wasn ' t in the pocket of big oil companies .
early on , mr . lay had unrivaled access to the administration . when the president ' s advisers debated a new energy policy in the spring , mr . lay was the only energy executive to be invited for a one - on - one session with mr . cheney , who led the effort . mr . lay also worked with mr . rove and others to successfully push for appointments to the federal energy regulatory commission , which oversees much of enron ' s business .
as enron ' s problems multiplied and its fortunes plummeted , however , the white house was silent . during a several - hour long interview in the spring , mr . lay mused that his bush connections could boomerang someday . " it could hurt , from the standpoint that , at some point , they lean in the other direction to make sure they don ' t face criticism , " he said .
copyright ? 2000 dow jones & company , inc . all rights reserved .
fall of a power giant : chairman ' s deep political connections run silent
by bob davis
staff reporter of the wall street journal
11 / 29 / 2001
the wall street journal
al 0
( copyright ( c ) 2001 , dow jones & company , inc . )
for years , enron corp . chairman kenneth lay has been george w . bush ' s best friend in the board rooms of america ' s top corporations .
since 1993 , mr . lay and enron have donated nearly $ 2 million to mr . bush ' s political career , making them mr . bush ' s biggest backers . when mr . bush was texas governor , mr . lay , a houston resident , helped him win passage of a state education - reform plan that brought mr . bush national acclaim . during that fight , mr . lay got to know aides who became power players in the bush white house .
mr . lay was confident enough of his friendship with mr . bush that he even needled him for needing arthroscopic surgery to repair a jogging injury . " i want you to know that at least one jogger [ me ] got past 50 without that surgery , " mr . lay scribbled in a note to then governor in 1997 .
still , as enron faces its greatest crisis , mr . lay ' s influence and personal relationships with the administration have amounted to little . there appears to be no effort by the white house or congress to bail enron out of its difficulties , which are widely seen as self - inflicted . the white house had no comment on mr . lay ' s predicament , a spokeswoman said . indeed , short of an actual bailout to help enron meet its obligations - - such as an aid package approved by congress or organized by government officials from private sources , similar to the rescue of the long term capital management hedge fund - - there is little washington can do at this stage to help the company . nor is there likely to be a bailout , since enron has burned many bridges on capitol hill with its history of strong - arm lobbying tactics , some congressional aides say .
that may reassure a cynical public , says robert mosbacher , commerce secretary in the first bush administration and a longtime friend of the current president as well as mr . lay . " i don ' t see anybody being let off the hook , " he said .
mr . mosbacher says he introduced mr . lay to the bush family around 1987 , when he persuaded mr . lay to help raise money for george h . w . bush ' s successful presidential bid in 1988 . mr . lay contributed $ 461 , 000 to the younger mr . bush ' s two successful gubernatorial campaigns . he also made enron ' s fleet of corporate jets available to mr . bush and won his help in lobbying officials in other states considering enron projects .
his influence with then - gov . bush was based on more than money . mr . lay was one of the state ' s leading business executives and deeply involved in texas politics . under mr . bush ' s predecessor , democrat ann richards , mr . lay headed the governor ' s business council , a state advisory board . mr . bush asked him to stay on the job to help develop an educational reform plan and sell it to the texas legislature .
in that capacity , mr . lay became close to several bush aides , including political guru karl rove and communications adviser karen hughes , who have taken positions at the white house . he also got to know another leading texas businessman : dick cheney , then ceo of dallas oil concern halliburton co . , who would become mr . bush ' s pick for vice president .
against this backdrop , mr . lay was widely considered a top candidate for treasury secretary in the younger bush ' s administration . ultimately though , he was disqualified , bush insiders say , as too closely identified with mr . bush , mr . cheney and others who worked in the texas energy business for an administration that wanted to show it wasn ' t in the pocket of big oil companies .
early on , mr . lay had unrivaled access to the administration . when the president ' s advisers debated a new energy policy in the spring , mr . lay was the only energy executive to be invited for a one - on - one session with mr . cheney , who led the effort . mr . lay also worked with mr . rove and others to successfully push for appointments to the federal energy regulatory commission , which oversees much of enron ' s business .
as enron ' s problems multiplied and its fortunes plummeted , however , the white house was silent . during a several - hour long interview in the spring , mr . lay mused that his bush connections could boomerang someday . " it could hurt , from the standpoint that , at some point , they lean in the other direction to make sure they don ' t face criticism , " he said .
copyright ? 2000 dow jones & company , inc . all rights reserved .
abreast of the market
dynegy and chevrontexaco slide along with plunge in enron stock
by robert o ' brien
dow jones newswires
11 / 29 / 2001
the wall street journal
c 2
( copyright ( c ) 2001 , dow jones & company , inc . )
new york - - the collapse of enron dominated stock trading yesterday , as a host of the power generators and energy merchants exposed to the firm tumbled .
shares of dynegy , the suitor for enron that pulled out of a deal after debt - rating agencies lowered their ratings on enron ' s bonds , fell 4 . 92 , or 12 % , to 35 . 97 . chevrontexaco , which owns 26 % of dynegy , slid 1 . 07 , or 1 . 2 % , to 84 . 55 .
shares of enron itself were ground down more than 85 % . the loss of $ 3 . 50 brought the closing price of each enron share down to 61 cents . this from a stock that , as recently as august 2000 , commanded more than $ 90 a share .
a host of other energy merchants , such as el paso , which lost 3 . 59 , or 7 . 4 % , to 44 . 91 , williams , which shed 1 . 80 , or 6 . 2 % , to 27 . 05 , and american electric power , which fell 2 . 03 , or 4 . 8 % , to 40 . 44 , all got caught in the backlash against the energy market .
the dow jones utility average finished the session down 8 . 48 points , a drop of 2 . 94 % , to 279 . 95 , which brought it down to a 52 - week low .
shares of two giant financial - services providers also got caught by their exposure to enron , and paid the price . shares of citigroup fell 2 . 75 , or 5 . 4 % , to 47 . 80 , while j . p . morgan chase slid 2 . 30 , or 5 . 8 % , to 37 . 50 .
with those two components in decline , the dow jones industrial average finished the session 160 . 74 points lower , a loss of 1 . 63 % , to 9711 . 86 . the nasdaq composite slid 2 . 48 % , or 48 points , to 1887 . 97 .
the dow industrial average ' s finish at 9711 . 86 represented the lowest close the average has posted in more than two weeks , since ending at 9554 . 37 . traders insisted that the speed and apparent ease with which market averages have managed to lard on gains over the past several weeks has stretched valuations , and left equities vulnerable to events , like the enron sell - off , that a sturdier market might have more handily absorbed .
" one of the most important overriding factors has been the performance of the market itself , " arthur hogan , chief market analyst at jefferies , said . " the market has moved straight up seven weeks in a row , and when it moves up in a straight line like that , it doesn ' t take much in the way of a catalyst to tip it over . "
whether it was excuse - making or profit - taking , the market did have to absorb some fundamental challenges in the session , including an especially pessimistic assessment of economic conditions from the federal reserve . the central bank released its beige book report on economic conditions , which showed , overall , the economy tilted more toward further slowing than it did toward recovery .
that helped further puncture shares of some of the retailers that got waylaid in tuesday ' s trading by a bearish consumer sentiment reading . shares of gap , stung by a reduction in its investment rating by prudential securities , lost 79 cents , or 5 . 5 % , to 13 . 61 . shares of another apparel retailer , american eagle outfitters , lost 1 . 3 , or 5 . 9 % , to 24 . 40 , while talbots dropped 1 . 25 , or 3 . 6 % , to 33 , and discounter kohl ' s fell 84 cents , or 1 . 2 % , to 67 . 86 .
meanwhile , some of the classic cyclical stocks that have had good runs over the past several weeks as investors bet on an eventual economic recovery gave ground . shares of boeing fell 1 . 33 , or 3 . 7 % , to 34 . 17 , after j . p . morgan reduced its earnings forecasts for 2002 and 2003 . whirlpool lost 1 . 12 , or 1 . 7 % , to 64 . 98 . auto - parts maker eaton declined 1 , or 1 . 4 % , to 69 . 60 . general electric , also subject to some downbeat comments from j . p . morgan , fell 1 . 72 , or 39 . 35 .
continental airlines lost 2 . 40 , or 10 % , to 21 . 70 . the air carrier completed a public offering of 6 . 74 million shares of stock priced at $ 22 . 50 , a discount to tuesday ' s closing price of 24 . 10 .
coca - cola declined 1 . 06 , or 2 . 2 % , to 46 . 75 . j . p . morgan said it expects slower volume growth ahead for the beverage maker ' s bottlers . shares of coca - cola enterprises , coke ' s biggest bottler , eased 40 cents , or 2 . 3 % , to 17 .
magna international rose 1 . 54 , or 2 . 6 % , to 61 . 51 . salomon smith barney started coverage of the canadian auto - components maker with a buy rating .
medtronic gained 1 . 74 , or 4 % , to 45 . 78 . the minneapolis medical - device maker reported fiscal second - quarter results that matched wall street ' s projections , and said it expected to live up to third - quarter forecasts .
foot locker eased 19 cents , or 1 . 2 % , to 15 . 70 , after mixed views from rival brokers . rbc capital markets started coverage of the stock with a strong buy rating , but jefferies reduced its coverage of the stock to accumulate from buy .
copyright ? 2000 dow jones & company , inc . all rights reserved .
foreign exchange
dollar declines against yen and euro amid growing doubts on u . s . economy
by grainne mccarthy
dow jones newswires
11 / 29 / 2001
the wall street journal
cl 4
( copyright ( c ) 2001 , dow jones & company , inc . )
new york - - growing doubts about the u . s . economy ' s ability to rebound quickly from recession weighed heavily on the dollar , pushing the currency down almost a full yen and helping the euro regain some lost ground .
weakness in u . s . stocks - - due partly to news that dynegy inc . decided to walk away from its deal to buy enron corp . - - also put pressure on the dollar , while enron ' s debt woes added to general skittishness about the ability of u . s . business to bounce back quickly .
" we know there are companies out there in trouble , " said lara rhame , economist at brown brothers harriman in new york , who said that while the enron developments weren ' t having a direct impact on foreign - exchange markets , such reports do " limit the kind of superdollar that we saw back in 1999 . "
the dollar selloff kicked off in asian trading , when dealers used a standard & poor ' s downgrade of japan ' s sovereign rating as an excuse to buy the yen . the downgrade to double - a from double - a - plus was better than the market ' s expectations of a two - notch downgrade , rendering it good news of sorts .
the selling continued in new york trading , as traders continued to price in the possibility that they may have been far too optimistic about the dollar .
the two - pronged catalyst for this change of heart was the weak november consumer confidence index released tuesday , and subsequent gloomy comments from federal reserve governor laurence meyer pointing to more downside risks to the economy . the release of the federal reserve ' s beige book report yesterday served only to flame this pessimism .
the fed said that further slowing outweighed signs of recovery for the u . s . economy this autumn , noting that economic activity generally remained soft in october and the first half of november .
" people wanted greater signs of recovery than they got from the fed , " said alan ruskin , research director at the 4 cast financial consultancy in new york .
the beige book , a summary of economic activity prepared for use at the central bank ' s next federal open market committee meeting dec . 11 , is widely viewed as an indicator of future monetary policy decisions and the report helped to solidify expectations of a rate cut of at least a quarter percentage point .
late yesterday in new york , the euro was at 88 . 84 u . s . cents , its high for the session and up from 88 . 34 cents late tuesday in new york . the dollar was at 123 . 11 yen - - around its intraday low - - and almost a full yen down from 123 . 96 yen late tuesday in new york . the dollar was also at 1 . 6460 swiss francs , down from 1 . 6484 francs in london and 1 . 6560 francs tuesday . sterling was at $ 1 . 4261 , up from $ 1 . 4185 earlier in london and $ 1 . 4153 late tuesday .
elsewhere , the canadian dollar climbed to its highest levels in almost a month , confounding the view that bad news for the u . s . is bad news for canada .
the canadian currency has tended to suffer from an association with the u . s . , given that 85 % of canada ' s exports head south of the border . however , a 0 . 50 - percentage - point rate cut by the bank of canada on tuesday was quickly followed by the gloomy consumer confidence report in the u . s . , which undercut faith in the dollar and appeared to give the canadian unit just the opportunity it was seeking .
late in the new york day , the u . s . dollar was at c $ 1 . 5842 , down from c $ 1 . 5939 late tuesday .
copyright ? 2000 dow jones & company , inc . all rights reserved .
options report
dynegy ' s move to disconnect enron merger powers volatility spike as investors seek cover
by kopin tan
dow jones newswires
11 / 29 / 2001
the wall street journal
cl 4
( copyright ( c ) 2001 , dow jones in fact , such " buying on the dip " has helped propel stock prices . with stocks up substantially from their september lows , investors still are browsing but are seeking added insurance , with many buying defensive puts to lock in a minimum selling price for the stock .
sprint ' s january 25 puts traded more than 13 , 000 contracts at the amex as an investor bought stock along with those puts . specifically , the investor bought about 5 , 000 contracts of the puts , then bought a put spread by buying 8 , 000 contracts of january 25 puts that expire 2002 and selling the same number of january 25 puts that expire 2003 .
shares of sprint ' s pcs unit fell $ 1 . 14 to $ 25 . 90 . at the amex , the january 25 puts were at $ 1 . 15 on volume of 13 , 005 contracts , compared with open interest of 2 , 799 . the january 25 puts that expire in 2003 were at $ 4 . 40 on volume of 8 , 005 contracts , compared with open interest of 8 , 826 .
copyright ? 2000 dow jones & company , inc . all rights reserved .
enron asks staff to drop 401 ( k ) suits for severance
11 / 29 / 2001
the wall street journal
cl 3
( copyright ( c ) 2001 , dow jones & company , inc . )
houston - - enron corp . , the subject of four lawsuits filed over losses in its employees ' 401 ( k ) retirement plan , is asking laid - off workers to waive legal claims against it in exchange for some of their severance payments .
attorneys for some of the employees sought to block that requirement . plaintiffs are seeking an " immediate preliminary injunction prohibiting enron from soliciting any releases which would affect the participants ' rights vis a vis the plan , " according to an amended complaint filed by seattle firm campbell harrison & wright .
the complaint , filed in federal district court in houston , asks the court " to appoint a neutral fiduciary to manage the plan . " the suit claims enron is laying off as much as 60 % of its staff in some departments .
an enron attorney , in a statement , said laid - off employees aren ' t required to sign the waiver to get severance pay , but will get " additional severance in exchange " for signing . she said enron hadn ' t modified the waiver " in response to the current economic circumstances of the company , " but added that enron " continues to evaluate its options regarding the severance - pay plan . "
copyright ? 2000 dow jones & company , inc . all rights reserved .
nvidia to replace enron in s & p
11 / 29 / 2001
the wall street journal
cl 3
( copyright ( c ) 2001 , dow jones & company , inc . )
new york - - standard & poor ' s said nvidia corp . , a santa clara , calif . , graphic - chip maker , will replace enron corp . in the s & p 500 - stock index after today ' s regular trading . s & p said enron , the houston energy concern whose merger with dynegy inc . unraveled yesterday , is being removed for lack of representation .
copyright ? 2000 dow jones section a
enron ' s collapse : the overview
enron collapses as suitor cancels plans for merger
by richard a . oppel jr . and andrew ross sorkin
11 / 29 / 2001
the new york times
page 1 , column 1
c . 2001 new york times company
enron , the champion of energy deregulation that grew into one of the nation ' s 10 largest companies , collapsed yesterday , after a rival backed out of a deal to buy it and many big trading partners stopped doing business with it .
enron , based in houston , was widely expected to seek bankruptcy protection . with $ 62 billion in assets as of sept . 30 , it would be the biggest american company ever to go bankrupt , dwarfing the filing by texaco in 1987 . late in the day , though , enron ' s chief financial officer , jeff mcmahon , said that the company was still talking to banks about a restructuring and considering other options .
talks with its would - be rescuer dynegy , also of houston , about salvaging the deal ended in acrimony .
dynegy , which had agreed on nov . 9 to buy enron but had second thoughts as enron disclosed more financial problems and investors pummeled its stock , accused enron of misrepresenting the health of its business . enron , meanwhile , was weighing whether to sue dynegy for breaching the terms of the deal , a person close to enron said .
enron ' s swift collapse left the prospects of 21 , 000 employees in doubt and wiped out what was left of the holdings of stock investors , including some big mutual funds , as shares that sold for $ 90 in august 2000 crashed to close yesterday at 61 cents . it roiled the treasury market and tarnished the standing of the big new york banks that both advised on the deal and poured their own cash into the company . and it left in tatters the reputation of enron ' s chief executive , kenneth l . lay , a confidant and campaign backer of president george w . bush . [ page cl . ]
the treasury department , the federal reserve and the federal energy regulatory commission said they had monitored enron ' s impact on the financial and energy markets yesterday ; officials who would comment said they saw no dangerous ripple effect .
' ' the markets are functioning normally , ' ' said peter bakstansky , a spokesman for the federal reserve bank of new york .
from a pipeline company in the 1980 ' s , enron grew into the world ' s largest energy trader , using the internet to buy and sell natural gas and electric power supplies for utilities and industrial power users and helping them hedge against fluctuations in power prices .
but enron was undone by shaky accounting , too much borrowed money and an unwillingness to provide information to investors who grew to doubt its financial reports .
five weeks ago , the company disclosed that , to fuel its growth , it had shifted billions of dollars in debt off its balance sheet and into an array of complex partnerships . the securities and exchange commission began an investigation , and enron restated five years of earnings , wiping out nearly $ 600 million in profit .
enron was teetering close to insolvency before dynegy , a smaller cross - town rival , agreed to acquire it for $ 9 billion plus the assumption of $ 13 billion in debt , with additional financing from chevrontexaco , a major dynegy shareholder .
but enron subsequently disclosed even more debts , and its financial plight continued to worsen . energy - trading companies reduced dealings with the firm ; doubting its creditworthiness , some forced enron to pay higher prices for natural gas and other products or required it to post large cash deposits to back trades .
for four days , enron and dynegy worked to salvage the deal . but yesterday morning , dynegy pulled out . ' ' we knew when to say no , and this morning , we said no , ' ' said chuck watson , dynegy ' s chairman .
in an interview , mr . watson said enron ' s energy - trading business had deteriorated . he also cited ' ' surprises ' ' in the quarterly report to the s . e . c . that enron filed on nov . 19 , including the disclosures that a credit downgrade meant enron had to pay or refinance a $ 690 million obligation and that enron had less cash on hand than dynegy had expected . ' ' confidence and credibility , which is what this business is all about , deteriorated after that , ' ' he said .
mr . watson said he called mr . lay yesterday after a meeting of dynegy ' s board to call off the deal . by then , s . dynegy shares fell $ 4 . 08 , or 10 percent , to close at $ 36 . 81 .
other big energy traders , like the el paso corporation , reliant energy , mirant and aquila , also fell . but enron ' s gradual decline over the last month gave many energy companies time to reduce their exposure to enron , and many operate rival trading operations that would benefit from its collapse .
yesterday morning , as news leaked out of dynegy ' s plans to cancel the deal and s . prices soar . dec . 15 2000 : four months after the chief executive of azurix resigns , enron takes the company private again . aug . 14 , 2001 : only six months after becoming chief executive , jeffrey k . skilling resigns . he is succeeded by kenneth l . lay . oct . 8 : four years after buying portland general electric , enron agrees to sell it to northwest natural gas oct . 16 : enron reports a third - quarter loss of $ 618 million . oct . 24 : two days after enron discloses that the securities and exchange commission is looking into complicated transactions involving enron and partnerships set up by andrew s . fastow , the company ' s chief financial officer , mr . fastow is forced out . oct . 31 : the s . e . c . upgrades its inquiry to a formal investigation . nov . 8 : enron discloses that it overstated profits for the previous five years by $ 586 million . nov . 9 : dynegy agrees to buy enron for about $ 9 billion . yesterday : the merger collapses . enron ' s stock falls $ 3 . 50 to 61 cents . ( source : bloomberg financial markets ) ( pg . c 6 )
copyright ? 2000 dow jones section c
enron ' s collapse : the last resort
a bankruptcy filing might be the best remaining choice
by jonathan d . glater
11 / 29 / 2001
the new york times
page 6 , column 1
c . 2001 new york times company
enron , facing the collapse of a deal with dynegy that might have rescued it from disaster and a tidal wave of debts suddenly coming due , may now have little choice but to enter bankruptcy , lawyers and analysts said yesterday .
filing for protection under chapter 11 of the federal bankruptcy code would give the company some much - needed breathing room to deal with creditors ' claims , as well as afford any eventual buyer the advantage of a court ' s approval .
but bankruptcy would also be complicated by the fact that some of enron ' s most valuable assets , including its transwestern pipeline linking texas natural gas fields with california energy markets , are already pledged to lenders . the value of other assets available to satisfy unsecured creditors is unclear .
still , enron ' s creditors will not necessarily lose everything , said robert j . rosenberg , a lawyer at latham any awards would not be paid until after creditors were satisfied . and like enron ' s other shareholders , they might end up with nothing , said robert d . albergotti , a partner at haynes & boone , a dallas law firm .
if enron files for bankruptcy , this is not likely to prevent litigation against arthur andersen , the company ' s outside auditor , said jeffrey n . gordon of columbia university law school . indeed , bankruptcy proceedings could give both the company and investors an opportunity to figure out exactly how its profits came to be overstated and to look for potential fraud .
a special committee of enron ' s board has already retained deloitte & touche , another big accounting firm , to help .
' ' it ' s going to be a while before they figure it all out , ' ' professor gordon said .
chart : ' ' big losers ' ' as of sept . 30 , enron ' s top 10 shareholders were all big money managers . alliance capital shares held ( in millions ) : 43 . 0 percentage of outstanding shares : 5 . 78 % janus capital shares held ( in millions ) : 41 . 4 percentage of outstanding shares : 5 . 56 putnam investment shares held ( in millions ) : 23 . 1 percentage of outstanding shares : 3 . 11 barclays bank shares held ( in millions ) : 23 . 0 percentage of outstanding shares : 3 . 10 fidelity investments shares held ( in millions ) : 20 . 8 percentage of outstanding shares : 2 . 80 citigroup shares held ( in millions ) : 20 . 8 percentage of outstanding shares : 2 . 79 state street shares held ( in millions ) : 16 . 1 percentage of outstanding shares : 2 . 17 aim management shares held ( in millions ) : 14 . 0 percentage of outstanding shares : 1 . 88 taunus shares held ( in millions ) : 12 . 5 percentage of outstanding shares : 1 . 68 vanguard shares held ( in millions ) : 11 . 4 percentage of outstanding shares : 1 . 54 ( source : bloomberg financial markets )
copyright ? 2000 dow jones section a
an implosion on wall street
11 / 29 / 2001
the new york times
page 34 , column 1
c . 2001 new york times company
enron , the energy - trading company , may be on the verge of extinction with the collapse yesterday of its proposed acquisition by dynegy , a smaller competitor , and the downgrading of its debt to junk status . but its name has attained immortality on wall street .
enron is now shorthand for the perfect financial storm . take a high - flying company terribly impressed with its sense of unique mission and ingenuity , and correspondingly contemptuous of its obligations to fully comply with the spirit of accounting rules . then add fawning investors , wall street analysts , journalists and accountants unwilling to allow a company ' s lack of transparency about its business to get in the way of a dizzying ride , until they realize the destination is the top of a steep cliff . what you have then is an enron .
there have been plenty of other once - unfathomable implosions on wall street , but perhaps none so sudden or of such magnitude . jittery financial markets now have to contend with the possibility that an enron bankruptcy could undermine the financial health of banks and other energy companies . enron ranked seventh on the list of fortune 500 companies last year , and remained one of the most hyped stories on wall street well into this year . a pioneer in creating private marketplaces for newly deregulated commodities , enron was touted as a revolutionary force , bridging the dot - com world and stodgy energy markets .
now enron may become one of the largest bankruptcy cases in history . its stock closed yesterday at 61 cents , as investors rushed for the exits in reaction to the fatal news that , without a bailout from dynegy , enron is unlikely to be able to meet its crushing debt obligations .
the company ' s autopsy will be a complicated affair , entailing numerous lawsuits . what is already clear , and will come as a shock to millions of trusting individual investors across america , is that the financials of a fortune 500 company were essentially a mystery . enron ' s death watch began last month when it grudgingly disclosed that $ 1 . 2 billion of its market value had vanished as a result of ' ' related - party ' ' transactions with private partnerships that enriched company insiders . then enron admitted that it had overstated its profits over the last five years by $ 600 million . dynegy cited enron ' s lack of forthrightness as a reason to walk away from the merger agreement .
not very long ago , competitors and democrats in washington were worrying whether the close ties between enron ' s chairman , kenneth lay , and george w . bush would give the company too much influence . enron has aggressively lobbied , with some success in recent years , to limit regulation and disclosure of its trading operations .
now enron is the best argument for the need for stronger supervision of public companies ' financial data . the securities and exchange commission should make sure that the energy trader ' s saga puts an end to any talk of lessening disclosure requirements faced by public companies . moreover , arthur andersen ' s failure to uncover flawed accounting by enron , or to forcefully question some of the company ' s shadier transactions , raises serious concerns about auditors ' commitment to be sufficiently diligent in reviewing the actions of major companies .
there is a certain irony that enron , a champion of deregulation , now becomes a poster child for the need for strong regulation on wall street .
copyright ? 2000 dow jones section c
enron ' s collapse : the lenders
citigroup and j . p . morgan are left with bruised egos and exposure to loans
by riva d . atlas
11 / 29 / 2001
the new york times
page 6 , column 2
c . 2001 new york times company
dynegy ' s decision to walk away from enron leaves citigroup and j . p . morgan chase licking their wounds after an effort to burnish their reputations as deal makers .
as lead advisers and lead bankers for enron , the banks had the chance to build influence in the merger business . unlike other wall street firms , citigroup and j . p . morgan have large balance sheets and have boasted of their ability to provide both loans and advice . j . p . morgan , in particular , ' ' has been saying that providing financing is an advantage they have in terms of building their investment banking franchise , ' ' said richard strauss , a goldman , sachs analyst following brokerage firms .
now , not only have the banks lost bragging rights for pulling off a difficult deal , as well as millions in fees , they are also left holding hundreds of millions in loans to enron , which is trying to stave off bankruptcy . enron owes the two banks anywhere from $ 800 million to $ 900 million each , although some of it may be hedged through derivatives contracts , analysts estimated .
in bankruptcy , of course , creditors come well ahead of shareholders , who have now been virtually wiped out . janus capital was the biggest shareholder for most of the year , but alliance capital surpassed it as of sept . 30 , according to the latest regulatory filing available . enron ' s stock plunged to 61 cents yesterday .
worries about the money enron owes the banks punished their stocks yesterday . citigroup ' s shares closed at $ 47 . 80 each , down $ 2 . 75 , while j . p . morgan fell $ 2 . 30 , to $ 37 . 50 .
even if enron files for bankruptcy , neither j . p . morgan nor citigroup is thought to have enough exposure to be at serious risk . executives of the banks declined to comment on the estimates of their exposure . while the banks had each promised to make equity investments in the companies of $ 250 million each , those investments have been canceled along with the dynegy deal .
about half of the money owed to j . p . morgan and citigroup consists of a $ 1 billion loan the banks made earlier this month that is secured by one of enron ' s pipelines . citigroup lent $ 600 million , and j . p . morgan provided the rest , according to an executive close to the enron negotiations . the remainder owed to the banks is in various loans , trading positions and other investments not secured by enron assets .
given that there are assets backing much of the banks ' loans , some analysts said the stock market had overreacted . ' ' the net exposure could be very small , ' ' said andrew collins , who covers bank stocks at u . s . bancorp piper jaffray and is recommending citigroup and j . p . morgan .
jeffrey mcmahon , enron ' s chief financial officer , said the company was still working with j . p . morgan chase and citigroup to restructure enron ' s debts .
several other banks may own large amounts of enron debt . bank of america has $ 200 million to $ 300 million , according to estimates by lori appelbaum , who follows bank stocks for goldman , sachs , and ruchi madan , a stock analyst at salomon smith barney . other banks identified by the analysts as owed money are the bank of new york , bank one , fleetboston financial , suntrust and the wachovia corporation . a spokesman for suntrust did not return calls ; executives at the other banks declined to comment .
in what appears to have been bad timing , alliance capital management , a subsidiary of axa , increased its stake in enron late this summer . janus , a unit of stilwell financial , had been the biggest shareholder , but was pruning its stake . alliance ' s position grew 71 percent in the report filed in september , to 5 . 8 percent of enron ' s outstanding . jane ingalls , a spokeswoman for janus , said last night that janus had since sold all its shares , but did not say when or at what price . a spokesman for alliance would not comment about its stake in enron .
copyright ? 2000 dow jones section c
enron ' s collapse : the market
in turbulent bond market , enron ' s woes exacerbate turmoil
by gretchen morgenson
11 / 29 / 2001
the new york times
page 1 , column 2
c . 2001 new york times company
the swift downfall of enron has contributed to extreme turbulence in the united states treasury market in recent weeks , causing violent swings in interest rates not seen since russia defaulted on its debt and the long - term capital management hedge fund nearly collapsed in late 1998 .
even though the exact makeup of enron ' s large trading portfolio remains a mystery , traders said that the energy company had bet that interest rates would continue to decline because of continuing weakness in the economy .
then two weeks ago , the economy began to show signs of revival . as investors decided that the days of federal reserve rate cuts were over , rates began to rise and prices on treasury securities fell . the move out of treasuries crushed traders who still expected the weak economy to push interest rates lower . scrambling to cut their losses , those traders sold even more , depressing prices and pushing up rates further .
the sense among many market participants is that enron ' s woes made a bad market excruciating . ' ' i think the street in general lost half of its year or more in the last week or two , ' ' said stan jonas , managing director at fimat usa , a broker dealer . ' ' everyone was long the bond market , thinking the economy was going to be bad . then everything shifted , and enron drove it to extremes . ' '
how extreme ? in the two weeks beginning nov . 12 , two - year treasury notes plummeted in price , pushing their yields up to 3 . 18 percent , from 2 . 41 percent . in the same period , yields on treasuries with five - year maturities went to 4 . 4 percent , from 3 . 62 percent .
the trade that appears to have gone awry for enron , market participants say , involved the sale of hundreds of thousands of eurodollar futures , some of which matured in two or three years . such contracts are frequently used to bet on the direction of interest rates . enron could also have used the eurodollar contracts to hedge against fluctuations in oil prices . in a weak economy , oil prices usually fall . but so do interest rates , so a bet on lower rates would produce gains to help offset the decline in oil prices . when data showed signs of life in the economy , traders surmised that enron began to sell its eurodollars and started an avalanche of selling among other traders .
there were huge eurodollar positions being liquidated , said gemma wright , director of market strategy at barclays capital . ' ' we don ' t know for certain who it was , but the amount of the loss was high . ' '
one reason that traders suspect enron may have been forced out of such a position was that the company had neither the cash flow nor the bank credit to meet calls for additional cash from traders at other firms . typically , companies have cash reserves to meet such calls or have access to temporary lines of credit to cover shortfalls . enron appears to have neither . yesterday , the company said it was suspending all payments except for those ' ' necessary to maintain core operations . ' '
in addition to the recent interest rate spike , enron has had to contend with falling oil prices . the price of crude oil has dropped 28 percent since the end of october .
caught in a vise , enron has almost certainly been selling securities to raise cash . treasury securities and eurodollar contracts , because their markets are large , are among the easiest to sell . in both cases , enron was probably selling into a falling market .
adding to the turmoil in the bond market , traders said , was less participation by wall street firms , which were unwilling to take on big new trading positions near the end of their fiscal year . several firms end their years on nov . 30 .
some traders say enron ' s problems started with comments on tuesday by laurence h . meyer , a governor of the federal reserve . mr . meyer suggested that additional rate cuts might be coming , and that remark helped stabilize prices of treasury securities . ' ' it ' s my view that there are no coincidences , ' ' mr . jonas said . ' ' laurence meyer is a big hawk on interest rates , and he basically talked a 180 . that was their big gun . the only bigger gun would have been greenspan . ' '
graph : ' ' market catalyst ' ' the swift demise of enron and the company ' s investment strategies in the bond market may have contributed to the sharp rise in the yields on treasury notes in the last few weeks . graph tracks daily yields on 2 year treasury notes in november . ( source : bloomberg financial markets ) ( pg . c 7 )
copyright ? 2000 dow jones section a
enron ' s collapse : market place
a big fall evoking nasty old memories of a run on a bank
by floyd norris
11 / 29 / 2001
the new york times
page 1 , column 1
c . 2001 new york times company
the final collapse of enron amounted to something that few living americans have ever seen : a bank run like those in the days before deposit insurance .
enron appeared to become a wildly successful company by creating a new , largely unregulated financial business , that of energy trading . that business ran on credit , and required suppliers and users of energy to sign contracts that called on enron to meet obligations months or years later .
enron became something like a bank , which takes depositors ' money and promises to pay it back later . but unlike banks in the current era , this institution had no federal deposit insurance to reassure customers when rumors began to spread that it was in trouble . that proved to be its achilles ' heel . enron ' s collapse is a reminder for big players in unregulated markets that their financial health must be beyond doubt .
before the advent of deposit insurance , bankers knew what was needed to head off a bank run . it was cash , so much cash that it would be clear that panic was unwarranted . nearly a century ago , j . p . morgan took the lead as he and fellow banking tycoons put up the millions needed to keep the trust company of america open . thus was halted the panic of 1907 .
as it happened , corporate descendants of two major institutions involved in that rescue - - j . p . morgan chase and citigroup - - were major players in the enron debacle . but they did not try the strategy this time .
instead , enron kept arranging an additional billion or two in loans , clearly struggling to find the money . morgan and citigroup allowed the word to spread that they were ready to put in more money on their own , but the amounts were relatively small , and somehow the money was never invested .
when dynegy agreed to buy enron , it put up $ 1 . 5 billion in cash only after it was assured that it would get control of the company ' s crown jewel , the northern natural gas pipeline system , or its money back , if the deal collapsed .
the final straw came on tuesday , when negotiations on a revised dynegy takeover deal came down to efforts to find $ 250 million or $ 500 million of enron assets that could serve as collateral for a new dynegy cash advance . the message to companies that traded with enron was clear : even its rescuer is demanding collateral , and is having trouble finding it .
given that , enron ' s financial business could not continue . public haggling over the terms of the rescue assured that no rescue was possible , something that would have been obvious to the original j . p . morgan but that seemed to escape his corporate heirs . as walter bagehot , the british financial journalist and historian , wrote in 1873 , ' ' every banker knows that if he has to prove that he is worthy of credit , however good may be his arguments , in fact his credit is gone . ' '
the markets enron helped to create will endure , but probably without enron . it will be interesting to see whether participants in them continue to resist regulation as much as they have in the past . unregulated markets , especially when they are relatively new , can be very profitable for those with superior market knowledge , as enron seemed to have . but when prices are visible to all , the value of that knowledge plummets . regulation could bring more openness , but it could also bring structures , like clearing systems , that reassure traders they need not worry about the credit of those with whom they trade .
if the markets continue to be unregulated , enron ' s collapse makes it more likely that the big players in those markets will be companies that are already regulated enough to assure customers that they are secure - - companies like major banks and brokerage houses . that would be bad news for dynegy , which was enron ' s major competitor before it tried to become its acquirer .
the crisis at enron may have exposed a ' ' flaw in the business model ' ' of energy trading companies , said john diaz , a managing director at moody ' s , in an interview yesterday . ' ' companies in this industry need to think carefully about their liquidity management , ' ' he said . ' ' we ' re going to be looking very hard at this . ' '
the litigation over enron seems likely to be prolonged and expensive , but it may boil down to senator howard h . baker jr . ' s famous watergate - era question about president richard m . nixon : what did he know and when did he know it ?
that question will be asked about arthur andersen , enron ' s auditor , and about its corporate officials , past and present . but it will be asked most particularly about the banks and investment banks that served enron and its affiliated off - balance - sheet entities in recent years .
enron ' s disclosures last week showed it needed to pay far more in debts over the next year than most people had understood to be the case . but the newly discovered loans did not materialize out of thin air . the money was lent by banks and bond buyers to the off - balance - sheet entities . those who were stuck with losses on the known enron debt may claim the financiers who syndicated the loans should have told them of all the other debt .
among those who do not come out of this looking very good are the bond rating agencies . just six weeks ago , after enron put out an earnings release showing strong pro - forma profits , as it defined them , two of the agencies , fitch and standard & poor ' s , reaffirmed enron ' s rating of triple - b plus . moody ' s , the agency that was the most skeptical about enron , put the rating under review and hinted it would , at worst , cut it one notch .
none of the rating agencies seemed overly concerned about a detail disclosed by enron at the time : a $ 1 . 2 billion reduction in shareholder equity related to what it later said were accounting mistakes involving a partnership run by enron ' s chief financial officer . but that disclosure set off a cascade of questions that enron could not answer in a reassuring way . it ran through billions as companies demanded more protection to keep trading with it .
enron could have been saved , if an institution that was trusted - - whether that was chevron texaco , which put up the $ 1 . 5 billion cash that dynegy invested , or j . p . morgan chase or citigroup - - had made it clear that it was willing to stand behind enron . a credible backer would have ended the run .
but no one was willing to do that , and their hesitance as they learned more only accelerated the run . whether they were wise to avoid that exposure may become clear as it emerges how much creditors will eventually get .
finally , the rating agencies yesterday downgraded enron to relatively low levels of junk . they knew that was likely to force enron into bankruptcy in the near future , but they also knew that no one was willing to rescue a company that the agencies had viewed as solid only weeks before .
yesterday , as dynegy walked away from the merger , it said that it was no longer willing to trade with enron - - unless enron put up ' ' sufficient credit support . ' ' it knew that support was nowhere to be found .
copyright ? 2000 dow jones section c
enron ' s collapse : the chief executive
foundation gives way on chief ' s big dream
by john schwartz and richard a . oppel jr .
11 / 29 / 2001
the new york times
page 1 , column 5
c . 2001 new york times company
well before anyone could imagine that enron might collapse , kenneth l . lay was stumped . in an interview in august , he dismissed questions about a vague clause in the energy company ' s annual report that hinted at bigger problems if its stock price or credit rating fell below certain levels .
' ' i just can ' t help you on that , ' ' he said . pressed further on questions about a bewildering constellation of business partnerships that involved enron ' s former chief financial officer , he said , ' ' you ' re getting way over my head . ' '
at the least , mr . lay - - a man of big ideas , a crusader for free markets , a risk taker in the texas wildcatter tradition - - had taken his eye off the ball . while he was busy befriending the nation ' s most powerful politicians , erecting one of the tallest buildings in houston and pasting enron ' s logo on the city ' s new ballpark , the little things were turning out to be mr . lay ' s big problems .
one after another , disclosures spilled out of his company over the last month : the partnerships had hidden billions in debt ; years of enron ' s reported profits had been exaggerated ; the government was investigating . rivals were shunning enron ' s energy trading desks , which mr . lay had built into the world ' s leaders . and sure enough , the stock price tumbled day after day , and credit agencies lowered enron ' s ratings once and then yesterday again , turning the company ' s debt to junk and its shares into a penny stock .
three weeks ago , mr . lay tried to salvage his creation by selling it to dynegy , his houston rival . yesterday , dynegy pulled out of the deal . deprived of enough information , and then repelled by what they learned , the free markets in which mr . lay had put so much faith all but destroyed , in a matter of weeks , everything he had built .
' ' if they had been going a slower speed , the results would not have been disastrous , ' ' said bob mcnair , a houston energy entrepreneur who sold the bulk of his own company to enron three years ago . but enron , he said in an interview this month , was like a race car , and the markets like an unforgiving track . ' ' it ' s a lot harder to keep it on the track at 200 miles per hour , ' ' he said . ' ' you hit a bump and you ' re off the track . ' '
from his youth , mr . lay , 59 , had nurtured an abiding faith in the markets ' wisdom . he studied economics at the university of missouri , living at home to save on room and board , and eventually earned a ph . d . in the subject . as a naval officer serving in the pentagon , he worked to develop more efficient accounting systems . later , he served as an aide to a federal government regulator for the natural gas industry - - a market that enron would come to dominate .
moving into the private sector , he worked his way up the ranks of the natural gas industry , becoming chief executive in 1984 of the houston natural gas corporation , a big regional pipeline operator . he engineered its merger with internorth , an omaha pipeline company , and then became chief executive of the combined company and changed its name to enron .
mr . lay saw enron ' s mission as far more than being a conduit for fuel . at the time , gas prices were regulated and pipelines played a relatively passive role ; buyers and sellers could not cut deals on the fly . but as oil prices plunged in the mid - 80 ' s and gas users began switching to cheaper fuel oil , mr . lay returned to washington to argue , successfully , for rules changes that he said would save the pipeline business by allowing operators to shop for the best deals from both gas producers and utilities .
the new flexibility brought the threat of chaos , however , as natural gas prices began fluctuating wildly . that is when the new enron was truly born . to help customers shield themselves from risk , mr . lay ' s enron developed hedging contracts for gas like those traded in the markets for corn and copper and winter wheat . its innovative ' ' gas bank ' ' let utilities lock up the long - term prices that they craved ; enron lined up the gas supplies from producers , arranged for delivery - - and took a cut of every deal .
that business became the forerunner of enron ' s entry into hundreds of other markets , helping customers obtain supplies and manage risks in products ranging from electric power to pulp and paper and , most recently , fast broadband access to the internet . trading soon provided more of the company ' s profits than the traditional natural gas business .
while other companies , including dynegy , focused on accumulating hard assets like pipelines , turbines and gas fields , enron increasingly saw itself as a pure trading company with an almost limitless future .
' ' there is a very reasonable chance that we will become the biggest corporation in the world , ' ' mr . lay ' s handpicked successor as enron ' s chief executive , jeffrey k . skilling , told the authors of a book , just published , about business on the internet . even the book ' s title , ' ' radical e : from ge to enron - - lessons on how to rule the web ' ' ( ) , showed the cachet the company had attained . enron , the authors wrote , was ' ' creating a culture in which radical and creative thinking is encouraged and rewarded . ' '
mr . skilling abruptly resigned in august , after just six months on the job , propelling mr . lay back into the gritty details of enron ' s businesses that he had sought to leave to others .
as the company grew , he had become increasingly involved in public affairs , serving as host when a global economic conference was held in houston in 1990 and when the republican national convention came to the city in 1992 .
like the leaders of many big texas businesses - - the construction colossus brown became good friends with the texas governor , ann richards ; and supported senator phil gramm of texas , whose wife , wendy , a former chairwoman of the commodities futures trading commission , joined enron ' s board .
' ' he ' s a stand - up guy , ' ' said ms . richards , now a business consultant in new york . asked to be more specific , she said , ' ' he ' s at the meeting ' ' - - meaning she could count on mr . lay to become directly involved with whatever she asked him to do , and not just sign onto a project for show .
mr . lay ' s deepest political ties were with the bush family . in the 1980 ' s , he became a major fund - raiser for george h . w . bush . when mr . bush lost his 1992 campaign for re - election as president , mr . lay brought a number of senior bush aides to enron as directors or consultants , including james a . baker iii , the former secretary of state , and robert a . mosbacher , the former secretary of commerce .
mr . lay also cultivated mr . bush ' s son george w . long before he was considered a serious national candidate . after the younger mr . bush ' s election as texas governor in 1994 , mr . lay became head of the governor ' s business council , an important advisory post .
the bond with president bush is personal . as governor , mr . bush sent mr . lay a kidding note in 1997 . ' ' one of the sad things about old friends is that they seem to be getting older - - just like you ! ' ' he wrote . ' ' 55 years old . wow ! that is really old . thank goodness you have such a young , beautiful wife , ' ' he added , a reference to mr . lay ' s wife , linda .
in 1999 , mr . lay sent a handwritten christmas note to mr . bush and his wife , laura . ' ' linda and i are so proud of both of you and look forward to seeing both of you in the white house , ' ' he wrote .
yesterday , the white house press secretary , ari fleischer , said the treasury department was monitoring enron ' s downfall for its effect on the market . asked if the president himself had any reaction , mr . fleisher said , ' ' the president ' s reaction is that it should be monitored . ' '
in some ways , enron ' s collapse was one more example of the bursting of the internet bubble . but mr . lay was not some stylish dot - com brat ; by all accounts , he is an immensely likable product of middle america . growing up in tiny rush hill , mo . , he was driving a tractor by age 12 and salting away savings . by 16 , his sister sharon recalled this week , ' ' he was bucking bales ' ' - - that is , loading hay - - ' ' and had two jobs in the summer , painting houses . ' '
' ' i don ' t think you could ever say that he did something the easy way , ' ' she said .
that work ethic ran in the family . mr . lay ' s father was a minister who also sold farm equipment . the family ' s finances were spotty , ' ' at times no money , at times some money , ' ' ms . lay recalled . still , the lays took in people from their church who were in need .
over the last decade or so , mr . lay earned some $ 300 million from enron , mostly by exercising stock options . earlier this month , when employees grew incensed at the prospect of his collecting a big severance package with the company ' s sale to dynegy , he volunteered to walk away from $ 60 million in payments .
mr . mcnair , the houston entrepreneur , who has known mr . lay for years , suggested that perhaps everything had not been disclosed to him . ' ' maybe the people who reported to him told him what they wanted him to hear , but they weren ' t telling him everything , ' ' he said .
mr . mcnair said he spoke to mr . lay recently and found him ' ' somewhat in a state of shock . ' ' mr . mcnair added , ' ' he ' s devastated . ' '
in the end , it seems , the man whose company did so much to help others manage their risk could not manage his own .
photos : a portrait of the chairman from enron corporate report for 1999 . ( enron ) ( pg . c 7 ) ; ( pg . cl ) graphs : ' ' enron ' s collapsing house of cards ' ' kenneth l . lay , starting with an ordinary pipeline business , turned enron into one of the fastest growing companies of the 1990 ' s . but it has swiftly collapsed since revealing huge hidden debts , causing its stock to plunge and requiring it to restate earnings . graphs track enron ' s stock price and sensor debt rating since sept . and enron ' s earnings since 1997 . ( sources : bloomberg financial markets ; moody ' s ; enron )
copyright ? 2000 dow jones section c
enron ' s collapse : the derivatives
market that deals in risks faces a novel one
by diana b . henriques
11 / 29 / 2001
the new york times
page 7 , column 1
c . 2001 new york times company
when members of the international swaps and derivatives association gathered in washington last april , the man they all wanted to hear was jeffrey k . skilling , then the president and chief executive of enron .
enron had helped create the global market for energy - based derivatives - - customized risk - swapping contracts that enable companies to hedge their exposure to changing energy prices and supply fluctuations . even among traders more familiar with interest - rate swaps or currency hedges than energy contracts , mr . skilling ' s presentation did not disappoint .
' ' he dazzled everybody - - it seemed he could figure out a way to trade the minutes on this phone call , ' ' one industry executive said .
but yesterday , many of those same executives were crossing their fingers and hoping that enron ' s crisis would not spread into the energy swaps market that the company had done so much to enliven .
as the day ended with fairly stable trading , there were a few cautious sighs of relief . but nobody is quite sure just how much money the energy - related derivatives markets will have at risk if enron fails .
according to swaps monitor publications , which collects data for the derivatives markets , enron ranks among the top energy - swaps traders in the world , on a par with financial giants like bank of america and barclay ' s .
at the end of september , enron ' s gross derivatives trading liabilities - - the amount of money it would owe to other market players if it filed for bankruptcy - - stood at $ 18 . 7 billion , up slightly from june levels but about $ 1 . 3 billion less than at the end of last year .
but that level may overstate the risk to other companies . ' ' these numbers do not take into account the unknown amount of collateral that enron may have posted , ' ' said paul spraos , swaps monitor ' s president . such collateral should , in principle , diminish enron ' s actual liabilities to the derivatives market , he said .
in a typical energy swap , a company will enter into a contract to lock in a fixed price of a certain commodity , like natural gas or electricity . the other company , the counterparty , in the deal assumes the risk of future price changes and quotes a fixed price that includes its own profit . the efficient trading and pricing of these contracts requires a marketplace with large , active traders .
as of last night , there were no signs of a major panic that would drive major participants to the sidelines , industry executives said .
' ' it ' s not likely that enron ' s problems will cause serious difficulty for any other sizable counterparty , ' ' said mark c . brickell , a veteran swaps - market executive and the chief executive of blackbird , a technology firm that operates an electronic swaps - trading system . ' ' while there may be some smaller firm that didn ' t manage its exposure as well as it might , that won ' t cause any major problems for the system as a whole . ' '
michael williams , managing director of tradespark , a rival to enron ' s online energy - trading system , agreed that there was ' ' no sign of shrinkage ' ' in the marketplace yesterday . ' ' so far , we ' ve seen no complaints about a lack of liquidity , ' ' he added .
most participants in the energy derivatives market rely on a standard contract that was developed by the international swaps and derivatives association and is recognized in the courts . the contract clearly specifies the rights each party has in the event of a default , said robert pickel , the association ' s chief executive . as of late yesterday , he added , the markets appeared ' ' to be fairly resilient in the face of extremely negative developments regarding such a major player . ' '
but at least one lawyer who specializes in swaps contracts indicated that it might be too soon to assess the full impact . that lawyer , ann o ' hara , in lincoln , neb . , said that her clients ' anxiety about enron had escalated sharply only in the last few days . ' ' no one believed it would really happen , ' ' she said . ' ' it is not a surprise , but it is a shock . ' '
' ' we don ' t really know who is out there exposed to enron ' s credit , ' ' she added . ' ' i ' m telling my clients to prepare for the worst . ' '
chart : ' ' big bets on derivatives ' ' enron ' s derivatives - trading activity is substantial when measured by the total gross amount of money it owes to derivatives - trading partners . dec . 31 2000 : $ 20 . 0 bil . mar . 31 2001 : $ 21 . 3 bil . june 30 : $ 17 . 5 bil . sept . 30 : $ 18 . 7 bil . ( source : swaps monitor )
copyright ? 2000 dow jones section c
the markets : stocks j . p . morgan fell $ 2 . 30 , to $ 37 . 50 .
the blue - chip dow jones industrial average surrendered 160 . 74 points , or 1 . 6 percent , to 9 , 711 . 86 , the largest drop in about a month and the lowest close since nov . 12 . the standard & poor ' s 500 - stock index slid 20 . 98 points , or 1 . 8 percent , to 1 , 128 . 52 . the technology - laden nasdaq composite index dropped 48 points , or 2 . 5 percent , to 1 , 887 . 97 .
enron dragged on the market as wall street questioned the rally that had lifted stocks well off the sept . 21 lows . investors , still expecting an economic recovery in 2002 , pocketed profits on worries that share prices were getting too far ahead of prospects for corporate earnings .
milton ezrati , a senior strategist at lord abbett bloomberg financial markets ) tables : ' ' hot ' ' the favorites ' ' lists stocks held by largest number of accounts at merrill lynch . ( compiled from staff reports , the associated press , bloomberg news , bridge news , dow jones , reuters ) graph ' ' freddie mac yields ' ' tracks 15 and 30 - year federal home loans since august . ( source : f . h . l . m . c . ) graph ' ' 2 - year treasury notes ' ' tracks high yields in percent since 2000 . ( source : treasury department )
copyright ? 2000 dow jones section c
enron ' s collapse : the rating agencies
debt rankings finally fizzle , but the deal fizzled first
by alex berenson
11 / 29 / 2001
the new york times
page 7 , column 1
c . 2001 new york times company
in the end , the rating agencies hardly mattered .
for weeks , wall street wondered whether moody ' s investors service , standard & poor ' s and fitch ' s , the three major agencies rating corporate debt , would drop enron ' s rating below investment grade .
enron and dynegy warned that cutting the rating might jeopardize dynegy ' s acquisition of enron . executives at big securities firms that stood to profit from the deal pressed moody ' s to keep ratings at investment grade , even as enron bonds fell to levels indicating that the debt was highly risky .
but even an investment - grade rating could not save enron ' s business from collapse over the last month . after a series of damaging revelations about enron ' s finances , the company ' s partners demanded extra capital for its trades or stopped trading with it . by the time the rating agencies decided yesterday that enron might well default on its debt , dynegy had decided on its own to walk away .
' ' it wasn ' t really the reason that dynegy backed out of the deal , ' ' said todd shipman , the standard & poor ' s analyst who was the first to cut enron ' s rating yesterday .
the cuts dim the hopes enron had of avoiding bankruptcy . all three agencies slashed enron ' s debt far below investment grade . moody ' s cut enron ' s rating 5 notches , standard & poor ' s lowered it 6 , and fitch slashed it 10 , to cc , its third - lowest grade .
' ' default is a probability , ' ' said glen grabelsky , the senior director of credit policy for fitch . enron has $ 13 billion in debt outstanding and about $ 10 billion more in loans , made by partnerships , that the company has guaranteed .
the aggressive rating cuts may not mollify the investors who have sharply criticized the agencies for being slow to act in recent weeks . officials at all three agencies defended themselves yesterday , saying they had acted prudently .
after dynegy agreed to buy enron , moody ' s tried to calculate the chances that the deal would go through , that enron would remain strong until it was completed and that the combined company would carry a strong rating , said john diaz , managing director for moody ' s power and energy group .
at first , those questions seemed to have reassuring answers , mr . diaz said , so moody ' s kept enron ' s investment - grade rating .
but in recent days , other companies have shied away from doing business with enron , and its losses have soared . ' ' basic cash flow was slowing down at the same time that the cost structure of the company was the same , ' ' mr . diaz said . enron ' s mounting losses discouraged dynegy , he said .
' ' over the last 24 hours , the probability that we ' ve assigned to these three key issues was looking to be a lot smaller , ' ' mr . diaz said .
mr . grabelsky said the acquisition uncertainty presented the agencies with a situation where enron ' s debt could be very strong , if the deal worked , or highly risky .
' ' there is no middle ground , ' ' he said . ' ' it ' s one or the other . ' '
copyright ? 2000 dow jones the $ 76 m ark short term bond fund , which had a 4 . 05 per cent position , or $ 3 . 4 m as of september 30 ; and the $ 50 m first focus short / intermediate bond fund , which had a 4 . 15 per cent slice of its portfolio in the bonds , worth $ 2 . 07 m as of september 30 .
although these are just single - digit positions , a loss from par value to 20 cents on the dollar in a 4 per cent holding could trim off half of a fund ' s return , said scott berry , morningstar bond fund analyst .
the average intermediate bond fund has returned 7 . 3 per cent so far this year , according to morningstar . a loss from par value to 20 cents on the dollar in a 4 per cent stake could reduce a 7 . 3 per cent return to roughly 3 . 3 per cent , mr berry said .
" with bonds , there ' s much more downside than upside . typically , the downside is never realised because these investment - grade bonds are strong enough to weather the storm , but enron just caught everybody by surprise over the last couple of months , " he said .
other large investment - grade bond funds that held enron ' s debt as of their most recent filings include the $ 13 . 6 bn fidelity short term bond fund , which held 0 . 77 per cent , worth $ 27 . 7 m as of april 30 , and two of the strong funds - the $ 1 . 36 m strong corporate bond fund , which held 0 . 77 per cent as of september 30 , or $ 10 . 5 m , and the $ 1 . 43 bn strong short term bond fund , with a 0 . 63 per cent holding , also as of september 30 , worth $ 9 m .
mr berry said managers of investment - grade bond funds that still held the debt were probably selling it , although most had the latitude to hold a bond once it lost its investment - grade status . however , they also said junk - bond fund managers were unlikely to buy it , because other " fallen angel " bonds such as xerox had not performed well .
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companies & finance the americas - sec filing triggered merger crisis .
by sheila mcnulty .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
dynegy ' s rescue bid for enron went into " crisis mode " 10 days ago , said chuck watson , dynegy ' s chairman and chief executive .
in a filing to the sec , enron revealed a previously undisclosed $ 690 m note payment due this week , as well as that it had $ 9 . 15 bn in debt due by the end of next year . the news provoked another round of selling in enron ' s already plunging share price , forcing dynegy into 18 - hour a day talks that ran through the thanksgiving weekend and up to midnight on tuesday . .
" that may have been the last straw to some shareholders , " mr watson said just hours after withdrawing from dynegy ' s $ 9 bn merger with enron . enron had been the biggest energy trader in the us until a crisis of confidence , beginning in october , that pushed it to the brink of bankruptcy .
" every time we thought we had the pieces , " he said . " every time we put the puzzle together it wasn ' t a clear strategy to go forward . "
he said the talks resumed yesterday at 7 am , but when the rating agencies began downgrading enron to junk status , mr watson called ken lay , enron ' s chairman and chief executive , to say " it wasn ' t going to work " .
" once they downgraded the company , we thought , what was already an uphill battle , was too difficult , " he said . mr watson said he offered to help any way he could and the two men - who have long been friendly , cross - town rivals - parted amicably .
mr watson has received several calls from other counter - parties in the business , thanking him for saving them from a meltdown by giving them the time to limit their exposure to enron . " i don ' t feel like a saviour , i feel tired , " he said . but he acknowledged he provided a vast number of enron ' s counterparties , partners and customers a chance to better protect themselves against enron ' s demise .
" there was a really strong effort to make it happen , " he said . " in the end , we couldn ' t find a solution that didn ' t risk dynegy ' s responsibility to its shareholders and to its employees . "
he says the merger agreement allows it to walk away with enron ' s most valuable asset , the northern natural gas pipeline , though if enron disputes that , at worst , it would leave with money invested in saving enron . " we are as solid as we were going into ( the merger ) and , maybe , better for the experience , " he said .
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companies & finance the americas - financial system braces for a chain reaction .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
gary silverman .
enron ' s woes are raising risks for the financial system , threatening to set off a chain reaction in the markets that could damage any number of participants in unforeseen ways .
individual banks could lose hundreds of millions of dollars apiece on loans to enron , but regulators are confident the lenders have sufficient capital to weather such a storm .
the bigger worry is that enron ' s difficulties could trigger ripple effects in much the same way as russia ' s default in 1998 destabilised the long - term capital management hedge fund .
prices for banking stocks tumbled yesterday in new york and london , in large part because no one really knows what would happen if enron were removed from the financial scene .
enron sat on a massive trading book , made up of complex derivatives transactions , some meant to stay in place for decades . on the other side were a host of counterparties , many of them energy companies that are not supervised by banking regulators .
the counterparties , in turn , have their own set of borrowing and trading relationships with banks that may be completely unaware of their customers ' ties to enron . bankers also fear that because so many of these counterparties were new to sophisticated trading , they may have been lax in collateralising their deals .
for leading banks , enron ' s woes could result in big hits to profits . just about every big lending bank has exposure to enron , according to members of the bank group .
at a meeting of enron ' s creditors last week , one banker estimated there could have been 500 bankers representing 20 or more banks .
jp morgan chase and citigroup are the most prominent members of the bank group , but barclays , credit lyonnais , credit suisse first boston , deutsche bank and many others are exposed .
it was understood that jp morgan chase ' s direct exposure to enron approaches $ 900 m , about $ 500 m of it unsecured by the energy company ' s assets . citigroup ' s direct exposure could reach $ 800 m , about half unsecured .
european banks also could take hits . according to data from loanware , for example , westlb , the german state - owned bank , has a $ 580 m bridge facility outstanding . this was extended as trade financing last year and does not appear to have been syndicated .
however , analysts caution that determining the exposure of a particular bank to enron is virtually impossible for outsiders . many loans are syndicated or sold , and bankers are also making increasing use of credit derivatives that enable them to buy insurance against default from counterparties .
barclays , for example , is one of the most active arrangers of finance for enron but it has syndicated most of its initial exposure . its exposure is estimated at less than # 250 m ( $ 356 m ) . on the other hand , banks could be exposed to firms that dealt with enron , which sold credit default insurance to its trading partners , according to market participants .
investors rerated banking stocks yesterday to account for expected exposures . citigroup was down $ 2 . 75 , or 5 . 4 per cent , to $ 47 . 80 , while jp morgan was down $ 2 . 30 , or 5 . 78 per cent , to $ 37 . 50 . in london , shares in barclays fell 4 per cent , or 86 p , to 2093 p . additional reporting by joshua chaffin in new york and rebecca bream in london .
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copyright ? 2000 dow jones & company , inc . all rights reserved .
companies & finance the americas - traders avoid exposure to junk status fallout .
by adrienne roberts and andrew taylor .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
energy traders on both sides of the atlantic were doing very little business with enron even before credit rating agencies demoted the debt of the world ' s biggest power trader to junk status .
rivals have been anxiously calculating their potential exposure to an enron collapse for at least a month - since the true extent of the company ' s crisis emerged .
most traders before yesterday were only prepared to be buyers of electricity and gas from the group , on the basis that it was better to owe than be owed in these circumstances .
" there would have been very few sellers to enron , " said one trader last night .
the group accounts for about 25 per cent of energy trading in the us with a similar market share in the smaller european market .
the loss of such a large player could cause liquidity problems in the us , said one analyst .
europe - based energy groups , however , felt there was sufficient capacity in their market to fill the gap .
more worrying is the knock - on effect particularly on smaller companies should enron be unable to honour long - term contracts , said brian senior , director of trading and asset management at innogy , the uk arm of the demerged national power .
the collapse of enron ' s credit rating means that it may have to provide a lot of cash as collateral to cover long - term liabilities , with money being due as early as next monday , said mr senior .
most large energy groups stopped trading with enron in european markets two days ago .
" the simplest thing is to pull the plug until they ' ve figured out what ' s going on , " said one analyst .
martin stanley , president of european energy trading for txu , another large us energy group , said : " we have halted trading with enron . we are sorry to see it happen because they are a very innovative company . "
even before yesterday ' s events , txu , like other large traders , had been adding up how much it could be owed and how much it would owe , should enron fail to honour its obligations .
" we have been looking at various scenarios and have implemented our credit event management process designed to minimise our cash exposure , " said mr stanley .
" we are comfortable with our cash position , " he added .
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companies & finance the americas - downgrade is the final straw for enron .
by andrew hill and sheila mcnulty .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
writes andrew hill .
negotiations over the fate of enron , the us energy trading group , had been described as having " a lot of moving parts " . yesterday , those parts finally broke loose as the credit rating agencies ' patience ended with a downgrade of the energy trader ' s debt to junk status , and dynegy , its erstwhile saviour , withdrew .
immediate concern centred on the possibility of a systemic risk to the energy markets . " it ' s over , isn ' t it ? " said gerald keenan , a partner at pwc . " what it is going to engender is a daisy chain of defaults . "
enrononline , the group ' s much - vaunted web - based commodities trading system , shut down , according to traders . counterparties in the energy market stopped trading with enron altogether . the shares , which at their peak last year traded at $ 90 , fell by nearly three - quarters to just over $ 1 . the bonds , which have been trading at levels consistent with imminent bankruptcy for two weeks , fell further .
enron ' s survival since its much smaller rival , dynegy , launched a rescue bid on november 9 , has depended on a fragile pact between dynegy , chevrontexaco ( which owns 26 per cent of dynegy and backed the bid ) , enron ' s lenders , its trading counterparties and the rating agencies . the logic of this pact was essentially circular .
when dynegy stepped in three weeks ago enron was in the early stages of its crisis of confidence . shareholders had been shocked by enron ' s admission that it would have to shrink shareholders ' funds by $ 1 . 2 bn to end a transaction with an off - balance - sheet vehicle established by andrew fastow , former chief financial officer . suddenly , the lack of transparency they had been prepared to forgive while the shares rose was a liability .
searching for a way to arrest the downward spiral , ken lay , enron ' s chief executive , linked up with chuck watson , his counterpart at dynegy . dynegy ' s all - stock bid - valuing enron , on tuesday ' s closing prices , at $ 9 . 4 bn - was dependent , however , on the rating agencies not downgrading the energy ' s group ' s substantial debts to junk status .
such a downgrade , as enron explained in a regulatory filing last week , would require the group to repay , refinance or provide extra cash as collateral for some $ 3 . 9 bn of debts owed by off - balance - sheet trusts .
under pressure from enron and dynegy ' s bankers , the agencies refrained from downgrading the debt , and dynegy went ahead with its bid . the agencies justified their position by citing the pending bid .
it was an uncomfortable position for the agencies , however , and their resolve began to crumble last week as dynegy and enron talked about renegotiating the deal .
in a tersely worded note issued last wednesday , fitch , another rating agency , pointed out that if dynegy " steps away entirely from the merger , enron ' s credit situation seems highly untenable with a bankruptcy filing highly possible " .
yesterday , s & p , then moody ' s and fitch , finally broke the fragile ring of confidence that was holding lenders , bidders and enron itself together . in its note , s & p explained in stark terms how the virtuous circle of confidence might now become a vicious downward spiral .
the collapse of enron securities in capital markets made dynegy less likely to complete its takeover , s & p wrote . at the same time , enron ' s franchise in the energy markets had " sustained significant damage " , making it a less attractive target .
if enron does now disintegrate , the question is whether the chain reaction will extend beyond the houston company and drag in other energy traders , or even the banks that finance them . analysts had already begun to liken its situation to that of long - term capital management , whose demise in 1998 prompted the federal reserve to co - ordinate a rescue by wall street banks to avoid a financial crisis .
however , the head of one large commodities trader said the biggest market participants had had long enough to protect themselves from the collapse of enron .
but smaller groups could be affected and the fear is that the complexities of its balance sheet may still contain the seeds of a wider crisis . additional reporting by sheila mcnulty in houston .
( c ) copyright financial times ltd . all rights reserved .
http : / / www . ft . com .
copyright ? 2000 dow jones & company , inc . all rights reserved .
companies & finance the americas - downgrade is the final straw for enron .
by andrew hill and sheila mcnulty .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
writes andrew hill .
negotiations over the fate of enron , the us energy trading group , had been described as having " a lot of moving parts " . yesterday , those parts finally broke loose as the credit rating agencies ' patience ended with a downgrade of the energy trader ' s debt to junk status , and dynegy , its erstwhile saviour , withdrew .
immediate concern centred on the possibility of a systemic risk to the energy markets . " it ' s over , isn ' t it ? " said gerald keenan , a partner at pwc . " what it is going to engender is a daisy chain of defaults . "
enrononline , the group ' s much - vaunted web - based commodities trading system , shut down , according to traders . counterparties in the energy market stopped trading with enron altogether . the shares , which at their peak last year traded at $ 90 , fell by nearly three - quarters to just over $ 1 . the bonds , which have been trading at levels consistent with imminent bankruptcy for two weeks , fell further .
enron ' s survival since its much smaller rival , dynegy , launched a rescue bid on november 9 , has depended on a fragile pact between dynegy , chevrontexaco ( which owns 26 per cent of dynegy and backed the bid ) , enron ' s lenders , its trading counterparties and the rating agencies . the logic of this pact was essentially circular .
when dynegy stepped in three weeks ago enron was in the early stages of its crisis of confidence . shareholders had been shocked by enron ' s admission that it would have to shrink shareholders ' funds by $ 1 . 2 bn to end a transaction with an off - balance - sheet vehicle established by andrew fastow , former chief financial officer . suddenly , the lack of transparency they had been prepared to forgive while the shares rose was a liability .
searching for a way to arrest the downward spiral , ken lay , enron ' s chief executive , linked up with chuck watson , his counterpart at dynegy . dynegy ' s all - stock bid - valuing enron , on tuesday ' s closing prices , at $ 9 . 4 bn - was dependent , however , on the rating agencies not downgrading the energy ' s group ' s substantial debts to junk status .
such a downgrade , as enron explained in a regulatory filing last week , would require the group to repay , refinance or provide extra cash as collateral for some $ 3 . 9 bn of debts owed by off - balance - sheet trusts .
under pressure from enron and dynegy ' s bankers , the agencies refrained from downgrading the debt , and dynegy went ahead with its bid . the agencies justified their position by citing the pending bid .
it was an uncomfortable position for the agencies , however , and their resolve began to crumble last week as dynegy and enron talked about renegotiating the deal .
in a tersely worded note issued last wednesday , fitch , another rating agency , pointed out that if dynegy " steps away entirely from the merger , enron ' s credit situation seems highly untenable with a bankruptcy filing highly possible " .
yesterday , s & p , then moody ' s and fitch , finally broke the fragile ring of confidence that was holding lenders , bidders and enron itself together . in its note , s & p explained in stark terms how the virtuous circle of confidence might now become a vicious downward spiral .
the collapse of enron securities in capital markets made dynegy less likely to complete its takeover , s & p wrote . at the same time , enron ' s franchise in the energy markets had " sustained significant damage " , making it a less attractive target .
if enron does now disintegrate , the question is whether the chain reaction will extend beyond the houston company and drag in other energy traders , or even the banks that finance them . analysts had already begun to liken its situation to that of long - term capital management , whose demise in 1998 prompted the federal reserve to co - ordinate a rescue by wall street banks to avoid a financial crisis .
however , the head of one large commodities trader said the biggest market participants had had long enough to protect themselves from the collapse of enron .
but smaller groups could be affected and the fear is that the complexities of its balance sheet may still contain the seeds of a wider crisis . additional reporting by sheila mcnulty in houston .
( c ) copyright financial times ltd . all rights reserved .
http : / / www . ft . com .
copyright ? 2000 dow jones nancy vogel
times staff writers
11 / 29 / 2001
los angeles times
home edition
a - 1
copyright 2001 / the times mirror company
new york - - enron corp . ' s lifeline merger deal collapsed wednesday , and the once - mighty energy trader slid toward all - but - certain bankruptcy .
its houston rival and neighbor dynegy inc . called off its planned takeover after wall street ' s major credit - rating agencies slashed enron ' s bonds to " junk " status wednesday morning .
investors and enron ' s trading partners had lost confidence well before the rating agencies did . in fact , it was the recent erosion of enron ' s trading business and the harrowing slide in its stock and bond prices that forced the ratings cut and triggered dynegy ' s decision to back out of the deal .
informed sources said dynegy ultimately balked after coming across much more debt than it expected in evaluating enron ' s finances and watching helplessly as the value of its would - be acquisition shrank dramatically when energy customers fled the firm .
with the merger called off , enron was " exploring other options to protect our core energy businesses , " kenneth l . lay , the company ' s chairman and chief executive , said in a brief statement that skirted the topic of bankruptcy .
the lack of a decent credit rating cripples enron ' s ability to run its trading business , the franchise that made it one of america ' s most admired companies but also gave it a reputation for arrogance and greed , particularly for its role in california ' s energy crisis .
computer screens went dark nationwide wednesday as the widely used enrononline internet - based trading system shut down .
enron ' s stock , already down 95 % for the year , tumbled $ 3 . 50 to close at 61 cents on wednesday in a trading stampede on the new york stock exchange . a one - day record of 339 million shares changed hands .
the whole company , once worth $ 63 billion , now is valued at less than $ 500 million , or about twice the cost of enron ' s new headquarters under construction in downtown houston .
dynegy shares , meanwhile , sank $ 4 . 92 to $ 35 . 97 , just below where they stood when dynegy agreed to acquire enron on nov . 9 .
dynegy exited the deal because it was " unwilling to risk our franchise , our credit or our credibility , " president stephen bergstrom said in a news conference wednesday .
" we know when to say no , and this morning we said no , " he said .
wall street had been saying no for days , hammering enron ' s stock to less than half the $ 10 . 41 a share that dynegy originally agreed to pay . dynegy was in the process of renegotiating its price downward when it finally threw in the towel .
the deal ' s lack of credibility with stock and bond investors prompted the top two rating agencies - - standard & poor ' s and moody ' s investors service - - to cut their ratings on enron , knowing that they probably were pronouncing a death sentence .
the ratings downgrade triggered clauses in enron loan agreements that require the company to immediately pay its creditors some $ 3 . 9 billion - - money that it doesn ' t have , analysts said .
the ripples from enron ' s collapse spread far and wide , even to the u . s . treasury market , where some investors fled for safety as enron ' s bonds plunged in value .
enron led a trend in energy trading , creating an internet - based network that allowed millions of suppliers and purchasers of electricity , natural gas , oil and coal to do business with one another . the trades of contracts , often spanning many years at a fixed price range , are intended to protect major users and suppliers of energy from fluctuations in fuel prices .
energy market experts are split on the long - term effects of enron ' s collapse . some say the fallout will be slight , noting that rivals already have stepped in to take over business with trading partners who were too nervous to continue dealing with enron .
" the whole industry should thank dynegy for basically buying them two or three weeks ' time to unwind their deals with enron , " said analyst andre meade of commerzbank securities in new york .
but enron was noted for the complexity of its long - term deals , and the effects of its withdrawal as a key player could be far - reaching and unexpected , other analysts said .
banking companies , dozens of which lent money to enron , saw their shares dip on worries about whether those loans will be repaid . shares of rival energy companies , too , lost value .
enron ' s chief lenders - - citigroup inc . and j . p . morgan chase & co . - - each have about $ 800 million in loans that may be at risk in a bankruptcy , said richard strauss , a bank analyst with goldman , sachs ; photo : ( no caption ) ;
copyright ? 2000 dow jones financial desk
enron failure ' s ripple effects analysis : observers say consequences could be severe for energy prices as well as banks and other investors . firm ' s trading rivals see opportunities .
james flanigan ; chris kraul
times staff writers
11 / 29 / 2001
los angeles times
home edition
c - 1
copyright 2001 / the times mirror company
houston - - the likely bankruptcy of enron corp . could lead to a host of troubling consequences , including higher wholesale prices for electricity and natural gas and financial distress for banks and other firms as well as major bondholders and other investors , analysts said wednesday .
however , energy trading markets were calm as enron competitors picked up the slack while looking for opportunities to build or expand their own trading operations and acquire enron assets .
the concerns and maneuvering came as dynegy inc . on wednesday canceled its proposed acquisition of enron , once the world ' s largest energy trading company , after enron ' s debts were downgraded to non - investment " junk " status , making a bankruptcy filing highly likely .
" banks are starting to worry about a financial meltdown from an enron collapse , " said peter fusaro , president of global change , a risk management consultancy in new york .
enron ' s debts , which had been partly hidden in off - balance - sheet partnerships , could total $ 5 billion more than the company ' s assets , experts in new york and houston estimated .
citigroup and j . p . morgan chase , major commercial bankers to enron , will face losses if enron files for bankruptcy , analysts said . shares of citigroup and morgan declined more than 5 % on wednesday . other experts warned that investment banking firms such as goldman sachs and morgan stanley that had been part of enron ' s sophisticated trading network also could run into problems .
as enron , which rose rapidly in recent years to almost $ 200 billion in annual revenue , neared bankruptcy , shareholders faced being wiped out and investors in about $ 9 billion in enron bonds may get only cents on the dollar , analysts said .
enron ' s employees , 15 , 000 of whom hold enron stock in their 401 ( k ) retirement plans , stood to be among the biggest losers in the company ' s collapse . many probably also will lose their jobs .
major lawsuits against enron claiming lack of loyalty and prudence in dealing with its employees are among scores of lawsuits now confronting the company and arthur andersen , the accounting firm that approved enron ' s financial statements . enron is under investigation by the securities and exchange commission for its handling of disclosure of the partnerships and subsidiaries .
and yet as enron ' s crisis approached a possible bankruptcy filing , a brisk optimism prevailed among energy traders . enron competitors were as enthusiastic about opportunities to buy parts of enron as they were fearful of the consequences of the big trader ' s collapse .
stephen baum , chief executive of sempra energy , the san diego - based utility holding company , said enrononline , the houston company ' s highly successful internet - based trading operation , would be acquired by other companies and carry on energy trading in the future .
sempra itself would be interested in discussing formation of such a new online trading firm , baum said , " although its name would not be enron online . "
baum added that sempra could be interested in acquiring several enron assets , in the u . s . and abroad .
energy markets were calm wednesday . kevin fox , manager of commodities and trading for aquila energy , a kansas city , mo . - based energy trader , described markets as " surprisingly orderly . "
enron ' s troubles have been building for well over a month , fox explained , and so the halt of enron online came as no surprise . fox saw no difficulty in his firm and other trading companies fulfilling enron ' s contracts should the energy company cease to operate .
still , others saw disrupted markets and price volatility . fears about the aftermath of enron ' s collapse centered on long - term commitments the firm has made in recent years to handle all the energy needs of giant entities such as the university of california system or to supply 10 years of natural gas at a fixed price range to an electricity generating station .
problems could arise because long - term contracts typically become encrusted with related transactions that hedge against price movements over time or the interest cost of financing . such complexity could make it difficult for other firms to pick up enron ' s long - term contracts .
if enron in bankruptcy " can ' t cover its obligations , maybe other wholesalers can ' t either , " said gordon allott , vice president at kw international , a trading and risk management firm in san francisco .
" and then you have customers going out into the spot market , which could drive prices higher . that ' s the big bogey monster out there , " allott said .
however , any effect on consumers from such disruptions could be slight . gerald keenan , head of the energy practice at , noted that enron ' s collapse would not " affect the basic supply and demand for electricity and natural gas , " the true determinant of prices .
one major factor reducing the effect of an enron collapse on markets and energy supplies is the growth in recent years of energy trading into a broad industry , with more than $ 300 billion in annual activity in contracts for electricity and the natural gas and oil fuels that produce it .
the intercontinental exchange , a consortium of six trading firms , handles more energy trades today than did enron .
if sempra and other companies acquire and operate enrononline , the industry will have two major groups to rely on . the need for energy trading has been growing out of deregulation and change in the electric utility industry .
" trading absorbs risks of fuel - price movements and the like that used to be passed on to retail customers in the form of adjustments to monthly bills , " fox explained .
the breadth and expertise of this new industry , as well as the months of enron ' s decline that gave competitors and markets time to adjust , could promise a relatively stable aftermath of enron ' s downfall .
however , the post - enron future is likely to see closer regulation of energy contract trading to increase disclosure of terms and risks .
but enron and its top executives , along with the arthur andersen accounting firm , face months and possibly years of lawsuits from shareholders who suffered losses as enron ' s stock lost more than $ 60 billion of market value in a single year .
and lawsuits by enron employees , challenging the firm ' s treatment of 401 ( k ) accounts , will go forward even if enron is in bankruptcy , said attorney lynn sarko of keller rohrback , a seattle law firm that is bringing one of the suits on behalf of employees .
" there is still liability faced by fiduciaries , officials who were administrators of the savings plan and by the companies that insured it , " sarko said .
*
flanigan reported from los angeles and kraul from houston . times staff writer jerry hirsch contributed to this report .
graphic : fallout on wall street / los angeles times ;
copyright ? 2000 dow jones financial desk
markets enron troubles , uncertainty send stocks tumbling wall st . : sellers gain the upper hand , but many analysts say markets were due for a pullback .
from times staff and wire reports
11 / 29 / 2001
los angeles times
home edition
c - 4
copyright 2001 / the times mirror company
stocks tumbled wednesday amid investors ' nagging uncertainty about the economy and as energy giant enron headed toward financial collapse . meanwhile , treasury bond yields were little changed . after sliding early in the session , they rebounded after the government got a tepid reception for a record sale of two - year notes .
on wall street , the dow industrials slid 160 . 74 points , or 1 . 6 % , to 9 , 711 . 86 . the market was in a steady decline most of the session .
the tech - dominated nasdaq composite suffered a 2 . 5 % decline , off 48 points to 1 , 887 . 97 .
losers topped winners by about 2 to 1 on the new york stock exchange and on nasdaq .
early in the week the market seemed poised to retake the 10 , 000 level on the dow and the 2 , 000 level on the nasdaq index . instead , sellers have gained the upper hand .
analysts noted that many investors aren ' t convinced the economy will improve in the first half of 2002 . for weeks , hopes that business will improve early next year have been boosting the market .
" we ' re not out of the woods yet " with the economy , said richard jandrainof banc one investment advisors corp .
the federal reserve ' s latest report on conditions by region , released wednesday , painted a generally somber picture of the economy .
still , many analysts said stocks ' sell - off this week doesn ' t appear to be anything special .
" the reality is , we were due for some pullback , " said barry hyman , chief investment strategist at ehrenkrantz king nussbaum .
hyman and other analysts were actually pleased to see investors take a cautious step back after fearing that the market was rising too much and too quickly .
the market ' s softness was spread across most sectors , but one of the weakest spots was utilities , which dropped after dynegy backed out of its planned merger with enron .
nyse - listed enron broke the record for heaviest trading in a single day with more than 339 million shares changing hands , as it fell $ 3 . 50 to 61 cents . the previous volume record was the 304 million shares of intel traded on nasdaq on sept . 22 , 2000 .
investors were selling most utility stocks wednesday . the dow utilities average fell 2 . 9 % to a 52 - week low of 279 . 95 .
financial stocks were slammed on worries about spillover from an enron collapse . j . p . morgan chase sank $ 2 . 30 to $ 37 . 50 , and citigroup dropped $ 2 . 75 to $ 47 . 80 . both are in the dow .
retailing issues remained vulnerable to concerns that this holiday shopping season will be the worst in a decade . gap stumbled 79 cents to $ 13 . 61 after prudential securities reduced its rating on the clothier to " sell " from " hold " and called its holiday merchandise poor . electronics retailer best buy fell $ 1 . 18 to $ 69 . 90 , and bed , bath & beyond declined 74 cents to $ 32 . 34 .
technology also was weaker as investors fear there is still too much inventory and not enough demand . chip equipment maker altera fell $ 1 . 83 to $ 21 . 83 ahead of its update on business in the fourth quarter . after the market closed , altera reaffirmed its revenue projections for the year ' s final three months .
ibm , another dow stock , dropped $ 2 . 05 to $ 112 . 15 after announcing it will cut 1 , 000 jobs from its seven u . s . chip plants because of a slowdown in the microprocessor industry .
what was bad for stocks normally would be good for bonds , but that wasn ' t the case by the close of trading wednesday .
yields fell early in the day , then reversed after the government ' s biggest sale ever of two - year notes flooded the market with debt .
the treasury sold $ 21 billion of the two - year notes at a yield of 3 % , up from $ 19 billion sold in october , part of an effort by the government to finance a spending increase using short - dated debt .
the five - year t - note yield ended unchanged at 4 . 29 % . the 10 - year t - note ended at 4 . 93 % , up from 4 . 92 % .
copyright ? 2000 dow jones bankruptcy expected
by laura goldberg
copyright 2001 houston chronicle
after dynegy pulled out of its deal to buy enron corp . wednesday morning , it appeared the most likely option for enron was bankruptcy protection .
from wall street to houston , it was widely expected enron would file for bankruptcy , perhaps as soon as today .
" it ' s probably imminent , " said andre meade , a stock analyst with commerzbank securities in new york .
jeff mcmahon , enron ' s chief financial officer , said wednesday night that enron was evaluating all its options for restructuring its balance sheet and debt , and ways to return its business to health .
mcmahon said enron wasn ' t considering a chapter 7 bankruptcy filing , which would involve a liquidation or selling of all assets .
he didn ' t rule out a chapter 11 filing , which lets a company protect assets while it works out a reorganization plan , but he stressed that enron was also reviewing other options .
he declined to describe what the options are , but said he prefers to fix enron without a bankruptcy .
earlier wednesday , enron said it had suspended making payments other than those needed to maintain core business operations and it was working to retain employees needed for its trading and other core energy businesses . no layoffs were announced .
wall street doesn ' t believe enron has real choices other than bankruptcy . shares in enron lost much of their value wednesday , closing at 61 cents . the company , which was dropped from the standard & poor ' s 500 index , also broke the record for most shares traded in a day .
before oct . 16 , a buyout by dynegy , let alone a bankruptcy , were unthinkable for houston ' s largest company and the world ' s largest energy trader . but that day , enron disclosed millions in financial losses related to investment partnerships it did business with and were run by enron ' s since - ousted chief financial officer .
in the days and weeks that followed , the securities and exchange commission started investigating enron , a stack of shareholder and employee lawsuits were filed , enron restated earnings and made disclosures about its balance sheet that wall street found troubling .
dynegy swooped in to rescue enron when the two companies agreed to a merger deal nov . 9 . but continuing bad news surrounding enron put pressure on that deal .
until wednesday morning , it appeared enron and dynegy would find a way to rescue the merger by revamping its terms .
after several days of talks among the companies , bankers and others , chuck watson , dynegy ' s chairman and chief executive , said in an interview he concluded a solution wasn ' t reachable .
the final confirmation for watson was when standard & poor ' s wednesday morning cut enron ' s credit rating to so - called junk status , effectively halting enron ' s ability to run its core business of energy trading and marketing , which is dependent on access to cash and credit . that trading franchise was a key reason for dynegy ' s interest in enron .
s & p said in its rating report that it cut enron ' s credit rating because it didn ' t believe the merger , which wasn ' t expected to close for six to nine months , would go through .
when the companies inked the deal on nov . 9 , watson said he expected no more surprises about enron ' s financial state . but the deal included escape clauses just in case .
among reasons dynegy cited for ending the merger were " breaches of representations " by enron . it also invoked an escape provision that let dynegy to walk away if enron had a " material adverse change " in its business .
" we have never been willing to risk our franchise , our credit or our credibility , " watson said . " we knew when to say no and this morning we said no . "
since nov . 9 , enron made new financial disclosures and saw significant drops in its stock price and trading business . all of that caused dynegy to seek new terms for the merger agreement , including a lower price , cash infusions to stabilize enron and a restructuring of enron ' s debt repayment schedule .
watson traced the beginning of the end to nov . 19 , the day enron filed its 10 q with securities regulators . companies must file their 10 q every quarter with details of their earnings and balance sheet with the sec .
dynegy was hit by surprise when enron disclosed it would have to pay off a specific debt obligation worth $ 690 million almost immediately and when it saw that enron ' s cash situation wasn ' t what it expected , watson said .
those disclosures , he said , caused enron ' s trading business , which had somewhat of an uptick after the merger announcement , to go " down again and down again . "
" that was sort of a blow that we never really recovered from , " watson said .
watson said he worked hard to rescue the deal , but would only go for a " global solution " that would take care of all the problems . for one , he said , enron needed another $ 1 billion - $ 3 billion infusion to keep going .
sources told the chronicle that j . p . morgan chase other firms reassuring investors
another jolt
by michael davis
copyright 2001 houston chronicle
shortly after enron corp . ' s bond ratings were cut to junk status wednesday , energy trader charlie sanchez watched the company ' s trading business simply vanish from his computer screen .
" i watched their different markets just peel off my screen , one by one , " said sanchez , energy markets manager at gelber & associates in houston .
although enron ' s troubles were well - known , the collapse of enron ' s trading business wednesday still jolted traders . sanchez just said , " i ' m in shock . "
the downgrade of enron ' s debt was the first domino to fall wednesday , followed by the shutdown of enron ' s online trading business and then the announcement that dynegy had called off its deal to buy enron .
enrononline , the company ' s internet commodity trading platform , went down early wednesday , signaling that the company had temporarily halted trading altogether . enrononline handles about 60 percent of the company ' s trading business , or about $ 2 . 8 billion a day in deals .
enron ' s chief financial officer jeff mcmahon said he didn ' t know when enrononline would be up for trading again . however , the company continues to do telephone transactions , he said .
the commodities markets appeared to weather the event . but the shutdown of the company that was by far the biggest player in the market led other companies that regularly dealt with enron to hastily issue statements assuring investors they were not going to be dragged down as well .
with enrononline down , many traders had to revert to calling around to numerous sources to find out what the market was doing rather than simply logging onto enrononline and clicking on a single tab to size up the market where they wanted to trade .
but as far as the overall impact on commodities markets and the new york mercantile exchange , the loss of enron ' s trading business for whatever period likely will not be that big , said kyle cooper , oil analyst with salomon smith barney in houston .
" it could widen the bid - ask spreads in a few places , but in terms of liquidity on the nymex , you ' re talking about a few thousand contracts out of 60 , 000 to 70 , 000 contracts in all , " cooper said .
one trader described enron as " a needle in a haystack in terms of the total long - term capital markets . "
nonetheless , the shutdown prompted a call for closer monitoring during a briefing at the white house .
u . s . treasury department officials kept a close eye on the credit and energy markets wednesday but discerned no upheavals from the troubles at enron .
" we are monitoring credit markets as we do every day " treasury spokeswoman michele davis said . " we haven ' t seen anything extraordinary . "
the exit of enron will lead to a change in the balance of power in the trading business . traders said companies that likely will benefit from the loss of enron ' s trading activities include el paso corp . , mirant corp . , reliant energy and duke energy .
the market appeared more worried about possible losses connected with enron .
el paso corp . ' s stock took a beating wednesday - - down $ 3 . 59 to close at $ 44 . 91 - - over concerns that it had too much exposure to enron through its trading business . the company issued a statement saying it had " systematically reduced its trading with enron " over the past few weeks .
" due to enron ' s loss of investment grade status , any new business will have to be supported by cash collateral . el paso foresees no material disruptions in the energy trading markets resulting from today ' s downgrades or the potential of an enron bankruptcy filing , " according to the company ' s statement .
el paso ' s natural gas and power trading exposure to enron is about $ 50 million , the company said , adding that it does not expect any adverse earnings impact from enron ' s difficulties .
atlanta - based mirant said its exposure to enron is $ 50 million to $ 60 million , noting that it too had begun limiting its exposure risk early in what it described as " the enron crisis . "
calpine corp . said it had no " net exposure " to enron , which means that what enron owes calpine for gas and electric trading is offset by calpine ' s liabilities to enron .
enron faced a cash crunch in part because some trading partners lost confidence the company would have the cash to pay bills . as a result , they were either demanding more collateral to ensure it delivered on trades or restricting dealings with the houston - based company .
" each company is going to have to evaluate what their situation is from producers to utilities , it ' s going to be a case - by - case situation . it ' s going to take a long time to figure it all out , " said one trader who asked not to be quoted by name .
shortly after the news of the company ' s latest problems broke , a flood of huge trading orders came out of enron , leading traders to speculate that the company was scrambling to clear its accounts before filing for chapter 11 bankruptcy protection .
a typical order from the company would be for 100 contracts in a single lot to buy or sell commodities such as natural gas . after the debt downgrade was announced , single orders for 1 , 000 to 2 , 000 contracts began coming from the company .
the flood of large orders out of enron caused the near - month futures contract on the new york mercantile exchange to spike up and then fall off just as quickly in late morning trading .
" they could not leave this exposure to the whims of the market , " one trader said . " they needed to get out . "
enron reportedly has been working over the past few weeks to line up alternate parties to hand off their thousands of contracts the company handles daily , many of which are for long term periods such as 10 to 15 years .
but some of the more obscure contracts on items such as emissions credits and weather derivatives may be more difficult to unload . in addition to natural gas , power and oil , enron trades such items as broadband , paper , metals and water .
" i really think that a lot of the kinds of stuff that is foreign and esoteric that enron has been making a market in will take a while for others to pick up , " sanchez said .
nov . 29 , 2001 , 12 : 54 am
houston chronicle
bankruptcy filing by enron could be largest ever
by tom fowler
copyright 2001 houston chronicle
if enron files for chapter 11 bankruptcy this week , as many observers expect it will , it may be the largest such event to date .
with $ 61 . 7 billion in assets on its books as of sept . 30 , the deal would top texaco ' s 1987 bankruptcy , which sought protection for a company with $ 35 . 9 billion in assets . it would also beat the 1988 bankruptcy of financial corporation of america , which had $ 33 . 9 billion in assets .
the value of the assets and liabilities on enron ' s books continues to be a moving target , however . while enron ' s unaudited quarterly financial report indicates $ 61 . 7 billion in assets , $ 27 billion in liabilities , $ 6 . 5 billion in long - term debt and $ 15 . 3 billion in deferred credits , the turmoil of the past month has changed much of that .
on the asset side , for example , the company says properties like its natural gas transmission lines , fiber optic network and electric generation facilities are worth close to $ 14 . 6 billion . much of the gas pipeline properties have been encumbered in recent weeks , however , by the company ' s efforts to raise additional cash and credit from banks .
and the likelihood the company could find buyers to pay its asking price for assets like the fiber optic network or overseas power plants is highly unlikely , said ralph pellechia , a credit analyst with rating agency fitch .
" it ' s really a buyer ' s market , not a seller ' s market , " pellechia said . " it ' s anticipated a lot of their assets , particularly their international assets , would go for a lot less than the initial investment in them . "
the company also counts $ 7 . 1 billion in investments and advances to " unconsolidated affiliates " as assets , which could include enron equity that was used to back some of the complicated off - balance - sheet financing partnerships that led to the company ' s current woes . given the constant surprises surrounding those partnerships and the company ' s steeply dropping stock price - - now worth less than a cup of coffee - - that $ 7 . 1 billion figure is also suspect .
several unexpected debt obligations related to the partnerships enron operated have also changed the tally since sept . 30 . analysts say debts for the company range between $ 13 billion and $ 17 billion , including another $ 3 . 9 billion in debt repayments related to two special partnerships , osprey trust and marlin water trust , that will come due more quickly than expected following the credit rating agency downgrades on wednesday .
" all these changes are making the situation like sand falling between their fingers , " said bill porter , chairman of houston law firm porter & hedges . " the only alternative left to them to stabilize their situation is bankruptcy protection . "
company officials say they ' re still reviewing options , but on wednesday said they are temporarily suspending all payments to creditors other than those needed to maintain core energy trading operations .
" with dynegy ' s termination of the merger and the ratings agency downgrades , we are evaluating and exploring other options to protect our core energy businesses , " enron chairman and ceo ken lay said in a statement .
sources familiar with the broken enron - dynegy deal said the paperwork for a bankruptcy filing has been in the works for weeks , and even preceded the nov . 9 merger announcement . they say if the preliminary deal had not been secured that day , enron would have had to file for bankruptcy the following monday .
recent efforts by enron ' s bankers , including j . p . morgan chase and citigroup , to get creditors to hold off on demanding payments may mean the pending bankruptcy filing will be what is known as a prepackaged deal .
in a prepackaged bankruptcy , creditors agree beforehand how the sale of the company ' s assets would be divided among them . it would save all parties untold millions in legal fees that would be spent fighting over the company while assuring at least some recovery of their investments .
prepackaged bankruptcies are common , said jay westbrook , a professor at the university of texas school of law , because they allow companies to buy parts of the faltering business they want without the hassles of long , drawn - out legal battles .
" the purchasers will essentially just pay their money and walk away , with the proceeds getting divided up among those holding claims , " westbrook said .
chapter 11 bankruptcy has the added benefit of freezing the many lawsuits that have been filed by angry shareholders . those lawsuits would eventually be handled by the bankruptcy court , including determination of the validity of the claims in the suits .
if enron ' s bankruptcy is not prepackaged , it ' s almost assured that the value of enron ' s remaining businesses , such as its energy trading , will disappear , said bob chapman , a principle with houston management consulting firm king , chapman & broussard .
" the only guys that do well in bankruptcies are the lawyers , " chapman said . " what you usually see is a long period of people trying to carve up the beast where what remains of the business will continue to atrophy . "
because the company will most likely look to simply liquidate its assets , what would at first be a chapter 11 bankruptcy filing could later be converted to a chapter 7 filing , where a court - appointed trustee overseas liquidation of the remaining assets .
" from our perspective , a lot of the future rests in the hands of the banks , " said fitch analyst glen grabelsky . " what their intentions are in granting forbearance , what kind of liquidity they ' re willing to extend to enron , only they can answer . "
nov . 29 , 2001 , 12 : 56 am
houston chronicle
ballpark place project stopped dead in tracks
by ralph bivins
copyright 2001 houston chronicle
construction of the ballpark place tower has been postponed , partly because of the uncertainty surrounding enron corp . , the project ' s developer announced wednesday .
trammell crow co . had anticipated breaking ground this week on the 34 - story tower across from enron field , said matt khourie , who heads trammell crow operations in houston .
ballpark place was planned for a parcel of land owned by the developer , bounded by preston , prairie , crawford and la branch streets .
the $ 108 million ballpark place was expected to be a dominant skyline feature , rising over left field at enron ' s namesake stadium .
ballpark place would have included 253 , 000 square feet of office space , 216 apartment units , ground - level retail space and several levels of covered parking .
questions surrounding the future of enron corp . , a major employer in downtown , was key in encouraging trammell crow to shelve its plans , khourie said .
enron has about 3 million square feet of downtown office space , including a 40 - story building under construction . as enron ' s need for space decreases , the downtown office market is sure to feel the aftershocks .
" given the national economic uncertainty and the uncertainty associated with the future availability of class - a space springing from the recent events at enron , we have decided to delay our construction start until the future visibility improves , " khourie said in a written statement .
it has been widely speculated that dynegy , another houston energy firm , would move into the new enron building .
but dynegy ' s plans to buy enron fell apart wednesday , leaving questions about the the new 1 . 2 million - square - foot tower .
trammell crow has not abandoned its plans for ballpark place .
khourie said the company intends to start construction , perhaps next year , after the economy improves .
" we are still very bullish on the project ' s residential / office mixed - use concept for our unique location and also are optimistic on the mid - and long - term prospects for houston ' s central business district , " khourie said .
" the decision to delay relates directly to the short - term environment that we are currently facing . "
enron mentions
fall of a power giant : bailout is unlikely if enron goes under , as u . s . thinks impact would be limited
the wall street journal , 11 / 29 / 01
enron ' s woes may ripple out to others - - - if energy company files for bankruptcy , results are likely to be messy
the wall street journal , 11 / 29 / 01
fall of a power giant : bailout is unlikely if enron goes under , as u . s . thinks impact would be limited
the wall street journal , 11 / 29 / 01
enron ' s meltdown may also be felt by big mutual funds
the wall street journal , 11 / 29 / 01
why credit agencies didn ' t switch off enron - - - s & p cries ` junk , ' but the warning comes too late
the wall street journal , 11 / 29 / 01
why credit agencies didn ' t switch off enron - - - energy trading bears the brunt of enron woes
the wall street journal , 11 / 29 / 01
fall of a power giant : chairman ' s deep political connections run silent
the wall street journal , 11 / 29 / 01
dynegy and chevrontexaco slide along with plunge in enron stock
the wall street journal , 11 / 29 / 01
dollar declines against yen and euro amid growing doubts on u . s . economy
the wall street journal , 11 / 29 / 01
dynegy ' s move to disconnect enron merger powers volatility spike as investors seek cover
the wall street journal , 11 / 29 / 01
enron asks staff to drop 401 ( k ) suits for severance
the wall street journal , 11 / 29 / 01
nvidia to replace enron in s & p
the wall street journal , 11 / 29 / 01
enron collapses as suitor cancels plans for merger
the new york times , 11 / 29 / 01
a bankruptcy filing might be the best remaining choice
the new york times , 11 / 29 / 01
an implosion on wall street
the new york times , 11 / 29 / 01
citigroup and j . p . morgan are left with bruised egos and exposure to loans
the new york times , 11 / 29 / 01
in turbulent bond market , enron ' s woes exacerbate turmoil
the new york times , 11 / 29 / 01
a big fall evoking nasty old memories of a run on a bank
the new york times , 11 / 29 / 01
foundation gives way on chief ' s big dream
the new york times , 11 / 29 / 01
market that deals in risks faces a novel one
the new york times , 11 / 29 / 01
investors pull back as enron drags down key indexes
the new york times , 11 / 29 / 01
debt rankings finally fizzle , but the deal fizzled first
the new york times , 11 / 29 / 01
global investing - bond mutual funds suffer as enron ' s troubles deepen .
financial times , 11 / 29 / 01
companies & finance the americas - sec filing triggered merger crisis .
financial times , 11 / 29 / 01
companies & finance the americas - financial system braces for a chain reaction .
financial times , 11 / 29 / 01
companies & finance the americas - traders avoid exposure to junk status fallout .
financial times , 11 / 29 / 01
companies other firms reasuring investors
houston chronicle , 11 / 29 / 01
bankruptcy filing by enron could be largest ever
houston chronicle , 11 / 29 / 01
ballpark place project stopped dead in tracks
houston chronicle , 11 / 29 / 01
fall of a power giant : bailout is unlikely if enron goes under , as u . s . thinks impact would be limited
by greg ip and jathon sapsford
staff reporters of the wall street journal
11 / 29 / 2001
the wall street journal
al 0
( copyright ( c ) 2001 , dow jones & company , inc . )
washington - - if enron corp . goes under , the government is unlikely to throw it a lifeline .
at its peak , enron was a major participant in the country ' s financial and energy markets . but economic and financial policy makers say they aren ' t worried about any broader blow to markets or business activity . despite frequent comparisons to long - term capital management , the hedge fund whose 1998 nose dive panicked global financial markets and triggered an unusual bailout brokered by the federal reserve , there has been so far no public sign of any attempt by the fed , the treasury or energy regulators to take similar action on behalf of enron or its creditors .
officials from a range of economic and regulatory agencies have insisted in recent days that while they have been closely monitoring enron ' s situation , they haven ' t seen any reason to be concerned about possible ripple effects . enron " is just one piece of a very big market , " said john mielke , chief of market surveillance at the commodity futures trading commission . mr . mielke said he saw no evidence that enron ' s problems have disrupted trading on the futures exchanges monitored by the cftc .
" these are deep and pretty big markets that enron is in , " echoed william gilmer , an economist at the federal reserve bank of dallas .
it is too soon to say exactly what the total damage from enron ' s potential demise will be . one danger is that a blowup in the company ' s complex , largely unregulated portfolio of derivatives could infect financial markets in wide and unpredictable ways , just as ltcm ' s did . another worry : that the collapse of a major middleman in natural - gas and power markets could disrupt supplies .
enron does share some characteristics with ltcm , including widespread activities in complicated financial instruments in numerous markets , with little detailed public explanation of those activities , and little regulatory oversight of those trades .
its public disclosures suggest enron ' s exposures are substantial . a quarterly filing listed $ 18 . 7 billion in assets and an equal amount of liabilities related to " price risk management activities " as of sept . 30 . the filing gives no description or breakdown of those amounts and little detail about the derivatives in which enron transacts as a normal part of business . ( a derivative is a financial contract whose value is designed to track the return on stocks , bonds , currencies or other benchmark . ) an enron spokeswoman didn ' t return a call seeking comment .
as enron ' s woes deepened , the government ' s hands were tied in even assessing the situation , in part because the company was part of a coalition of energy companies and banks that lobbied successfully three years ago against cftc efforts to expand regulation of the over - the - counter energy market . enron also worked behind the scene to head off cftc ' s direct regulation of the energy concern ' s enrononline trading operation .
there have been some signs in markets of concerns about enron fallout . interest rates on bonds of utilities and energy companies rose by one - to two - tenths of a percentage point relative to treasurys yesterday . by day ' s end , the dow jones industrial average was off 160 . 74 points , a decline blamed in part on the enron news .
those are relatively small hiccups . the betting is the impact of enron ' s troubles on the financial system will be widespread but thin . enron was a favorite borrower among lenders , and its loans were among the most widely syndicated among the banking system , both at home and abroad . for example , a $ 2 . 25 billion credit facility arranged for enron in may by citigroup inc . and j . p . morgan chase & co . was distributed to 50 different institutions , according to loan pricing corp . , a credit - market research company . those syndication members sold off chunks of that debt to other investors , according to a banker at one of the underwriters .
j . p . morgan chase said in a statement that it has $ 500 million of unsecured exposure to enron entities , including loans , letters of credit and derivatives . it said it also has secured exposures , including $ 400 million in loans secured by enron pipelines . while this exposure is expected to smart , it represents a small fraction of j . p . morgan chase ' s total assets of $ 715 billion . citigroup declined to comment on its exposure to enron , but officials familiar with the matter said the bank ' s exposure is similar to that of j . p . morgan chase .
beyond financial fallout , a concern is the potential impact on energy markets and what that could do to the economy . enron ' s troubles could hamper efforts to end the recession if the company ' s difficulties make it impossible for it to deliver natural gas or electricity to its customers .
natural - gas prices rose sharply yesterday in the minutes after three major credit - rating agencies downgraded enron ' s rating and dynegy inc . said it was calling off its purchase . but the move quickly reversed when traders digested gas - inventory numbers released in the afternoon that showed utilities have stored enough gas to meet demand ahead of the winter heating season .
" we ' ve seen no interruptions in physical deliveries and no pricing reaction in the futures markets that you could attribute to enron , " said scott miller , director of market development for the federal energy regulatory commission . " revenues and transactions are occurring normally as far as we can tell . "
- - -
michael schroeder , chip cummins and john fialka contributed to this article .
copyright ? 2000 dow jones & company , inc . all rights reserved .
enron ' s woes may ripple out to others - - - if energy company files for bankruptcy , results are likely to be messy
by henny sender and richard b . schmitt
staff reporters of the wall street journal
11 / 29 / 2001
the wall street journal
a 3
( copyright ( c ) 2001 , dow jones & company , inc . )
the sudden , deep financial troubles of enron corp . , the once aggressive , many - tentacled energy conglomerate , could have widespread consequences for scores of companies across the economy .
if enron files for protection under chapter 11 of the federal bankruptcy code , as many investors and financial experts now expect , it is likely to be one of the messiest , most complex bankruptcy cases ever , lawyers say .
that is because of the multifaceted nature of enron ' s once highflying operations , which combined a global energy business with a massive financial - trading operation involving tens of billions of dollars in complex contracts . yesterday , amid the unraveling of a last - ditch merger with dynegy inc . , the company ' s credit was downgraded to " junk " status by rating agency standard & poor ' s corp . enron has about 800 trading partners or creditors .
the stock market , signaling that a bankruptcy filing is expected , hammered enron stock , which was halted for a time yesterday , and knocked lower some of its financial backers ' shares . enron shares closed at 4 p . m . in new york stock exchange composite trading at 61 cents , down $ 3 . 50 , or 85 % . enron bonds also fell sharply , dropping to 50 cents on the dollar from around 55 cents , reflecting concerns over how much creditors might receive if the company does seek bankruptcy - court protection . j . p . morgan chase and citigroup , which have invested hundreds of millions of dollars in hopes of keeping the enron - dynegy deal alive , also saw their stocks fall . at 4 p . m . in nyse composite trading , j . p . morgan shares were down $ 2 . 30 to $ 37 . 50 , while citigroup shares were down $ 2 . 75 to $ 47 . 80 .
j . p . morgan chase said in a statement it has about $ 500 million of unsecured exposure to enron entities , including loans , letters of credit , and derivatives . it said it also has secured exposures , including $ 400 million in loans secured by enron pipelines .
other companies also disclosed their exposures to enron . exelon corp . , an energy concern in chicago , said its power - trading arm has a direct net exposure to enron of less than $ 10 million , based on its current book of business and existing market prices . exelon said its direct gross exposure based on sales to enron is less than $ 20 million . exelon said this is partly offset by $ 10 million that it owes to enron .
still , while the fallout from a potential bankruptcy filing would be widespread , federal regulators appear little concerned that it could inflict significant damage to the u . s . economy . ( see related article on page al 0 . )
the scale of the enron collapse is huge , experts say . " there is nothing to compare it to , " said edward tillinghast , a bankruptcy specialist with coudert brothers in new york . " the business was so large . there were so many different kinds of operating entities under the enron umbrella . "
in a way , he added , a filing would represent all the challenges of two of the biggest bankruptcies in recent years - - this past spring ' s chapter 11 filing by pg & e corp . ' s pacific gas & electric utility unit , and the demise of drexel burnham lambert , the wall street securities firm that failed more than a decade ago . a filing by enron , with about $ 13 billion in debt , would rank among the largest bankruptcy filings ever .
bankruptcy lawyers and creditors ' rights specialists , already swamped with a wealth of work from a boom in chapter 11 filings during the last 18 months , said they had been contacted by worried banks and other lenders to enron , seeking to retain them in the event of a chapter 11 filing . enron spokeswoman karen denne said the company is exploring its options and wouldn ' t comment on whether it has retained bankruptcy counsel .
but lawyers said the company was already in discussions about retaining its own counsel . among the likely advisers is new york law firm weil gotshal the idea is to protect all parties from market risk as the value of those contracts can fluctuate from day to day , and to avoid a larger financial meltdown .
that means enron ' s counterparties are free to close out such transactions , rather than file claims in a bankruptcy proceeding reflecting the total notional amount of any trades . in other words , a securities firm that is a counterparty to enron in many financial contracts would tally up how much it owes enron under such contracts and how much enron owes it , offsetting the amounts against each other . but this process is ripe for conflicts , as disputes easily could arise over the value of the contracts .
" it is an incredibly complex piece of financial engineering , " andrew rahl , a bankruptcy lawyer at anderson kill & olick in new york , said of the process .
how much collateral those counterparties could seize isn ' t at all clear , either . enron was considered very aggressive in negotiating agreements such as swaps , where a party trades an obligation to pay a floating interest rate for a fixed interest rate on given securities . the speed with which the company ' s finances have deteriorated further reduces the odds that its trading partners will be able to get paid anytime soon . without any security , counterparty claims would go into the probably massive general pool of claims from unsecured creditors .
besides banks and bondholders , dozens of companies , municipalities and utilities that had signed multiyear power contracts with enron may be left in the lurch . over the years , the likes of retailer j . c . penney co . , and shopping - mall company simon property group , of indianapolis , signed on with enron , as it undercut local utilities in newly deregulated markets .
any bankruptcy also is likely to trigger collateral lawsuits , as aggrieved parties look for alternative deep pockets . one possible target , analysts said , could be advisers that helped enron establish off - balance - sheet vehicles and other debt related to troubled investment partnerships , which have triggered massive losses in recent weeks . moreover , enron directors themselves could be vulnerable , too .
yesterday , enron named raymond s . troubh , a new york financial consultant , to its board as chairman of a newly formed special litigation committee to evaluate claims in shareholder and other derivative lawsuits .
at the same time , any filing would give enron some advantages , most notably greater ease in securing financing . this is because once companies file for protection , any new cash infusion from the banks has an overriding claim on any of the company ' s assets , at the expense of previous lenders .
in addition , potential buyers for enron businesses may be more likely to emerge once the company is operating with court protection and the depth of its problems are known .
" there is a certain comfort level that buyers have when buying a business in a chapter 11 case that doesn ' t exist when a company is struggling outside of bankruptcy , " said keith shapiro , a bankruptcy lawyer at greenberg traurig in chicago .
copyright ? 2000 dow jones & company , inc . all rights reserved .
fall of a power giant : bailout is unlikely if enron goes under , as u . s . thinks impact would be limited
by greg ip and jathon sapsford
staff reporters of the wall street journal
11 / 29 / 2001
the wall street journal
al 0
( copyright ( c ) 2001 , dow jones & company , inc . )
washington - - if enron corp . goes under , the government is unlikely to throw it a lifeline .
at its peak , enron was a major participant in the country ' s financial and energy markets . but economic and financial policy makers say they aren ' t worried about any broader blow to markets or business activity . despite frequent comparisons to long - term capital management , the hedge fund whose 1998 nose dive panicked global financial markets and triggered an unusual bailout brokered by the federal reserve , there has been so far no public sign of any attempt by the fed , the treasury or energy regulators to take similar action on behalf of enron or its creditors .
officials from a range of economic and regulatory agencies have insisted in recent days that while they have been closely monitoring enron ' s situation , they haven ' t seen any reason to be concerned about possible ripple effects . enron " is just one piece of a very big market , " said john mielke , chief of market surveillance at the commodity futures trading commission . mr . mielke said he saw no evidence that enron ' s problems have disrupted trading on the futures exchanges monitored by the cftc .
" these are deep and pretty big markets that enron is in , " echoed william gilmer , an economist at the federal reserve bank of dallas .
it is too soon to say exactly what the total damage from enron ' s potential demise will be . one danger is that a blowup in the company ' s complex , largely unregulated portfolio of derivatives could infect financial markets in wide and unpredictable ways , just as ltcm ' s did . another worry : that the collapse of a major middleman in natural - gas and power markets could disrupt supplies .
enron does share some characteristics with ltcm , including widespread activities in complicated financial instruments in numerous markets , with little detailed public explanation of those activities , and little regulatory oversight of those trades .
its public disclosures suggest enron ' s exposures are substantial . a quarterly filing listed $ 18 . 7 billion in assets and an equal amount of liabilities related to " price risk management activities " as of sept . 30 . the filing gives no description or breakdown of those amounts and little detail about the derivatives in which enron transacts as a normal part of business . ( a derivative is a financial contract whose value is designed to track the return on stocks , bonds , currencies or other benchmark . ) an enron spokeswoman didn ' t return a call seeking comment .
as enron ' s woes deepened , the government ' s hands were tied in even assessing the situation , in part because the company was part of a coalition of energy companies and banks that lobbied successfully three years ago against cftc efforts to expand regulation of the over - the - counter energy market . enron also worked behind the scene to head off cftc ' s direct regulation of the energy concern ' s enrononline trading operation .
there have been some signs in markets of concerns about enron fallout . interest rates on bonds of utilities and energy companies rose by one - to two - tenths of a percentage point relative to treasurys yesterday . by day ' s end , the dow jones industrial average was off 160 . 74 points , a decline blamed in part on the enron news .
those are relatively small hiccups . the betting is the impact of enron ' s troubles on the financial system will be widespread but thin . enron was a favorite borrower among lenders , and its loans were among the most widely syndicated among the banking system , both at home and abroad . for example , a $ 2 . 25 billion credit facility arranged for enron in may by citigroup inc . and j . p . morgan chase & co . was distributed to 50 different institutions , according to loan pricing corp . , a credit - market research company . those syndication members sold off chunks of that debt to other investors , according to a banker at one of the underwriters .
j . p . morgan chase said in a statement that it has $ 500 million of unsecured exposure to enron entities , including loans , letters of credit and derivatives . it said it also has secured exposures , including $ 400 million in loans secured by enron pipelines . while this exposure is expected to smart , it represents a small fraction of j . p . morgan chase ' s total assets of $ 715 billion . citigroup declined to comment on its exposure to enron , but officials familiar with the matter said the bank ' s exposure is similar to that of j . p . morgan chase .
beyond financial fallout , a concern is the potential impact on energy markets and what that could do to the economy . enron ' s troubles could hamper efforts to end the recession if the company ' s difficulties make it impossible for it to deliver natural gas or electricity to its customers .
natural - gas prices rose sharply yesterday in the minutes after three major credit - rating agencies downgraded enron ' s rating and dynegy inc . said it was calling off its purchase . but the move quickly reversed when traders digested gas - inventory numbers released in the afternoon that showed utilities have stored enough gas to meet demand ahead of the winter heating season .
" we ' ve seen no interruptions in physical deliveries and no pricing reaction in the futures markets that you could attribute to enron , " said scott miller , director of market development for the federal energy regulatory commission . " revenues and transactions are occurring normally as far as we can tell . "
- - -
michael schroeder , chip cummins and john fialka contributed to this article .
copyright ? 2000 dow jones & company , inc . all rights reserved .
enron ' s meltdown may also be felt by big mutual funds
11 / 29 / 2001
the wall street journal
cl 3
( copyright ( c ) 2001 , dow jones & company , inc . )
new york - - some of the largest mutual funds in the country that jumped on enron corp . shares when they were soaring now may be feeling the pain of the stock ' s meltdown .
the energy - trading company ' s stock was held in funds managed by fidelity investments , stilwell financial inc . ' s janus capital corp . , alliance capital management and putnam investments , according to the funds ' most recent securities and exchange commission filings . vanguard group held the stock in various portfolios , including its giant passively managed index funds , according to its filings .
one of the biggest supporters of the stock has been alliance premier growth fund , an $ 11 billion portfolio that had about 4 % of its assets in enron shares as of sept . 30 , according to fund tracker morningstar inc . based on the sept . 30 filing , the fund ' s stake had dropped in value by about $ 445 million through yesterday .
of course , alliance premier and other funds may have sold or bought enron shares since they made their latest government filings . an alliance spokesman declined to comment .
other funds reporting big stakes in enron recently included janus mercury fund , which had 3 . 6 % of its assets invested in enron stock on april 30 . a janus spokeswoman said its funds had sold all of their enron shares by mid - november .
copyright ? 2000 dow jones & company , inc . all rights reserved .
credit markets
why credit agencies didn ' t switch off enron - - - s & p cries ` junk , ' but the warning comes too late
by gregory zuckerman and jathon sapsford
staff reporters of the wall street journal
11 / 29 / 2001
the wall street journal
cl
( copyright ( c ) 2001 , dow jones & company , inc . )
at 10 : 57 a . m . est yesterday , an announcement came out that effectively scuttled dynegy inc . ' s proposed takeover of enron corp . it was issued not by the two companies or their bankers , but by a behind - the - scenes player that was pivotal in the deal from the start .
the news came from standard & poor ' s , which lowered enron ' s credit rating to " junk " status , because of concern about the energy trading company ' s financial condition . the move , followed by similar downgrades by moody ' s investors service inc . and fitch inc . several hours later , prompted dynegy to announce that it was walking away from the multibillion dollar deal .
the downgrades highlight the key role that credit - rating agencies - - which are sometimes only bit players - - are having in one of the biggest wall street dramas in years . before they became deal breakers , the ratings agencies had emerged as unlikely deal makers just a few weeks ago , by leaving enron little choice but to seek a merger partner or face a downgrade that would have made it difficult to keep running its business .
throughout the enron saga , the rating agencies found themselves the target of repeated and intense lobbying by enron , dynegy and their bankers at j . p . morgan chase & co . and citigroup inc . all tried - - and ultimately failed - - to come up with assurances that the merger would bolster enron and thus protect bondholders and lenders from suffering losses .
the dramatic downgrades are sure to increase scrutiny over the role of the rating agencies in the enron situation . critics say that , in waiting until enron ' s bonds already had plummeted in value , the ratings agencies failed in their job of anticipating a company ' s financial problems and giving investors an early warning .
it now seems clear that the rating agencies , like most securities analysts , seem to have too easily accepted enron ' s murky financial reporting , which gave the impression that the company ' s balance sheet was stronger than it was . as recently as late october , both moody ' s corp . ' s moody ' s and mcgraw - hill cos . ' s & p had a solid investment - grade rating on enron ' s debt .
but since credit - rating agencies often have access to company information that securities analysts often don ' t have , the rating agencies could take some heat for not anticipating the financial difficulties . bond investors , for instance , say s & p was prematurely upbeat about enron ' s outlook earlier this month , and long ago should have demanded more information from the company . " if the rating agencies were privy all along to information that , as near as i can tell , was nonpublic regarding these off - balance - sheet liabilities , then their judgment looks even more faulty , " says carol levenson of gimme credit , a chicago - based analyst .
others wonder whether the ratings executives should have lowered the rating to junk days ago , when enron ' s problems became obvious . while such a move would have crippled the company ' s ability to find a suitor , holding off on the ratings move hurt stock and bond investors left holding the securities .
" i don ' t think the consequences of a rating action should have anything to do with whether one takes that rating action or not , if one feels it ' s warranted , " ms . levenson says . " i don ' t think there was any doubt enron was a junk credit . "
the ratings agencies counter that enron ' s financial condition , while weakened , became precarious only in the past few days , and given the consequences of a downgrade they needed to be prudent .
indeed , every party to the deal - - until yesterday - - kept working to provide financial infusions to enron to keep the deal alive . enron executives were particularly desperate to hold off a ratings downgrade . once the debt was lowered to junk status from investment grade , a whopping $ 3 . 9 billion of debt immediately became due , jeopardizing enron ' s ability to stay afloat .
worries about such a debt downgrade weeks ago pushed enron into the merger with dynegy , despite reservations from some enron executives about whether the deal was right . enron pledged some of its best assets to secure a $ 500 million investment from j . p . morgan chase and citigroup ' s citibank , and agreed to strict terms demanded by banks to get an emergency $ 1 billion credit line from various banks . in recent days , the two companies worked to restructure their merger and to raise still more liquidity for enron .
by 4 p . m . tuesday , the credit agencies agreed to hold off on a downgrade , convinced the two sides were making progress in restructuring the deal and drumming up new money for enron . in a conference call , ron barone , a managing director at s & p , told enron executives he was willing to wait on a decision , aware of the serious consequences of a downgrade .
" we ' ll be very patient and diligent " because of the progress being made , he told them , according to someone familiar with the conversation .
as late as 10 : 30 p . m . tuesday , a new deal still seemed in sight . but at about 2 a . m . yesterday , the talks broke down . instead of being briefed about terms of a new merger agreement , the credit - agency executives became doubtful a resolution would ever be reached .
in a late morning phone call to jeff mcmahon , enron ' s chief financial officer , mr . barone broke the news that the company ' s credit would be downgraded . " we lost confidence the deal would be consummated in a way that would keep the rating intact , " mr . barone says in an interview . " enron ' s credibility and viability continued to diminish . they were aware of our concerns . "
s & p downgraded enron ' s corporate - credit rating two full grades to single - b - minus , near the lower end of the junk - bond world , from triple - b - minus , the lowest investment - grade level . moody ' s lowered the debt to b 2 from baa 3 .
in a late - afternoon conference call with investors , s & p executives said the rating could still be lowered further , on the heels of the official announcement that the merger with dynegy was off .
responding to criticism that the credit agencies should have downgraded enron ' s debt sooner , mr . barone of s & p notes that the rating agency wasn ' t " privy to everything . " still , he adds , until yesterday " we were confident it was an investment - grade company , and that the merger would give it the security to enable enron to function at an investment - grade level . "
on the flip side , of course , if enron is forced into bankruptcy , the rating agencies may well catch heat that their impact was too drastic , effectively killing the deal .
treasurys
treasurys ended slightly higher . at 4 p . m . , the benchmark 10 - year treasury note was up 1 / 32 point , or 31 cents per $ 1 , 000 face value , at 100 15 / 32 to yield 4 . 938 % . the 30 - year treasury bond ' s price also was up 1 / 32 point , at 100 9 / 32 to yield 5 . 355 % .
the dow jones industrial average ended with a loss of 160 . 74 points . investors often shift funds to the relative safety of the government securities market at times when stocks are weak . a treasury sale of $ 21 billion of two - year notes drew less demand than expected . the bid - to - cover ratio , a gauge of demand comparing the dollar value of bids received with those awarded , was 1 . 51 , well below the 2 . 53 average of the past 12 auctions .
also somewhat bearish for the bond market was release of the fed ' s beige book report , an assessment of economic conditions around the country in advance of policy meetings . policy makers are to meet again dec . 11 .
although the report cited weakness in the economy , it didn ' t encourage people in the bond market to expect further rate cuts by the fed , analysts said . " not everybody is in the camp that the fed ' s going to ease again , " said kevin flanagan , market strategist at morgan stanley .
two - year notes
here are results of yesterday ' s treasury auction of two - year notes .
all bids are awarded at a single price at the market - clearing yield .
rates are determined by the difference between that price and the face
value .
applications . . . . . . . . . . . . . . . . . . . . . . . . $ 31 , 761 , 220 , 000
accepted bids . . . . . . . . . . . . . . . . . . . . . . . $ 21 , 000 , 020 , 000
bids at market - clearing yld accepted 14 . 96 %
accepted noncompetitively . . . . . . . . . . . $ 774 , 120 , 000
accepted frgn noncomp . . . . . . . . . . . . . . . $ 0
auction price ( rate ) . . . . . . . . . . . . . . . . 99 . 985 ( 3 . 008 % )
interest rate . . . . . . . . . . . . . . . . . . . . . . . 3 %
cusip number . . . . . . . . . . . . . . . . . . . . . . . . 9128277 gl
the notes are dated nov . 30 , 2001 , and mature nov . 30 , 2003 .
( see related article : " commodities : energy trading bears the brunt of enron woes " - - wsj nov . 29 , 2001 )
copyright ? 2000 dow jones & company , inc . all rights reserved .
commodities
why credit agencies didn ' t switch off enron - - - energy trading bears the brunt of enron woes
by peter a . mckay
staff reporter of the wall street journal
11 / 29 / 2001
the wall street journal
cl
( copyright ( c ) 2001 , dow jones & company , inc . )
less than a month ago , enron corp . ' s electronic trading system was the largest of its kind in the world , accounting for a quarter of all the natural gas and electricity delivered in the u . s .
yesterday , the system was shut down , a victim of enron ' s failed deal with dynegy inc .
while the rise and sudden fall of enron rippled throughout financial markets yesterday , nowhere was it more immediately evident than in energy trading , an arena utterly transformed by enron in recent years .
since the late 1990 s , enrononline had established itself as the dominant electronic energy marketplace - - and major competitor of the traditional futures exchanges - - as it grew to handle an average of 5 , 400 trades a day , with a value of about $ 2 . 8 billion .
but a flight away from enron began weeks ago , as initial news of the company ' s woes began to spread . because enron itself guaranteed trades on its platform , fears grew that the company might not be able to complete many of the transactions .
the exodus of trading activity from enrononline accelerated throughout the day yesterday , culminating in the system ' s shutdown around midday , when quotes on the system ' s internet trading screens simply went blank .
by 3 : 30 p . m . est , some trading had resumed in natural gas , though spokesman eric thode declined to say whether enron ' s markets would be open today . " that ' s part of an evaluation that ' s ongoing , " he said .
on the floor of the new york mercantile exchange , a traditional floor - based futures market , natural - gas trading volume almost doubled yesterday to 116 , 000 contracts . while enron ' s woes were the main driver behind the surge , the market also reacted to important storage data from the american gas association .
natural - gas prices jumped about 25 cents yesterday morning on an initial reaction to the enron news , near $ 3 per million british thermal units , then slipped back as the aga announced that gas storage had grown by 16 billion cubic feet to an all - time high . the nearby december contract fell 29 cents to $ 2 . 315 per million btus .
" anyone who jumped into the gas market on the enron news is praying right now [ that prices recover ] , " guy gleichmann , senior energy trader at barkely financial . " it should only be a short - term factor in the market . "
he said enron ' s collapse has helped gas prices because it is mainly seen as a threat to the overall gas supply . traders assume enrononline ' s problems won ' t affect actual energy deliveries , because whoever takes over enron ' s assets is expected to honor those commitments .
meantime , anticipating potential fallout from the enron problems , energy firms also have been reducing their financial risk in the energy markets by unwinding complex derivatives bets , either by hedging against them or taking delivery of the physical commodity .
in the future , those firms are likely to favor straightforward cash transactions for energy as a result of the enron meltdown . " if anything , the enron situation has really simplified this market , " mr . gleichmann said .
yesterday on the , enron ' s primary electronic rival , traders waited up to five minutes to log in , said jeff sprecher , the online market ' s chief executive .
he said it seemed most traders were just jockeying for position at first , assessing the newfound risk before actually making any trades . within the first 15 minutes after standard & poor ' s initial downgrade of enron , mr . sprecher said , the number of bids and offers on dropped by almost a third , to 2 , 200 .
" by the end of the day , though , we expect this will probably be a record day for us , " said mr . sprecher , who estimated the system ' s overall volume is up 45 % this month .
he expects much of that gain to be permanent on ice , although he cautioned that a loss of enrononline from the marketplace would have a downside , since its presence created opportunities to trade spreads between the two platforms .
nymex president j . robert collins warned it is still too early to declare enrononline dead . but he said its difficulties bode well for his exchange ' s internet - based system , dubbed enymex , now in development .
" because of credit issues involving enron , companies might be more hesitant to trade there , " he said . " so we have a better shot with enymex than we did three or four months ago . "
ronald j . barone , managing director for energy research at ubs warburg , said enrononline ' s value to prospective acquirers will drop quickly in coming days , if the business continues to decline .
" dynegy really liked enrononline , but look at how much business the platform ' s been losing , " said mr . barone , who downgraded enron ' s stock yesterday to a hold . " there ' s also a question of how many more skeletons there are in the closet . "
in commodity trading yesterday :
grains : futures prices on corn , wheat and soybeans all fell again at the chicago board of trade as what was described as a technical - based selloff accelerated . december - delivery corn futures sank to $ 1 . 9850 a bushel late in the session , which wiped out the old contract low . the contract ended up settling down five cents at $ 1 . 9875 a bushel .
crude oil : crude - oil futures slipped 26 cents to $ 19 . 22 a barrel after weekly inventory data showed a larger - than - expected five - million - barrel build in distillates supplies , which include heating oil . high refinery runs and imports were behind the build , analysts said . the contract might have fallen even more , except for a modest drop reported for crude - oil stocks .
- - -
dyanna decola contributed to this article .
( see related article : " credit markets : s & p cries ` junk , ' but the warning comes too late " - - wsj nov . 29 , 2001 )
copyright ? 2000 dow jones & company , inc . all rights reserved .
fall of a power giant : chairman ' s deep political connections run silent
by bob davis
staff reporter of the wall street journal
11 / 29 / 2001
the wall street journal
al 0
( copyright ( c ) 2001 , dow jones & company , inc . )
for years , enron corp . chairman kenneth lay has been george w . bush ' s best friend in the board rooms of america ' s top corporations .
since 1993 , mr . lay and enron have donated nearly $ 2 million to mr . bush ' s political career , making them mr . bush ' s biggest backers . when mr . bush was texas governor , mr . lay , a houston resident , helped him win passage of a state education - reform plan that brought mr . bush national acclaim . during that fight , mr . lay got to know aides who became power players in the bush white house .
mr . lay was confident enough of his friendship with mr . bush that he even needled him for needing arthroscopic surgery to repair a jogging injury . " i want you to know that at least one jogger [ me ] got past 50 without that surgery , " mr . lay scribbled in a note to then governor in 1997 .
still , as enron faces its greatest crisis , mr . lay ' s influence and personal relationships with the administration have amounted to little . there appears to be no effort by the white house or congress to bail enron out of its difficulties , which are widely seen as self - inflicted . the white house had no comment on mr . lay ' s predicament , a spokeswoman said . indeed , short of an actual bailout to help enron meet its obligations - - such as an aid package approved by congress or organized by government officials from private sources , similar to the rescue of the long term capital management hedge fund - - there is little washington can do at this stage to help the company . nor is there likely to be a bailout , since enron has burned many bridges on capitol hill with its history of strong - arm lobbying tactics , some congressional aides say .
that may reassure a cynical public , says robert mosbacher , commerce secretary in the first bush administration and a longtime friend of the current president as well as mr . lay . " i don ' t see anybody being let off the hook , " he said .
mr . mosbacher says he introduced mr . lay to the bush family around 1987 , when he persuaded mr . lay to help raise money for george h . w . bush ' s successful presidential bid in 1988 . mr . lay contributed $ 461 , 000 to the younger mr . bush ' s two successful gubernatorial campaigns . he also made enron ' s fleet of corporate jets available to mr . bush and won his help in lobbying officials in other states considering enron projects .
his influence with then - gov . bush was based on more than money . mr . lay was one of the state ' s leading business executives and deeply involved in texas politics . under mr . bush ' s predecessor , democrat ann richards , mr . lay headed the governor ' s business council , a state advisory board . mr . bush asked him to stay on the job to help develop an educational reform plan and sell it to the texas legislature .
in that capacity , mr . lay became close to several bush aides , including political guru karl rove and communications adviser karen hughes , who have taken positions at the white house . he also got to know another leading texas businessman : dick cheney , then ceo of dallas oil concern halliburton co . , who would become mr . bush ' s pick for vice president .
against this backdrop , mr . lay was widely considered a top candidate for treasury secretary in the younger bush ' s administration . ultimately though , he was disqualified , bush insiders say , as too closely identified with mr . bush , mr . cheney and others who worked in the texas energy business for an administration that wanted to show it wasn ' t in the pocket of big oil companies .
early on , mr . lay had unrivaled access to the administration . when the president ' s advisers debated a new energy policy in the spring , mr . lay was the only energy executive to be invited for a one - on - one session with mr . cheney , who led the effort . mr . lay also worked with mr . rove and others to successfully push for appointments to the federal energy regulatory commission , which oversees much of enron ' s business .
as enron ' s problems multiplied and its fortunes plummeted , however , the white house was silent . during a several - hour long interview in the spring , mr . lay mused that his bush connections could boomerang someday . " it could hurt , from the standpoint that , at some point , they lean in the other direction to make sure they don ' t face criticism , " he said .
copyright ? 2000 dow jones & company , inc . all rights reserved .
fall of a power giant : chairman ' s deep political connections run silent
by bob davis
staff reporter of the wall street journal
11 / 29 / 2001
the wall street journal
al 0
( copyright ( c ) 2001 , dow jones & company , inc . )
for years , enron corp . chairman kenneth lay has been george w . bush ' s best friend in the board rooms of america ' s top corporations .
since 1993 , mr . lay and enron have donated nearly $ 2 million to mr . bush ' s political career , making them mr . bush ' s biggest backers . when mr . bush was texas governor , mr . lay , a houston resident , helped him win passage of a state education - reform plan that brought mr . bush national acclaim . during that fight , mr . lay got to know aides who became power players in the bush white house .
mr . lay was confident enough of his friendship with mr . bush that he even needled him for needing arthroscopic surgery to repair a jogging injury . " i want you to know that at least one jogger [ me ] got past 50 without that surgery , " mr . lay scribbled in a note to then governor in 1997 .
still , as enron faces its greatest crisis , mr . lay ' s influence and personal relationships with the administration have amounted to little . there appears to be no effort by the white house or congress to bail enron out of its difficulties , which are widely seen as self - inflicted . the white house had no comment on mr . lay ' s predicament , a spokeswoman said . indeed , short of an actual bailout to help enron meet its obligations - - such as an aid package approved by congress or organized by government officials from private sources , similar to the rescue of the long term capital management hedge fund - - there is little washington can do at this stage to help the company . nor is there likely to be a bailout , since enron has burned many bridges on capitol hill with its history of strong - arm lobbying tactics , some congressional aides say .
that may reassure a cynical public , says robert mosbacher , commerce secretary in the first bush administration and a longtime friend of the current president as well as mr . lay . " i don ' t see anybody being let off the hook , " he said .
mr . mosbacher says he introduced mr . lay to the bush family around 1987 , when he persuaded mr . lay to help raise money for george h . w . bush ' s successful presidential bid in 1988 . mr . lay contributed $ 461 , 000 to the younger mr . bush ' s two successful gubernatorial campaigns . he also made enron ' s fleet of corporate jets available to mr . bush and won his help in lobbying officials in other states considering enron projects .
his influence with then - gov . bush was based on more than money . mr . lay was one of the state ' s leading business executives and deeply involved in texas politics . under mr . bush ' s predecessor , democrat ann richards , mr . lay headed the governor ' s business council , a state advisory board . mr . bush asked him to stay on the job to help develop an educational reform plan and sell it to the texas legislature .
in that capacity , mr . lay became close to several bush aides , including political guru karl rove and communications adviser karen hughes , who have taken positions at the white house . he also got to know another leading texas businessman : dick cheney , then ceo of dallas oil concern halliburton co . , who would become mr . bush ' s pick for vice president .
against this backdrop , mr . lay was widely considered a top candidate for treasury secretary in the younger bush ' s administration . ultimately though , he was disqualified , bush insiders say , as too closely identified with mr . bush , mr . cheney and others who worked in the texas energy business for an administration that wanted to show it wasn ' t in the pocket of big oil companies .
early on , mr . lay had unrivaled access to the administration . when the president ' s advisers debated a new energy policy in the spring , mr . lay was the only energy executive to be invited for a one - on - one session with mr . cheney , who led the effort . mr . lay also worked with mr . rove and others to successfully push for appointments to the federal energy regulatory commission , which oversees much of enron ' s business .
as enron ' s problems multiplied and its fortunes plummeted , however , the white house was silent . during a several - hour long interview in the spring , mr . lay mused that his bush connections could boomerang someday . " it could hurt , from the standpoint that , at some point , they lean in the other direction to make sure they don ' t face criticism , " he said .
copyright ? 2000 dow jones & company , inc . all rights reserved .
abreast of the market
dynegy and chevrontexaco slide along with plunge in enron stock
by robert o ' brien
dow jones newswires
11 / 29 / 2001
the wall street journal
c 2
( copyright ( c ) 2001 , dow jones & company , inc . )
new york - - the collapse of enron dominated stock trading yesterday , as a host of the power generators and energy merchants exposed to the firm tumbled .
shares of dynegy , the suitor for enron that pulled out of a deal after debt - rating agencies lowered their ratings on enron ' s bonds , fell 4 . 92 , or 12 % , to 35 . 97 . chevrontexaco , which owns 26 % of dynegy , slid 1 . 07 , or 1 . 2 % , to 84 . 55 .
shares of enron itself were ground down more than 85 % . the loss of $ 3 . 50 brought the closing price of each enron share down to 61 cents . this from a stock that , as recently as august 2000 , commanded more than $ 90 a share .
a host of other energy merchants , such as el paso , which lost 3 . 59 , or 7 . 4 % , to 44 . 91 , williams , which shed 1 . 80 , or 6 . 2 % , to 27 . 05 , and american electric power , which fell 2 . 03 , or 4 . 8 % , to 40 . 44 , all got caught in the backlash against the energy market .
the dow jones utility average finished the session down 8 . 48 points , a drop of 2 . 94 % , to 279 . 95 , which brought it down to a 52 - week low .
shares of two giant financial - services providers also got caught by their exposure to enron , and paid the price . shares of citigroup fell 2 . 75 , or 5 . 4 % , to 47 . 80 , while j . p . morgan chase slid 2 . 30 , or 5 . 8 % , to 37 . 50 .
with those two components in decline , the dow jones industrial average finished the session 160 . 74 points lower , a loss of 1 . 63 % , to 9711 . 86 . the nasdaq composite slid 2 . 48 % , or 48 points , to 1887 . 97 .
the dow industrial average ' s finish at 9711 . 86 represented the lowest close the average has posted in more than two weeks , since ending at 9554 . 37 . traders insisted that the speed and apparent ease with which market averages have managed to lard on gains over the past several weeks has stretched valuations , and left equities vulnerable to events , like the enron sell - off , that a sturdier market might have more handily absorbed .
" one of the most important overriding factors has been the performance of the market itself , " arthur hogan , chief market analyst at jefferies , said . " the market has moved straight up seven weeks in a row , and when it moves up in a straight line like that , it doesn ' t take much in the way of a catalyst to tip it over . "
whether it was excuse - making or profit - taking , the market did have to absorb some fundamental challenges in the session , including an especially pessimistic assessment of economic conditions from the federal reserve . the central bank released its beige book report on economic conditions , which showed , overall , the economy tilted more toward further slowing than it did toward recovery .
that helped further puncture shares of some of the retailers that got waylaid in tuesday ' s trading by a bearish consumer sentiment reading . shares of gap , stung by a reduction in its investment rating by prudential securities , lost 79 cents , or 5 . 5 % , to 13 . 61 . shares of another apparel retailer , american eagle outfitters , lost 1 . 3 , or 5 . 9 % , to 24 . 40 , while talbots dropped 1 . 25 , or 3 . 6 % , to 33 , and discounter kohl ' s fell 84 cents , or 1 . 2 % , to 67 . 86 .
meanwhile , some of the classic cyclical stocks that have had good runs over the past several weeks as investors bet on an eventual economic recovery gave ground . shares of boeing fell 1 . 33 , or 3 . 7 % , to 34 . 17 , after j . p . morgan reduced its earnings forecasts for 2002 and 2003 . whirlpool lost 1 . 12 , or 1 . 7 % , to 64 . 98 . auto - parts maker eaton declined 1 , or 1 . 4 % , to 69 . 60 . general electric , also subject to some downbeat comments from j . p . morgan , fell 1 . 72 , or 39 . 35 .
continental airlines lost 2 . 40 , or 10 % , to 21 . 70 . the air carrier completed a public offering of 6 . 74 million shares of stock priced at $ 22 . 50 , a discount to tuesday ' s closing price of 24 . 10 .
coca - cola declined 1 . 06 , or 2 . 2 % , to 46 . 75 . j . p . morgan said it expects slower volume growth ahead for the beverage maker ' s bottlers . shares of coca - cola enterprises , coke ' s biggest bottler , eased 40 cents , or 2 . 3 % , to 17 .
magna international rose 1 . 54 , or 2 . 6 % , to 61 . 51 . salomon smith barney started coverage of the canadian auto - components maker with a buy rating .
medtronic gained 1 . 74 , or 4 % , to 45 . 78 . the minneapolis medical - device maker reported fiscal second - quarter results that matched wall street ' s projections , and said it expected to live up to third - quarter forecasts .
foot locker eased 19 cents , or 1 . 2 % , to 15 . 70 , after mixed views from rival brokers . rbc capital markets started coverage of the stock with a strong buy rating , but jefferies reduced its coverage of the stock to accumulate from buy .
copyright ? 2000 dow jones & company , inc . all rights reserved .
foreign exchange
dollar declines against yen and euro amid growing doubts on u . s . economy
by grainne mccarthy
dow jones newswires
11 / 29 / 2001
the wall street journal
cl 4
( copyright ( c ) 2001 , dow jones & company , inc . )
new york - - growing doubts about the u . s . economy ' s ability to rebound quickly from recession weighed heavily on the dollar , pushing the currency down almost a full yen and helping the euro regain some lost ground .
weakness in u . s . stocks - - due partly to news that dynegy inc . decided to walk away from its deal to buy enron corp . - - also put pressure on the dollar , while enron ' s debt woes added to general skittishness about the ability of u . s . business to bounce back quickly .
" we know there are companies out there in trouble , " said lara rhame , economist at brown brothers harriman in new york , who said that while the enron developments weren ' t having a direct impact on foreign - exchange markets , such reports do " limit the kind of superdollar that we saw back in 1999 . "
the dollar selloff kicked off in asian trading , when dealers used a standard & poor ' s downgrade of japan ' s sovereign rating as an excuse to buy the yen . the downgrade to double - a from double - a - plus was better than the market ' s expectations of a two - notch downgrade , rendering it good news of sorts .
the selling continued in new york trading , as traders continued to price in the possibility that they may have been far too optimistic about the dollar .
the two - pronged catalyst for this change of heart was the weak november consumer confidence index released tuesday , and subsequent gloomy comments from federal reserve governor laurence meyer pointing to more downside risks to the economy . the release of the federal reserve ' s beige book report yesterday served only to flame this pessimism .
the fed said that further slowing outweighed signs of recovery for the u . s . economy this autumn , noting that economic activity generally remained soft in october and the first half of november .
" people wanted greater signs of recovery than they got from the fed , " said alan ruskin , research director at the 4 cast financial consultancy in new york .
the beige book , a summary of economic activity prepared for use at the central bank ' s next federal open market committee meeting dec . 11 , is widely viewed as an indicator of future monetary policy decisions and the report helped to solidify expectations of a rate cut of at least a quarter percentage point .
late yesterday in new york , the euro was at 88 . 84 u . s . cents , its high for the session and up from 88 . 34 cents late tuesday in new york . the dollar was at 123 . 11 yen - - around its intraday low - - and almost a full yen down from 123 . 96 yen late tuesday in new york . the dollar was also at 1 . 6460 swiss francs , down from 1 . 6484 francs in london and 1 . 6560 francs tuesday . sterling was at $ 1 . 4261 , up from $ 1 . 4185 earlier in london and $ 1 . 4153 late tuesday .
elsewhere , the canadian dollar climbed to its highest levels in almost a month , confounding the view that bad news for the u . s . is bad news for canada .
the canadian currency has tended to suffer from an association with the u . s . , given that 85 % of canada ' s exports head south of the border . however , a 0 . 50 - percentage - point rate cut by the bank of canada on tuesday was quickly followed by the gloomy consumer confidence report in the u . s . , which undercut faith in the dollar and appeared to give the canadian unit just the opportunity it was seeking .
late in the new york day , the u . s . dollar was at c $ 1 . 5842 , down from c $ 1 . 5939 late tuesday .
copyright ? 2000 dow jones & company , inc . all rights reserved .
options report
dynegy ' s move to disconnect enron merger powers volatility spike as investors seek cover
by kopin tan
dow jones newswires
11 / 29 / 2001
the wall street journal
cl 4
( copyright ( c ) 2001 , dow jones in fact , such " buying on the dip " has helped propel stock prices . with stocks up substantially from their september lows , investors still are browsing but are seeking added insurance , with many buying defensive puts to lock in a minimum selling price for the stock .
sprint ' s january 25 puts traded more than 13 , 000 contracts at the amex as an investor bought stock along with those puts . specifically , the investor bought about 5 , 000 contracts of the puts , then bought a put spread by buying 8 , 000 contracts of january 25 puts that expire 2002 and selling the same number of january 25 puts that expire 2003 .
shares of sprint ' s pcs unit fell $ 1 . 14 to $ 25 . 90 . at the amex , the january 25 puts were at $ 1 . 15 on volume of 13 , 005 contracts , compared with open interest of 2 , 799 . the january 25 puts that expire in 2003 were at $ 4 . 40 on volume of 8 , 005 contracts , compared with open interest of 8 , 826 .
copyright ? 2000 dow jones & company , inc . all rights reserved .
enron asks staff to drop 401 ( k ) suits for severance
11 / 29 / 2001
the wall street journal
cl 3
( copyright ( c ) 2001 , dow jones & company , inc . )
houston - - enron corp . , the subject of four lawsuits filed over losses in its employees ' 401 ( k ) retirement plan , is asking laid - off workers to waive legal claims against it in exchange for some of their severance payments .
attorneys for some of the employees sought to block that requirement . plaintiffs are seeking an " immediate preliminary injunction prohibiting enron from soliciting any releases which would affect the participants ' rights vis a vis the plan , " according to an amended complaint filed by seattle firm campbell harrison & wright .
the complaint , filed in federal district court in houston , asks the court " to appoint a neutral fiduciary to manage the plan . " the suit claims enron is laying off as much as 60 % of its staff in some departments .
an enron attorney , in a statement , said laid - off employees aren ' t required to sign the waiver to get severance pay , but will get " additional severance in exchange " for signing . she said enron hadn ' t modified the waiver " in response to the current economic circumstances of the company , " but added that enron " continues to evaluate its options regarding the severance - pay plan . "
copyright ? 2000 dow jones & company , inc . all rights reserved .
nvidia to replace enron in s & p
11 / 29 / 2001
the wall street journal
cl 3
( copyright ( c ) 2001 , dow jones & company , inc . )
new york - - standard & poor ' s said nvidia corp . , a santa clara , calif . , graphic - chip maker , will replace enron corp . in the s & p 500 - stock index after today ' s regular trading . s & p said enron , the houston energy concern whose merger with dynegy inc . unraveled yesterday , is being removed for lack of representation .
copyright ? 2000 dow jones section a
enron ' s collapse : the overview
enron collapses as suitor cancels plans for merger
by richard a . oppel jr . and andrew ross sorkin
11 / 29 / 2001
the new york times
page 1 , column 1
c . 2001 new york times company
enron , the champion of energy deregulation that grew into one of the nation ' s 10 largest companies , collapsed yesterday , after a rival backed out of a deal to buy it and many big trading partners stopped doing business with it .
enron , based in houston , was widely expected to seek bankruptcy protection . with $ 62 billion in assets as of sept . 30 , it would be the biggest american company ever to go bankrupt , dwarfing the filing by texaco in 1987 . late in the day , though , enron ' s chief financial officer , jeff mcmahon , said that the company was still talking to banks about a restructuring and considering other options .
talks with its would - be rescuer dynegy , also of houston , about salvaging the deal ended in acrimony .
dynegy , which had agreed on nov . 9 to buy enron but had second thoughts as enron disclosed more financial problems and investors pummeled its stock , accused enron of misrepresenting the health of its business . enron , meanwhile , was weighing whether to sue dynegy for breaching the terms of the deal , a person close to enron said .
enron ' s swift collapse left the prospects of 21 , 000 employees in doubt and wiped out what was left of the holdings of stock investors , including some big mutual funds , as shares that sold for $ 90 in august 2000 crashed to close yesterday at 61 cents . it roiled the treasury market and tarnished the standing of the big new york banks that both advised on the deal and poured their own cash into the company . and it left in tatters the reputation of enron ' s chief executive , kenneth l . lay , a confidant and campaign backer of president george w . bush . [ page cl . ]
the treasury department , the federal reserve and the federal energy regulatory commission said they had monitored enron ' s impact on the financial and energy markets yesterday ; officials who would comment said they saw no dangerous ripple effect .
' ' the markets are functioning normally , ' ' said peter bakstansky , a spokesman for the federal reserve bank of new york .
from a pipeline company in the 1980 ' s , enron grew into the world ' s largest energy trader , using the internet to buy and sell natural gas and electric power supplies for utilities and industrial power users and helping them hedge against fluctuations in power prices .
but enron was undone by shaky accounting , too much borrowed money and an unwillingness to provide information to investors who grew to doubt its financial reports .
five weeks ago , the company disclosed that , to fuel its growth , it had shifted billions of dollars in debt off its balance sheet and into an array of complex partnerships . the securities and exchange commission began an investigation , and enron restated five years of earnings , wiping out nearly $ 600 million in profit .
enron was teetering close to insolvency before dynegy , a smaller cross - town rival , agreed to acquire it for $ 9 billion plus the assumption of $ 13 billion in debt , with additional financing from chevrontexaco , a major dynegy shareholder .
but enron subsequently disclosed even more debts , and its financial plight continued to worsen . energy - trading companies reduced dealings with the firm ; doubting its creditworthiness , some forced enron to pay higher prices for natural gas and other products or required it to post large cash deposits to back trades .
for four days , enron and dynegy worked to salvage the deal . but yesterday morning , dynegy pulled out . ' ' we knew when to say no , and this morning , we said no , ' ' said chuck watson , dynegy ' s chairman .
in an interview , mr . watson said enron ' s energy - trading business had deteriorated . he also cited ' ' surprises ' ' in the quarterly report to the s . e . c . that enron filed on nov . 19 , including the disclosures that a credit downgrade meant enron had to pay or refinance a $ 690 million obligation and that enron had less cash on hand than dynegy had expected . ' ' confidence and credibility , which is what this business is all about , deteriorated after that , ' ' he said .
mr . watson said he called mr . lay yesterday after a meeting of dynegy ' s board to call off the deal . by then , s . dynegy shares fell $ 4 . 08 , or 10 percent , to close at $ 36 . 81 .
other big energy traders , like the el paso corporation , reliant energy , mirant and aquila , also fell . but enron ' s gradual decline over the last month gave many energy companies time to reduce their exposure to enron , and many operate rival trading operations that would benefit from its collapse .
yesterday morning , as news leaked out of dynegy ' s plans to cancel the deal and s . prices soar . dec . 15 2000 : four months after the chief executive of azurix resigns , enron takes the company private again . aug . 14 , 2001 : only six months after becoming chief executive , jeffrey k . skilling resigns . he is succeeded by kenneth l . lay . oct . 8 : four years after buying portland general electric , enron agrees to sell it to northwest natural gas oct . 16 : enron reports a third - quarter loss of $ 618 million . oct . 24 : two days after enron discloses that the securities and exchange commission is looking into complicated transactions involving enron and partnerships set up by andrew s . fastow , the company ' s chief financial officer , mr . fastow is forced out . oct . 31 : the s . e . c . upgrades its inquiry to a formal investigation . nov . 8 : enron discloses that it overstated profits for the previous five years by $ 586 million . nov . 9 : dynegy agrees to buy enron for about $ 9 billion . yesterday : the merger collapses . enron ' s stock falls $ 3 . 50 to 61 cents . ( source : bloomberg financial markets ) ( pg . c 6 )
copyright ? 2000 dow jones section c
enron ' s collapse : the last resort
a bankruptcy filing might be the best remaining choice
by jonathan d . glater
11 / 29 / 2001
the new york times
page 6 , column 1
c . 2001 new york times company
enron , facing the collapse of a deal with dynegy that might have rescued it from disaster and a tidal wave of debts suddenly coming due , may now have little choice but to enter bankruptcy , lawyers and analysts said yesterday .
filing for protection under chapter 11 of the federal bankruptcy code would give the company some much - needed breathing room to deal with creditors ' claims , as well as afford any eventual buyer the advantage of a court ' s approval .
but bankruptcy would also be complicated by the fact that some of enron ' s most valuable assets , including its transwestern pipeline linking texas natural gas fields with california energy markets , are already pledged to lenders . the value of other assets available to satisfy unsecured creditors is unclear .
still , enron ' s creditors will not necessarily lose everything , said robert j . rosenberg , a lawyer at latham any awards would not be paid until after creditors were satisfied . and like enron ' s other shareholders , they might end up with nothing , said robert d . albergotti , a partner at haynes & boone , a dallas law firm .
if enron files for bankruptcy , this is not likely to prevent litigation against arthur andersen , the company ' s outside auditor , said jeffrey n . gordon of columbia university law school . indeed , bankruptcy proceedings could give both the company and investors an opportunity to figure out exactly how its profits came to be overstated and to look for potential fraud .
a special committee of enron ' s board has already retained deloitte & touche , another big accounting firm , to help .
' ' it ' s going to be a while before they figure it all out , ' ' professor gordon said .
chart : ' ' big losers ' ' as of sept . 30 , enron ' s top 10 shareholders were all big money managers . alliance capital shares held ( in millions ) : 43 . 0 percentage of outstanding shares : 5 . 78 % janus capital shares held ( in millions ) : 41 . 4 percentage of outstanding shares : 5 . 56 putnam investment shares held ( in millions ) : 23 . 1 percentage of outstanding shares : 3 . 11 barclays bank shares held ( in millions ) : 23 . 0 percentage of outstanding shares : 3 . 10 fidelity investments shares held ( in millions ) : 20 . 8 percentage of outstanding shares : 2 . 80 citigroup shares held ( in millions ) : 20 . 8 percentage of outstanding shares : 2 . 79 state street shares held ( in millions ) : 16 . 1 percentage of outstanding shares : 2 . 17 aim management shares held ( in millions ) : 14 . 0 percentage of outstanding shares : 1 . 88 taunus shares held ( in millions ) : 12 . 5 percentage of outstanding shares : 1 . 68 vanguard shares held ( in millions ) : 11 . 4 percentage of outstanding shares : 1 . 54 ( source : bloomberg financial markets )
copyright ? 2000 dow jones section a
an implosion on wall street
11 / 29 / 2001
the new york times
page 34 , column 1
c . 2001 new york times company
enron , the energy - trading company , may be on the verge of extinction with the collapse yesterday of its proposed acquisition by dynegy , a smaller competitor , and the downgrading of its debt to junk status . but its name has attained immortality on wall street .
enron is now shorthand for the perfect financial storm . take a high - flying company terribly impressed with its sense of unique mission and ingenuity , and correspondingly contemptuous of its obligations to fully comply with the spirit of accounting rules . then add fawning investors , wall street analysts , journalists and accountants unwilling to allow a company ' s lack of transparency about its business to get in the way of a dizzying ride , until they realize the destination is the top of a steep cliff . what you have then is an enron .
there have been plenty of other once - unfathomable implosions on wall street , but perhaps none so sudden or of such magnitude . jittery financial markets now have to contend with the possibility that an enron bankruptcy could undermine the financial health of banks and other energy companies . enron ranked seventh on the list of fortune 500 companies last year , and remained one of the most hyped stories on wall street well into this year . a pioneer in creating private marketplaces for newly deregulated commodities , enron was touted as a revolutionary force , bridging the dot - com world and stodgy energy markets .
now enron may become one of the largest bankruptcy cases in history . its stock closed yesterday at 61 cents , as investors rushed for the exits in reaction to the fatal news that , without a bailout from dynegy , enron is unlikely to be able to meet its crushing debt obligations .
the company ' s autopsy will be a complicated affair , entailing numerous lawsuits . what is already clear , and will come as a shock to millions of trusting individual investors across america , is that the financials of a fortune 500 company were essentially a mystery . enron ' s death watch began last month when it grudgingly disclosed that $ 1 . 2 billion of its market value had vanished as a result of ' ' related - party ' ' transactions with private partnerships that enriched company insiders . then enron admitted that it had overstated its profits over the last five years by $ 600 million . dynegy cited enron ' s lack of forthrightness as a reason to walk away from the merger agreement .
not very long ago , competitors and democrats in washington were worrying whether the close ties between enron ' s chairman , kenneth lay , and george w . bush would give the company too much influence . enron has aggressively lobbied , with some success in recent years , to limit regulation and disclosure of its trading operations .
now enron is the best argument for the need for stronger supervision of public companies ' financial data . the securities and exchange commission should make sure that the energy trader ' s saga puts an end to any talk of lessening disclosure requirements faced by public companies . moreover , arthur andersen ' s failure to uncover flawed accounting by enron , or to forcefully question some of the company ' s shadier transactions , raises serious concerns about auditors ' commitment to be sufficiently diligent in reviewing the actions of major companies .
there is a certain irony that enron , a champion of deregulation , now becomes a poster child for the need for strong regulation on wall street .
copyright ? 2000 dow jones section c
enron ' s collapse : the lenders
citigroup and j . p . morgan are left with bruised egos and exposure to loans
by riva d . atlas
11 / 29 / 2001
the new york times
page 6 , column 2
c . 2001 new york times company
dynegy ' s decision to walk away from enron leaves citigroup and j . p . morgan chase licking their wounds after an effort to burnish their reputations as deal makers .
as lead advisers and lead bankers for enron , the banks had the chance to build influence in the merger business . unlike other wall street firms , citigroup and j . p . morgan have large balance sheets and have boasted of their ability to provide both loans and advice . j . p . morgan , in particular , ' ' has been saying that providing financing is an advantage they have in terms of building their investment banking franchise , ' ' said richard strauss , a goldman , sachs analyst following brokerage firms .
now , not only have the banks lost bragging rights for pulling off a difficult deal , as well as millions in fees , they are also left holding hundreds of millions in loans to enron , which is trying to stave off bankruptcy . enron owes the two banks anywhere from $ 800 million to $ 900 million each , although some of it may be hedged through derivatives contracts , analysts estimated .
in bankruptcy , of course , creditors come well ahead of shareholders , who have now been virtually wiped out . janus capital was the biggest shareholder for most of the year , but alliance capital surpassed it as of sept . 30 , according to the latest regulatory filing available . enron ' s stock plunged to 61 cents yesterday .
worries about the money enron owes the banks punished their stocks yesterday . citigroup ' s shares closed at $ 47 . 80 each , down $ 2 . 75 , while j . p . morgan fell $ 2 . 30 , to $ 37 . 50 .
even if enron files for bankruptcy , neither j . p . morgan nor citigroup is thought to have enough exposure to be at serious risk . executives of the banks declined to comment on the estimates of their exposure . while the banks had each promised to make equity investments in the companies of $ 250 million each , those investments have been canceled along with the dynegy deal .
about half of the money owed to j . p . morgan and citigroup consists of a $ 1 billion loan the banks made earlier this month that is secured by one of enron ' s pipelines . citigroup lent $ 600 million , and j . p . morgan provided the rest , according to an executive close to the enron negotiations . the remainder owed to the banks is in various loans , trading positions and other investments not secured by enron assets .
given that there are assets backing much of the banks ' loans , some analysts said the stock market had overreacted . ' ' the net exposure could be very small , ' ' said andrew collins , who covers bank stocks at u . s . bancorp piper jaffray and is recommending citigroup and j . p . morgan .
jeffrey mcmahon , enron ' s chief financial officer , said the company was still working with j . p . morgan chase and citigroup to restructure enron ' s debts .
several other banks may own large amounts of enron debt . bank of america has $ 200 million to $ 300 million , according to estimates by lori appelbaum , who follows bank stocks for goldman , sachs , and ruchi madan , a stock analyst at salomon smith barney . other banks identified by the analysts as owed money are the bank of new york , bank one , fleetboston financial , suntrust and the wachovia corporation . a spokesman for suntrust did not return calls ; executives at the other banks declined to comment .
in what appears to have been bad timing , alliance capital management , a subsidiary of axa , increased its stake in enron late this summer . janus , a unit of stilwell financial , had been the biggest shareholder , but was pruning its stake . alliance ' s position grew 71 percent in the report filed in september , to 5 . 8 percent of enron ' s outstanding . jane ingalls , a spokeswoman for janus , said last night that janus had since sold all its shares , but did not say when or at what price . a spokesman for alliance would not comment about its stake in enron .
copyright ? 2000 dow jones section c
enron ' s collapse : the market
in turbulent bond market , enron ' s woes exacerbate turmoil
by gretchen morgenson
11 / 29 / 2001
the new york times
page 1 , column 2
c . 2001 new york times company
the swift downfall of enron has contributed to extreme turbulence in the united states treasury market in recent weeks , causing violent swings in interest rates not seen since russia defaulted on its debt and the long - term capital management hedge fund nearly collapsed in late 1998 .
even though the exact makeup of enron ' s large trading portfolio remains a mystery , traders said that the energy company had bet that interest rates would continue to decline because of continuing weakness in the economy .
then two weeks ago , the economy began to show signs of revival . as investors decided that the days of federal reserve rate cuts were over , rates began to rise and prices on treasury securities fell . the move out of treasuries crushed traders who still expected the weak economy to push interest rates lower . scrambling to cut their losses , those traders sold even more , depressing prices and pushing up rates further .
the sense among many market participants is that enron ' s woes made a bad market excruciating . ' ' i think the street in general lost half of its year or more in the last week or two , ' ' said stan jonas , managing director at fimat usa , a broker dealer . ' ' everyone was long the bond market , thinking the economy was going to be bad . then everything shifted , and enron drove it to extremes . ' '
how extreme ? in the two weeks beginning nov . 12 , two - year treasury notes plummeted in price , pushing their yields up to 3 . 18 percent , from 2 . 41 percent . in the same period , yields on treasuries with five - year maturities went to 4 . 4 percent , from 3 . 62 percent .
the trade that appears to have gone awry for enron , market participants say , involved the sale of hundreds of thousands of eurodollar futures , some of which matured in two or three years . such contracts are frequently used to bet on the direction of interest rates . enron could also have used the eurodollar contracts to hedge against fluctuations in oil prices . in a weak economy , oil prices usually fall . but so do interest rates , so a bet on lower rates would produce gains to help offset the decline in oil prices . when data showed signs of life in the economy , traders surmised that enron began to sell its eurodollars and started an avalanche of selling among other traders .
there were huge eurodollar positions being liquidated , said gemma wright , director of market strategy at barclays capital . ' ' we don ' t know for certain who it was , but the amount of the loss was high . ' '
one reason that traders suspect enron may have been forced out of such a position was that the company had neither the cash flow nor the bank credit to meet calls for additional cash from traders at other firms . typically , companies have cash reserves to meet such calls or have access to temporary lines of credit to cover shortfalls . enron appears to have neither . yesterday , the company said it was suspending all payments except for those ' ' necessary to maintain core operations . ' '
in addition to the recent interest rate spike , enron has had to contend with falling oil prices . the price of crude oil has dropped 28 percent since the end of october .
caught in a vise , enron has almost certainly been selling securities to raise cash . treasury securities and eurodollar contracts , because their markets are large , are among the easiest to sell . in both cases , enron was probably selling into a falling market .
adding to the turmoil in the bond market , traders said , was less participation by wall street firms , which were unwilling to take on big new trading positions near the end of their fiscal year . several firms end their years on nov . 30 .
some traders say enron ' s problems started with comments on tuesday by laurence h . meyer , a governor of the federal reserve . mr . meyer suggested that additional rate cuts might be coming , and that remark helped stabilize prices of treasury securities . ' ' it ' s my view that there are no coincidences , ' ' mr . jonas said . ' ' laurence meyer is a big hawk on interest rates , and he basically talked a 180 . that was their big gun . the only bigger gun would have been greenspan . ' '
graph : ' ' market catalyst ' ' the swift demise of enron and the company ' s investment strategies in the bond market may have contributed to the sharp rise in the yields on treasury notes in the last few weeks . graph tracks daily yields on 2 year treasury notes in november . ( source : bloomberg financial markets ) ( pg . c 7 )
copyright ? 2000 dow jones section a
enron ' s collapse : market place
a big fall evoking nasty old memories of a run on a bank
by floyd norris
11 / 29 / 2001
the new york times
page 1 , column 1
c . 2001 new york times company
the final collapse of enron amounted to something that few living americans have ever seen : a bank run like those in the days before deposit insurance .
enron appeared to become a wildly successful company by creating a new , largely unregulated financial business , that of energy trading . that business ran on credit , and required suppliers and users of energy to sign contracts that called on enron to meet obligations months or years later .
enron became something like a bank , which takes depositors ' money and promises to pay it back later . but unlike banks in the current era , this institution had no federal deposit insurance to reassure customers when rumors began to spread that it was in trouble . that proved to be its achilles ' heel . enron ' s collapse is a reminder for big players in unregulated markets that their financial health must be beyond doubt .
before the advent of deposit insurance , bankers knew what was needed to head off a bank run . it was cash , so much cash that it would be clear that panic was unwarranted . nearly a century ago , j . p . morgan took the lead as he and fellow banking tycoons put up the millions needed to keep the trust company of america open . thus was halted the panic of 1907 .
as it happened , corporate descendants of two major institutions involved in that rescue - - j . p . morgan chase and citigroup - - were major players in the enron debacle . but they did not try the strategy this time .
instead , enron kept arranging an additional billion or two in loans , clearly struggling to find the money . morgan and citigroup allowed the word to spread that they were ready to put in more money on their own , but the amounts were relatively small , and somehow the money was never invested .
when dynegy agreed to buy enron , it put up $ 1 . 5 billion in cash only after it was assured that it would get control of the company ' s crown jewel , the northern natural gas pipeline system , or its money back , if the deal collapsed .
the final straw came on tuesday , when negotiations on a revised dynegy takeover deal came down to efforts to find $ 250 million or $ 500 million of enron assets that could serve as collateral for a new dynegy cash advance . the message to companies that traded with enron was clear : even its rescuer is demanding collateral , and is having trouble finding it .
given that , enron ' s financial business could not continue . public haggling over the terms of the rescue assured that no rescue was possible , something that would have been obvious to the original j . p . morgan but that seemed to escape his corporate heirs . as walter bagehot , the british financial journalist and historian , wrote in 1873 , ' ' every banker knows that if he has to prove that he is worthy of credit , however good may be his arguments , in fact his credit is gone . ' '
the markets enron helped to create will endure , but probably without enron . it will be interesting to see whether participants in them continue to resist regulation as much as they have in the past . unregulated markets , especially when they are relatively new , can be very profitable for those with superior market knowledge , as enron seemed to have . but when prices are visible to all , the value of that knowledge plummets . regulation could bring more openness , but it could also bring structures , like clearing systems , that reassure traders they need not worry about the credit of those with whom they trade .
if the markets continue to be unregulated , enron ' s collapse makes it more likely that the big players in those markets will be companies that are already regulated enough to assure customers that they are secure - - companies like major banks and brokerage houses . that would be bad news for dynegy , which was enron ' s major competitor before it tried to become its acquirer .
the crisis at enron may have exposed a ' ' flaw in the business model ' ' of energy trading companies , said john diaz , a managing director at moody ' s , in an interview yesterday . ' ' companies in this industry need to think carefully about their liquidity management , ' ' he said . ' ' we ' re going to be looking very hard at this . ' '
the litigation over enron seems likely to be prolonged and expensive , but it may boil down to senator howard h . baker jr . ' s famous watergate - era question about president richard m . nixon : what did he know and when did he know it ?
that question will be asked about arthur andersen , enron ' s auditor , and about its corporate officials , past and present . but it will be asked most particularly about the banks and investment banks that served enron and its affiliated off - balance - sheet entities in recent years .
enron ' s disclosures last week showed it needed to pay far more in debts over the next year than most people had understood to be the case . but the newly discovered loans did not materialize out of thin air . the money was lent by banks and bond buyers to the off - balance - sheet entities . those who were stuck with losses on the known enron debt may claim the financiers who syndicated the loans should have told them of all the other debt .
among those who do not come out of this looking very good are the bond rating agencies . just six weeks ago , after enron put out an earnings release showing strong pro - forma profits , as it defined them , two of the agencies , fitch and standard & poor ' s , reaffirmed enron ' s rating of triple - b plus . moody ' s , the agency that was the most skeptical about enron , put the rating under review and hinted it would , at worst , cut it one notch .
none of the rating agencies seemed overly concerned about a detail disclosed by enron at the time : a $ 1 . 2 billion reduction in shareholder equity related to what it later said were accounting mistakes involving a partnership run by enron ' s chief financial officer . but that disclosure set off a cascade of questions that enron could not answer in a reassuring way . it ran through billions as companies demanded more protection to keep trading with it .
enron could have been saved , if an institution that was trusted - - whether that was chevron texaco , which put up the $ 1 . 5 billion cash that dynegy invested , or j . p . morgan chase or citigroup - - had made it clear that it was willing to stand behind enron . a credible backer would have ended the run .
but no one was willing to do that , and their hesitance as they learned more only accelerated the run . whether they were wise to avoid that exposure may become clear as it emerges how much creditors will eventually get .
finally , the rating agencies yesterday downgraded enron to relatively low levels of junk . they knew that was likely to force enron into bankruptcy in the near future , but they also knew that no one was willing to rescue a company that the agencies had viewed as solid only weeks before .
yesterday , as dynegy walked away from the merger , it said that it was no longer willing to trade with enron - - unless enron put up ' ' sufficient credit support . ' ' it knew that support was nowhere to be found .
copyright ? 2000 dow jones section c
enron ' s collapse : the chief executive
foundation gives way on chief ' s big dream
by john schwartz and richard a . oppel jr .
11 / 29 / 2001
the new york times
page 1 , column 5
c . 2001 new york times company
well before anyone could imagine that enron might collapse , kenneth l . lay was stumped . in an interview in august , he dismissed questions about a vague clause in the energy company ' s annual report that hinted at bigger problems if its stock price or credit rating fell below certain levels .
' ' i just can ' t help you on that , ' ' he said . pressed further on questions about a bewildering constellation of business partnerships that involved enron ' s former chief financial officer , he said , ' ' you ' re getting way over my head . ' '
at the least , mr . lay - - a man of big ideas , a crusader for free markets , a risk taker in the texas wildcatter tradition - - had taken his eye off the ball . while he was busy befriending the nation ' s most powerful politicians , erecting one of the tallest buildings in houston and pasting enron ' s logo on the city ' s new ballpark , the little things were turning out to be mr . lay ' s big problems .
one after another , disclosures spilled out of his company over the last month : the partnerships had hidden billions in debt ; years of enron ' s reported profits had been exaggerated ; the government was investigating . rivals were shunning enron ' s energy trading desks , which mr . lay had built into the world ' s leaders . and sure enough , the stock price tumbled day after day , and credit agencies lowered enron ' s ratings once and then yesterday again , turning the company ' s debt to junk and its shares into a penny stock .
three weeks ago , mr . lay tried to salvage his creation by selling it to dynegy , his houston rival . yesterday , dynegy pulled out of the deal . deprived of enough information , and then repelled by what they learned , the free markets in which mr . lay had put so much faith all but destroyed , in a matter of weeks , everything he had built .
' ' if they had been going a slower speed , the results would not have been disastrous , ' ' said bob mcnair , a houston energy entrepreneur who sold the bulk of his own company to enron three years ago . but enron , he said in an interview this month , was like a race car , and the markets like an unforgiving track . ' ' it ' s a lot harder to keep it on the track at 200 miles per hour , ' ' he said . ' ' you hit a bump and you ' re off the track . ' '
from his youth , mr . lay , 59 , had nurtured an abiding faith in the markets ' wisdom . he studied economics at the university of missouri , living at home to save on room and board , and eventually earned a ph . d . in the subject . as a naval officer serving in the pentagon , he worked to develop more efficient accounting systems . later , he served as an aide to a federal government regulator for the natural gas industry - - a market that enron would come to dominate .
moving into the private sector , he worked his way up the ranks of the natural gas industry , becoming chief executive in 1984 of the houston natural gas corporation , a big regional pipeline operator . he engineered its merger with internorth , an omaha pipeline company , and then became chief executive of the combined company and changed its name to enron .
mr . lay saw enron ' s mission as far more than being a conduit for fuel . at the time , gas prices were regulated and pipelines played a relatively passive role ; buyers and sellers could not cut deals on the fly . but as oil prices plunged in the mid - 80 ' s and gas users began switching to cheaper fuel oil , mr . lay returned to washington to argue , successfully , for rules changes that he said would save the pipeline business by allowing operators to shop for the best deals from both gas producers and utilities .
the new flexibility brought the threat of chaos , however , as natural gas prices began fluctuating wildly . that is when the new enron was truly born . to help customers shield themselves from risk , mr . lay ' s enron developed hedging contracts for gas like those traded in the markets for corn and copper and winter wheat . its innovative ' ' gas bank ' ' let utilities lock up the long - term prices that they craved ; enron lined up the gas supplies from producers , arranged for delivery - - and took a cut of every deal .
that business became the forerunner of enron ' s entry into hundreds of other markets , helping customers obtain supplies and manage risks in products ranging from electric power to pulp and paper and , most recently , fast broadband access to the internet . trading soon provided more of the company ' s profits than the traditional natural gas business .
while other companies , including dynegy , focused on accumulating hard assets like pipelines , turbines and gas fields , enron increasingly saw itself as a pure trading company with an almost limitless future .
' ' there is a very reasonable chance that we will become the biggest corporation in the world , ' ' mr . lay ' s handpicked successor as enron ' s chief executive , jeffrey k . skilling , told the authors of a book , just published , about business on the internet . even the book ' s title , ' ' radical e : from ge to enron - - lessons on how to rule the web ' ' ( ) , showed the cachet the company had attained . enron , the authors wrote , was ' ' creating a culture in which radical and creative thinking is encouraged and rewarded . ' '
mr . skilling abruptly resigned in august , after just six months on the job , propelling mr . lay back into the gritty details of enron ' s businesses that he had sought to leave to others .
as the company grew , he had become increasingly involved in public affairs , serving as host when a global economic conference was held in houston in 1990 and when the republican national convention came to the city in 1992 .
like the leaders of many big texas businesses - - the construction colossus brown became good friends with the texas governor , ann richards ; and supported senator phil gramm of texas , whose wife , wendy , a former chairwoman of the commodities futures trading commission , joined enron ' s board .
' ' he ' s a stand - up guy , ' ' said ms . richards , now a business consultant in new york . asked to be more specific , she said , ' ' he ' s at the meeting ' ' - - meaning she could count on mr . lay to become directly involved with whatever she asked him to do , and not just sign onto a project for show .
mr . lay ' s deepest political ties were with the bush family . in the 1980 ' s , he became a major fund - raiser for george h . w . bush . when mr . bush lost his 1992 campaign for re - election as president , mr . lay brought a number of senior bush aides to enron as directors or consultants , including james a . baker iii , the former secretary of state , and robert a . mosbacher , the former secretary of commerce .
mr . lay also cultivated mr . bush ' s son george w . long before he was considered a serious national candidate . after the younger mr . bush ' s election as texas governor in 1994 , mr . lay became head of the governor ' s business council , an important advisory post .
the bond with president bush is personal . as governor , mr . bush sent mr . lay a kidding note in 1997 . ' ' one of the sad things about old friends is that they seem to be getting older - - just like you ! ' ' he wrote . ' ' 55 years old . wow ! that is really old . thank goodness you have such a young , beautiful wife , ' ' he added , a reference to mr . lay ' s wife , linda .
in 1999 , mr . lay sent a handwritten christmas note to mr . bush and his wife , laura . ' ' linda and i are so proud of both of you and look forward to seeing both of you in the white house , ' ' he wrote .
yesterday , the white house press secretary , ari fleischer , said the treasury department was monitoring enron ' s downfall for its effect on the market . asked if the president himself had any reaction , mr . fleisher said , ' ' the president ' s reaction is that it should be monitored . ' '
in some ways , enron ' s collapse was one more example of the bursting of the internet bubble . but mr . lay was not some stylish dot - com brat ; by all accounts , he is an immensely likable product of middle america . growing up in tiny rush hill , mo . , he was driving a tractor by age 12 and salting away savings . by 16 , his sister sharon recalled this week , ' ' he was bucking bales ' ' - - that is , loading hay - - ' ' and had two jobs in the summer , painting houses . ' '
' ' i don ' t think you could ever say that he did something the easy way , ' ' she said .
that work ethic ran in the family . mr . lay ' s father was a minister who also sold farm equipment . the family ' s finances were spotty , ' ' at times no money , at times some money , ' ' ms . lay recalled . still , the lays took in people from their church who were in need .
over the last decade or so , mr . lay earned some $ 300 million from enron , mostly by exercising stock options . earlier this month , when employees grew incensed at the prospect of his collecting a big severance package with the company ' s sale to dynegy , he volunteered to walk away from $ 60 million in payments .
mr . mcnair , the houston entrepreneur , who has known mr . lay for years , suggested that perhaps everything had not been disclosed to him . ' ' maybe the people who reported to him told him what they wanted him to hear , but they weren ' t telling him everything , ' ' he said .
mr . mcnair said he spoke to mr . lay recently and found him ' ' somewhat in a state of shock . ' ' mr . mcnair added , ' ' he ' s devastated . ' '
in the end , it seems , the man whose company did so much to help others manage their risk could not manage his own .
photos : a portrait of the chairman from enron corporate report for 1999 . ( enron ) ( pg . c 7 ) ; ( pg . cl ) graphs : ' ' enron ' s collapsing house of cards ' ' kenneth l . lay , starting with an ordinary pipeline business , turned enron into one of the fastest growing companies of the 1990 ' s . but it has swiftly collapsed since revealing huge hidden debts , causing its stock to plunge and requiring it to restate earnings . graphs track enron ' s stock price and sensor debt rating since sept . and enron ' s earnings since 1997 . ( sources : bloomberg financial markets ; moody ' s ; enron )
copyright ? 2000 dow jones section c
enron ' s collapse : the derivatives
market that deals in risks faces a novel one
by diana b . henriques
11 / 29 / 2001
the new york times
page 7 , column 1
c . 2001 new york times company
when members of the international swaps and derivatives association gathered in washington last april , the man they all wanted to hear was jeffrey k . skilling , then the president and chief executive of enron .
enron had helped create the global market for energy - based derivatives - - customized risk - swapping contracts that enable companies to hedge their exposure to changing energy prices and supply fluctuations . even among traders more familiar with interest - rate swaps or currency hedges than energy contracts , mr . skilling ' s presentation did not disappoint .
' ' he dazzled everybody - - it seemed he could figure out a way to trade the minutes on this phone call , ' ' one industry executive said .
but yesterday , many of those same executives were crossing their fingers and hoping that enron ' s crisis would not spread into the energy swaps market that the company had done so much to enliven .
as the day ended with fairly stable trading , there were a few cautious sighs of relief . but nobody is quite sure just how much money the energy - related derivatives markets will have at risk if enron fails .
according to swaps monitor publications , which collects data for the derivatives markets , enron ranks among the top energy - swaps traders in the world , on a par with financial giants like bank of america and barclay ' s .
at the end of september , enron ' s gross derivatives trading liabilities - - the amount of money it would owe to other market players if it filed for bankruptcy - - stood at $ 18 . 7 billion , up slightly from june levels but about $ 1 . 3 billion less than at the end of last year .
but that level may overstate the risk to other companies . ' ' these numbers do not take into account the unknown amount of collateral that enron may have posted , ' ' said paul spraos , swaps monitor ' s president . such collateral should , in principle , diminish enron ' s actual liabilities to the derivatives market , he said .
in a typical energy swap , a company will enter into a contract to lock in a fixed price of a certain commodity , like natural gas or electricity . the other company , the counterparty , in the deal assumes the risk of future price changes and quotes a fixed price that includes its own profit . the efficient trading and pricing of these contracts requires a marketplace with large , active traders .
as of last night , there were no signs of a major panic that would drive major participants to the sidelines , industry executives said .
' ' it ' s not likely that enron ' s problems will cause serious difficulty for any other sizable counterparty , ' ' said mark c . brickell , a veteran swaps - market executive and the chief executive of blackbird , a technology firm that operates an electronic swaps - trading system . ' ' while there may be some smaller firm that didn ' t manage its exposure as well as it might , that won ' t cause any major problems for the system as a whole . ' '
michael williams , managing director of tradespark , a rival to enron ' s online energy - trading system , agreed that there was ' ' no sign of shrinkage ' ' in the marketplace yesterday . ' ' so far , we ' ve seen no complaints about a lack of liquidity , ' ' he added .
most participants in the energy derivatives market rely on a standard contract that was developed by the international swaps and derivatives association and is recognized in the courts . the contract clearly specifies the rights each party has in the event of a default , said robert pickel , the association ' s chief executive . as of late yesterday , he added , the markets appeared ' ' to be fairly resilient in the face of extremely negative developments regarding such a major player . ' '
but at least one lawyer who specializes in swaps contracts indicated that it might be too soon to assess the full impact . that lawyer , ann o ' hara , in lincoln , neb . , said that her clients ' anxiety about enron had escalated sharply only in the last few days . ' ' no one believed it would really happen , ' ' she said . ' ' it is not a surprise , but it is a shock . ' '
' ' we don ' t really know who is out there exposed to enron ' s credit , ' ' she added . ' ' i ' m telling my clients to prepare for the worst . ' '
chart : ' ' big bets on derivatives ' ' enron ' s derivatives - trading activity is substantial when measured by the total gross amount of money it owes to derivatives - trading partners . dec . 31 2000 : $ 20 . 0 bil . mar . 31 2001 : $ 21 . 3 bil . june 30 : $ 17 . 5 bil . sept . 30 : $ 18 . 7 bil . ( source : swaps monitor )
copyright ? 2000 dow jones section c
the markets : stocks j . p . morgan fell $ 2 . 30 , to $ 37 . 50 .
the blue - chip dow jones industrial average surrendered 160 . 74 points , or 1 . 6 percent , to 9 , 711 . 86 , the largest drop in about a month and the lowest close since nov . 12 . the standard & poor ' s 500 - stock index slid 20 . 98 points , or 1 . 8 percent , to 1 , 128 . 52 . the technology - laden nasdaq composite index dropped 48 points , or 2 . 5 percent , to 1 , 887 . 97 .
enron dragged on the market as wall street questioned the rally that had lifted stocks well off the sept . 21 lows . investors , still expecting an economic recovery in 2002 , pocketed profits on worries that share prices were getting too far ahead of prospects for corporate earnings .
milton ezrati , a senior strategist at lord abbett bloomberg financial markets ) tables : ' ' hot ' ' the favorites ' ' lists stocks held by largest number of accounts at merrill lynch . ( compiled from staff reports , the associated press , bloomberg news , bridge news , dow jones , reuters ) graph ' ' freddie mac yields ' ' tracks 15 and 30 - year federal home loans since august . ( source : f . h . l . m . c . ) graph ' ' 2 - year treasury notes ' ' tracks high yields in percent since 2000 . ( source : treasury department )
copyright ? 2000 dow jones section c
enron ' s collapse : the rating agencies
debt rankings finally fizzle , but the deal fizzled first
by alex berenson
11 / 29 / 2001
the new york times
page 7 , column 1
c . 2001 new york times company
in the end , the rating agencies hardly mattered .
for weeks , wall street wondered whether moody ' s investors service , standard & poor ' s and fitch ' s , the three major agencies rating corporate debt , would drop enron ' s rating below investment grade .
enron and dynegy warned that cutting the rating might jeopardize dynegy ' s acquisition of enron . executives at big securities firms that stood to profit from the deal pressed moody ' s to keep ratings at investment grade , even as enron bonds fell to levels indicating that the debt was highly risky .
but even an investment - grade rating could not save enron ' s business from collapse over the last month . after a series of damaging revelations about enron ' s finances , the company ' s partners demanded extra capital for its trades or stopped trading with it . by the time the rating agencies decided yesterday that enron might well default on its debt , dynegy had decided on its own to walk away .
' ' it wasn ' t really the reason that dynegy backed out of the deal , ' ' said todd shipman , the standard & poor ' s analyst who was the first to cut enron ' s rating yesterday .
the cuts dim the hopes enron had of avoiding bankruptcy . all three agencies slashed enron ' s debt far below investment grade . moody ' s cut enron ' s rating 5 notches , standard & poor ' s lowered it 6 , and fitch slashed it 10 , to cc , its third - lowest grade .
' ' default is a probability , ' ' said glen grabelsky , the senior director of credit policy for fitch . enron has $ 13 billion in debt outstanding and about $ 10 billion more in loans , made by partnerships , that the company has guaranteed .
the aggressive rating cuts may not mollify the investors who have sharply criticized the agencies for being slow to act in recent weeks . officials at all three agencies defended themselves yesterday , saying they had acted prudently .
after dynegy agreed to buy enron , moody ' s tried to calculate the chances that the deal would go through , that enron would remain strong until it was completed and that the combined company would carry a strong rating , said john diaz , managing director for moody ' s power and energy group .
at first , those questions seemed to have reassuring answers , mr . diaz said , so moody ' s kept enron ' s investment - grade rating .
but in recent days , other companies have shied away from doing business with enron , and its losses have soared . ' ' basic cash flow was slowing down at the same time that the cost structure of the company was the same , ' ' mr . diaz said . enron ' s mounting losses discouraged dynegy , he said .
' ' over the last 24 hours , the probability that we ' ve assigned to these three key issues was looking to be a lot smaller , ' ' mr . diaz said .
mr . grabelsky said the acquisition uncertainty presented the agencies with a situation where enron ' s debt could be very strong , if the deal worked , or highly risky .
' ' there is no middle ground , ' ' he said . ' ' it ' s one or the other . ' '
copyright ? 2000 dow jones the $ 76 m ark short term bond fund , which had a 4 . 05 per cent position , or $ 3 . 4 m as of september 30 ; and the $ 50 m first focus short / intermediate bond fund , which had a 4 . 15 per cent slice of its portfolio in the bonds , worth $ 2 . 07 m as of september 30 .
although these are just single - digit positions , a loss from par value to 20 cents on the dollar in a 4 per cent holding could trim off half of a fund ' s return , said scott berry , morningstar bond fund analyst .
the average intermediate bond fund has returned 7 . 3 per cent so far this year , according to morningstar . a loss from par value to 20 cents on the dollar in a 4 per cent stake could reduce a 7 . 3 per cent return to roughly 3 . 3 per cent , mr berry said .
" with bonds , there ' s much more downside than upside . typically , the downside is never realised because these investment - grade bonds are strong enough to weather the storm , but enron just caught everybody by surprise over the last couple of months , " he said .
other large investment - grade bond funds that held enron ' s debt as of their most recent filings include the $ 13 . 6 bn fidelity short term bond fund , which held 0 . 77 per cent , worth $ 27 . 7 m as of april 30 , and two of the strong funds - the $ 1 . 36 m strong corporate bond fund , which held 0 . 77 per cent as of september 30 , or $ 10 . 5 m , and the $ 1 . 43 bn strong short term bond fund , with a 0 . 63 per cent holding , also as of september 30 , worth $ 9 m .
mr berry said managers of investment - grade bond funds that still held the debt were probably selling it , although most had the latitude to hold a bond once it lost its investment - grade status . however , they also said junk - bond fund managers were unlikely to buy it , because other " fallen angel " bonds such as xerox had not performed well .
( c ) copyright financial times ltd . all rights reserved .
http : / / www . ft . com .
copyright ? 2000 dow jones & company , inc . all rights reserved .
companies & finance the americas - sec filing triggered merger crisis .
by sheila mcnulty .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
dynegy ' s rescue bid for enron went into " crisis mode " 10 days ago , said chuck watson , dynegy ' s chairman and chief executive .
in a filing to the sec , enron revealed a previously undisclosed $ 690 m note payment due this week , as well as that it had $ 9 . 15 bn in debt due by the end of next year . the news provoked another round of selling in enron ' s already plunging share price , forcing dynegy into 18 - hour a day talks that ran through the thanksgiving weekend and up to midnight on tuesday . .
" that may have been the last straw to some shareholders , " mr watson said just hours after withdrawing from dynegy ' s $ 9 bn merger with enron . enron had been the biggest energy trader in the us until a crisis of confidence , beginning in october , that pushed it to the brink of bankruptcy .
" every time we thought we had the pieces , " he said . " every time we put the puzzle together it wasn ' t a clear strategy to go forward . "
he said the talks resumed yesterday at 7 am , but when the rating agencies began downgrading enron to junk status , mr watson called ken lay , enron ' s chairman and chief executive , to say " it wasn ' t going to work " .
" once they downgraded the company , we thought , what was already an uphill battle , was too difficult , " he said . mr watson said he offered to help any way he could and the two men - who have long been friendly , cross - town rivals - parted amicably .
mr watson has received several calls from other counter - parties in the business , thanking him for saving them from a meltdown by giving them the time to limit their exposure to enron . " i don ' t feel like a saviour , i feel tired , " he said . but he acknowledged he provided a vast number of enron ' s counterparties , partners and customers a chance to better protect themselves against enron ' s demise .
" there was a really strong effort to make it happen , " he said . " in the end , we couldn ' t find a solution that didn ' t risk dynegy ' s responsibility to its shareholders and to its employees . "
he says the merger agreement allows it to walk away with enron ' s most valuable asset , the northern natural gas pipeline , though if enron disputes that , at worst , it would leave with money invested in saving enron . " we are as solid as we were going into ( the merger ) and , maybe , better for the experience , " he said .
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companies & finance the americas - financial system braces for a chain reaction .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
gary silverman .
enron ' s woes are raising risks for the financial system , threatening to set off a chain reaction in the markets that could damage any number of participants in unforeseen ways .
individual banks could lose hundreds of millions of dollars apiece on loans to enron , but regulators are confident the lenders have sufficient capital to weather such a storm .
the bigger worry is that enron ' s difficulties could trigger ripple effects in much the same way as russia ' s default in 1998 destabilised the long - term capital management hedge fund .
prices for banking stocks tumbled yesterday in new york and london , in large part because no one really knows what would happen if enron were removed from the financial scene .
enron sat on a massive trading book , made up of complex derivatives transactions , some meant to stay in place for decades . on the other side were a host of counterparties , many of them energy companies that are not supervised by banking regulators .
the counterparties , in turn , have their own set of borrowing and trading relationships with banks that may be completely unaware of their customers ' ties to enron . bankers also fear that because so many of these counterparties were new to sophisticated trading , they may have been lax in collateralising their deals .
for leading banks , enron ' s woes could result in big hits to profits . just about every big lending bank has exposure to enron , according to members of the bank group .
at a meeting of enron ' s creditors last week , one banker estimated there could have been 500 bankers representing 20 or more banks .
jp morgan chase and citigroup are the most prominent members of the bank group , but barclays , credit lyonnais , credit suisse first boston , deutsche bank and many others are exposed .
it was understood that jp morgan chase ' s direct exposure to enron approaches $ 900 m , about $ 500 m of it unsecured by the energy company ' s assets . citigroup ' s direct exposure could reach $ 800 m , about half unsecured .
european banks also could take hits . according to data from loanware , for example , westlb , the german state - owned bank , has a $ 580 m bridge facility outstanding . this was extended as trade financing last year and does not appear to have been syndicated .
however , analysts caution that determining the exposure of a particular bank to enron is virtually impossible for outsiders . many loans are syndicated or sold , and bankers are also making increasing use of credit derivatives that enable them to buy insurance against default from counterparties .
barclays , for example , is one of the most active arrangers of finance for enron but it has syndicated most of its initial exposure . its exposure is estimated at less than # 250 m ( $ 356 m ) . on the other hand , banks could be exposed to firms that dealt with enron , which sold credit default insurance to its trading partners , according to market participants .
investors rerated banking stocks yesterday to account for expected exposures . citigroup was down $ 2 . 75 , or 5 . 4 per cent , to $ 47 . 80 , while jp morgan was down $ 2 . 30 , or 5 . 78 per cent , to $ 37 . 50 . in london , shares in barclays fell 4 per cent , or 86 p , to 2093 p . additional reporting by joshua chaffin in new york and rebecca bream in london .
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companies & finance the americas - traders avoid exposure to junk status fallout .
by adrienne roberts and andrew taylor .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
energy traders on both sides of the atlantic were doing very little business with enron even before credit rating agencies demoted the debt of the world ' s biggest power trader to junk status .
rivals have been anxiously calculating their potential exposure to an enron collapse for at least a month - since the true extent of the company ' s crisis emerged .
most traders before yesterday were only prepared to be buyers of electricity and gas from the group , on the basis that it was better to owe than be owed in these circumstances .
" there would have been very few sellers to enron , " said one trader last night .
the group accounts for about 25 per cent of energy trading in the us with a similar market share in the smaller european market .
the loss of such a large player could cause liquidity problems in the us , said one analyst .
europe - based energy groups , however , felt there was sufficient capacity in their market to fill the gap .
more worrying is the knock - on effect particularly on smaller companies should enron be unable to honour long - term contracts , said brian senior , director of trading and asset management at innogy , the uk arm of the demerged national power .
the collapse of enron ' s credit rating means that it may have to provide a lot of cash as collateral to cover long - term liabilities , with money being due as early as next monday , said mr senior .
most large energy groups stopped trading with enron in european markets two days ago .
" the simplest thing is to pull the plug until they ' ve figured out what ' s going on , " said one analyst .
martin stanley , president of european energy trading for txu , another large us energy group , said : " we have halted trading with enron . we are sorry to see it happen because they are a very innovative company . "
even before yesterday ' s events , txu , like other large traders , had been adding up how much it could be owed and how much it would owe , should enron fail to honour its obligations .
" we have been looking at various scenarios and have implemented our credit event management process designed to minimise our cash exposure , " said mr stanley .
" we are comfortable with our cash position , " he added .
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companies & finance the americas - downgrade is the final straw for enron .
by andrew hill and sheila mcnulty .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
writes andrew hill .
negotiations over the fate of enron , the us energy trading group , had been described as having " a lot of moving parts " . yesterday , those parts finally broke loose as the credit rating agencies ' patience ended with a downgrade of the energy trader ' s debt to junk status , and dynegy , its erstwhile saviour , withdrew .
immediate concern centred on the possibility of a systemic risk to the energy markets . " it ' s over , isn ' t it ? " said gerald keenan , a partner at pwc . " what it is going to engender is a daisy chain of defaults . "
enrononline , the group ' s much - vaunted web - based commodities trading system , shut down , according to traders . counterparties in the energy market stopped trading with enron altogether . the shares , which at their peak last year traded at $ 90 , fell by nearly three - quarters to just over $ 1 . the bonds , which have been trading at levels consistent with imminent bankruptcy for two weeks , fell further .
enron ' s survival since its much smaller rival , dynegy , launched a rescue bid on november 9 , has depended on a fragile pact between dynegy , chevrontexaco ( which owns 26 per cent of dynegy and backed the bid ) , enron ' s lenders , its trading counterparties and the rating agencies . the logic of this pact was essentially circular .
when dynegy stepped in three weeks ago enron was in the early stages of its crisis of confidence . shareholders had been shocked by enron ' s admission that it would have to shrink shareholders ' funds by $ 1 . 2 bn to end a transaction with an off - balance - sheet vehicle established by andrew fastow , former chief financial officer . suddenly , the lack of transparency they had been prepared to forgive while the shares rose was a liability .
searching for a way to arrest the downward spiral , ken lay , enron ' s chief executive , linked up with chuck watson , his counterpart at dynegy . dynegy ' s all - stock bid - valuing enron , on tuesday ' s closing prices , at $ 9 . 4 bn - was dependent , however , on the rating agencies not downgrading the energy ' s group ' s substantial debts to junk status .
such a downgrade , as enron explained in a regulatory filing last week , would require the group to repay , refinance or provide extra cash as collateral for some $ 3 . 9 bn of debts owed by off - balance - sheet trusts .
under pressure from enron and dynegy ' s bankers , the agencies refrained from downgrading the debt , and dynegy went ahead with its bid . the agencies justified their position by citing the pending bid .
it was an uncomfortable position for the agencies , however , and their resolve began to crumble last week as dynegy and enron talked about renegotiating the deal .
in a tersely worded note issued last wednesday , fitch , another rating agency , pointed out that if dynegy " steps away entirely from the merger , enron ' s credit situation seems highly untenable with a bankruptcy filing highly possible " .
yesterday , s & p , then moody ' s and fitch , finally broke the fragile ring of confidence that was holding lenders , bidders and enron itself together . in its note , s & p explained in stark terms how the virtuous circle of confidence might now become a vicious downward spiral .
the collapse of enron securities in capital markets made dynegy less likely to complete its takeover , s & p wrote . at the same time , enron ' s franchise in the energy markets had " sustained significant damage " , making it a less attractive target .
if enron does now disintegrate , the question is whether the chain reaction will extend beyond the houston company and drag in other energy traders , or even the banks that finance them . analysts had already begun to liken its situation to that of long - term capital management , whose demise in 1998 prompted the federal reserve to co - ordinate a rescue by wall street banks to avoid a financial crisis .
however , the head of one large commodities trader said the biggest market participants had had long enough to protect themselves from the collapse of enron .
but smaller groups could be affected and the fear is that the complexities of its balance sheet may still contain the seeds of a wider crisis . additional reporting by sheila mcnulty in houston .
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companies & finance the americas - downgrade is the final straw for enron .
by andrew hill and sheila mcnulty .
11 / 29 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
writes andrew hill .
negotiations over the fate of enron , the us energy trading group , had been described as having " a lot of moving parts " . yesterday , those parts finally broke loose as the credit rating agencies ' patience ended with a downgrade of the energy trader ' s debt to junk status , and dynegy , its erstwhile saviour , withdrew .
immediate concern centred on the possibility of a systemic risk to the energy markets . " it ' s over , isn ' t it ? " said gerald keenan , a partner at pwc . " what it is going to engender is a daisy chain of defaults . "
enrononline , the group ' s much - vaunted web - based commodities trading system , shut down , according to traders . counterparties in the energy market stopped trading with enron altogether . the shares , which at their peak last year traded at $ 90 , fell by nearly three - quarters to just over $ 1 . the bonds , which have been trading at levels consistent with imminent bankruptcy for two weeks , fell further .
enron ' s survival since its much smaller rival , dynegy , launched a rescue bid on november 9 , has depended on a fragile pact between dynegy , chevrontexaco ( which owns 26 per cent of dynegy and backed the bid ) , enron ' s lenders , its trading counterparties and the rating agencies . the logic of this pact was essentially circular .
when dynegy stepped in three weeks ago enron was in the early stages of its crisis of confidence . shareholders had been shocked by enron ' s admission that it would have to shrink shareholders ' funds by $ 1 . 2 bn to end a transaction with an off - balance - sheet vehicle established by andrew fastow , former chief financial officer . suddenly , the lack of transparency they had been prepared to forgive while the shares rose was a liability .
searching for a way to arrest the downward spiral , ken lay , enron ' s chief executive , linked up with chuck watson , his counterpart at dynegy . dynegy ' s all - stock bid - valuing enron , on tuesday ' s closing prices , at $ 9 . 4 bn - was dependent , however , on the rating agencies not downgrading the energy ' s group ' s substantial debts to junk status .
such a downgrade , as enron explained in a regulatory filing last week , would require the group to repay , refinance or provide extra cash as collateral for some $ 3 . 9 bn of debts owed by off - balance - sheet trusts .
under pressure from enron and dynegy ' s bankers , the agencies refrained from downgrading the debt , and dynegy went ahead with its bid . the agencies justified their position by citing the pending bid .
it was an uncomfortable position for the agencies , however , and their resolve began to crumble last week as dynegy and enron talked about renegotiating the deal .
in a tersely worded note issued last wednesday , fitch , another rating agency , pointed out that if dynegy " steps away entirely from the merger , enron ' s credit situation seems highly untenable with a bankruptcy filing highly possible " .
yesterday , s & p , then moody ' s and fitch , finally broke the fragile ring of confidence that was holding lenders , bidders and enron itself together . in its note , s & p explained in stark terms how the virtuous circle of confidence might now become a vicious downward spiral .
the collapse of enron securities in capital markets made dynegy less likely to complete its takeover , s & p wrote . at the same time , enron ' s franchise in the energy markets had " sustained significant damage " , making it a less attractive target .
if enron does now disintegrate , the question is whether the chain reaction will extend beyond the houston company and drag in other energy traders , or even the banks that finance them . analysts had already begun to liken its situation to that of long - term capital management , whose demise in 1998 prompted the federal reserve to co - ordinate a rescue by wall street banks to avoid a financial crisis .
however , the head of one large commodities trader said the biggest market participants had had long enough to protect themselves from the collapse of enron .
but smaller groups could be affected and the fear is that the complexities of its balance sheet may still contain the seeds of a wider crisis . additional reporting by sheila mcnulty in houston .
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copyright ? 2000 dow jones nancy vogel
times staff writers
11 / 29 / 2001
los angeles times
home edition
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new york - - enron corp . ' s lifeline merger deal collapsed wednesday , and the once - mighty energy trader slid toward all - but - certain bankruptcy .
its houston rival and neighbor dynegy inc . called off its planned takeover after wall street ' s major credit - rating agencies slashed enron ' s bonds to " junk " status wednesday morning .
investors and enron ' s trading partners had lost confidence well before the rating agencies did . in fact , it was the recent erosion of enron ' s trading business and the harrowing slide in its stock and bond prices that forced the ratings cut and triggered dynegy ' s decision to back out of the deal .
informed sources said dynegy ultimately balked after coming across much more debt than it expected in evaluating enron ' s finances and watching helplessly as the value of its would - be acquisition shrank dramatically when energy customers fled the firm .
with the merger called off , enron was " exploring other options to protect our core energy businesses , " kenneth l . lay , the company ' s chairman and chief executive , said in a brief statement that skirted the topic of bankruptcy .
the lack of a decent credit rating cripples enron ' s ability to run its trading business , the franchise that made it one of america ' s most admired companies but also gave it a reputation for arrogance and greed , particularly for its role in california ' s energy crisis .
computer screens went dark nationwide wednesday as the widely used enrononline internet - based trading system shut down .
enron ' s stock , already down 95 % for the year , tumbled $ 3 . 50 to close at 61 cents on wednesday in a trading stampede on the new york stock exchange . a one - day record of 339 million shares changed hands .
the whole company , once worth $ 63 billion , now is valued at less than $ 500 million , or about twice the cost of enron ' s new headquarters under construction in downtown houston .
dynegy shares , meanwhile , sank $ 4 . 92 to $ 35 . 97 , just below where they stood when dynegy agreed to acquire enron on nov . 9 .
dynegy exited the deal because it was " unwilling to risk our franchise , our credit or our credibility , " president stephen bergstrom said in a news conference wednesday .
" we know when to say no , and this morning we said no , " he said .
wall street had been saying no for days , hammering enron ' s stock to less than half the $ 10 . 41 a share that dynegy originally agreed to pay . dynegy was in the process of renegotiating its price downward when it finally threw in the towel .
the deal ' s lack of credibility with stock and bond investors prompted the top two rating agencies - - standard & poor ' s and moody ' s investors service - - to cut their ratings on enron , knowing that they probably were pronouncing a death sentence .
the ratings downgrade triggered clauses in enron loan agreements that require the company to immediately pay its creditors some $ 3 . 9 billion - - money that it doesn ' t have , analysts said .
the ripples from enron ' s collapse spread far and wide , even to the u . s . treasury market , where some investors fled for safety as enron ' s bonds plunged in value .
enron led a trend in energy trading , creating an internet - based network that allowed millions of suppliers and purchasers of electricity , natural gas , oil and coal to do business with one another . the trades of contracts , often spanning many years at a fixed price range , are intended to protect major users and suppliers of energy from fluctuations in fuel prices .
energy market experts are split on the long - term effects of enron ' s collapse . some say the fallout will be slight , noting that rivals already have stepped in to take over business with trading partners who were too nervous to continue dealing with enron .
" the whole industry should thank dynegy for basically buying them two or three weeks ' time to unwind their deals with enron , " said analyst andre meade of commerzbank securities in new york .
but enron was noted for the complexity of its long - term deals , and the effects of its withdrawal as a key player could be far - reaching and unexpected , other analysts said .
banking companies , dozens of which lent money to enron , saw their shares dip on worries about whether those loans will be repaid . shares of rival energy companies , too , lost value .
enron ' s chief lenders - - citigroup inc . and j . p . morgan chase & co . - - each have about $ 800 million in loans that may be at risk in a bankruptcy , said richard strauss , a bank analyst with goldman , sachs ; photo : ( no caption ) ;
copyright ? 2000 dow jones financial desk
enron failure ' s ripple effects analysis : observers say consequences could be severe for energy prices as well as banks and other investors . firm ' s trading rivals see opportunities .
james flanigan ; chris kraul
times staff writers
11 / 29 / 2001
los angeles times
home edition
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copyright 2001 / the times mirror company
houston - - the likely bankruptcy of enron corp . could lead to a host of troubling consequences , including higher wholesale prices for electricity and natural gas and financial distress for banks and other firms as well as major bondholders and other investors , analysts said wednesday .
however , energy trading markets were calm as enron competitors picked up the slack while looking for opportunities to build or expand their own trading operations and acquire enron assets .
the concerns and maneuvering came as dynegy inc . on wednesday canceled its proposed acquisition of enron , once the world ' s largest energy trading company , after enron ' s debts were downgraded to non - investment " junk " status , making a bankruptcy filing highly likely .
" banks are starting to worry about a financial meltdown from an enron collapse , " said peter fusaro , president of global change , a risk management consultancy in new york .
enron ' s debts , which had been partly hidden in off - balance - sheet partnerships , could total $ 5 billion more than the company ' s assets , experts in new york and houston estimated .
citigroup and j . p . morgan chase , major commercial bankers to enron , will face losses if enron files for bankruptcy , analysts said . shares of citigroup and morgan declined more than 5 % on wednesday . other experts warned that investment banking firms such as goldman sachs and morgan stanley that had been part of enron ' s sophisticated trading network also could run into problems .
as enron , which rose rapidly in recent years to almost $ 200 billion in annual revenue , neared bankruptcy , shareholders faced being wiped out and investors in about $ 9 billion in enron bonds may get only cents on the dollar , analysts said .
enron ' s employees , 15 , 000 of whom hold enron stock in their 401 ( k ) retirement plans , stood to be among the biggest losers in the company ' s collapse . many probably also will lose their jobs .
major lawsuits against enron claiming lack of loyalty and prudence in dealing with its employees are among scores of lawsuits now confronting the company and arthur andersen , the accounting firm that approved enron ' s financial statements . enron is under investigation by the securities and exchange commission for its handling of disclosure of the partnerships and subsidiaries .
and yet as enron ' s crisis approached a possible bankruptcy filing , a brisk optimism prevailed among energy traders . enron competitors were as enthusiastic about opportunities to buy parts of enron as they were fearful of the consequences of the big trader ' s collapse .
stephen baum , chief executive of sempra energy , the san diego - based utility holding company , said enrononline , the houston company ' s highly successful internet - based trading operation , would be acquired by other companies and carry on energy trading in the future .
sempra itself would be interested in discussing formation of such a new online trading firm , baum said , " although its name would not be enron online . "
baum added that sempra could be interested in acquiring several enron assets , in the u . s . and abroad .
energy markets were calm wednesday . kevin fox , manager of commodities and trading for aquila energy , a kansas city , mo . - based energy trader , described markets as " surprisingly orderly . "
enron ' s troubles have been building for well over a month , fox explained , and so the halt of enron online came as no surprise . fox saw no difficulty in his firm and other trading companies fulfilling enron ' s contracts should the energy company cease to operate .
still , others saw disrupted markets and price volatility . fears about the aftermath of enron ' s collapse centered on long - term commitments the firm has made in recent years to handle all the energy needs of giant entities such as the university of california system or to supply 10 years of natural gas at a fixed price range to an electricity generating station .
problems could arise because long - term contracts typically become encrusted with related transactions that hedge against price movements over time or the interest cost of financing . such complexity could make it difficult for other firms to pick up enron ' s long - term contracts .
if enron in bankruptcy " can ' t cover its obligations , maybe other wholesalers can ' t either , " said gordon allott , vice president at kw international , a trading and risk management firm in san francisco .
" and then you have customers going out into the spot market , which could drive prices higher . that ' s the big bogey monster out there , " allott said .
however , any effect on consumers from such disruptions could be slight . gerald keenan , head of the energy practice at , noted that enron ' s collapse would not " affect the basic supply and demand for electricity and natural gas , " the true determinant of prices .
one major factor reducing the effect of an enron collapse on markets and energy supplies is the growth in recent years of energy trading into a broad industry , with more than $ 300 billion in annual activity in contracts for electricity and the natural gas and oil fuels that produce it .
the intercontinental exchange , a consortium of six trading firms , handles more energy trades today than did enron .
if sempra and other companies acquire and operate enrononline , the industry will have two major groups to rely on . the need for energy trading has been growing out of deregulation and change in the electric utility industry .
" trading absorbs risks of fuel - price movements and the like that used to be passed on to retail customers in the form of adjustments to monthly bills , " fox explained .
the breadth and expertise of this new industry , as well as the months of enron ' s decline that gave competitors and markets time to adjust , could promise a relatively stable aftermath of enron ' s downfall .
however , the post - enron future is likely to see closer regulation of energy contract trading to increase disclosure of terms and risks .
but enron and its top executives , along with the arthur andersen accounting firm , face months and possibly years of lawsuits from shareholders who suffered losses as enron ' s stock lost more than $ 60 billion of market value in a single year .
and lawsuits by enron employees , challenging the firm ' s treatment of 401 ( k ) accounts , will go forward even if enron is in bankruptcy , said attorney lynn sarko of keller rohrback , a seattle law firm that is bringing one of the suits on behalf of employees .
" there is still liability faced by fiduciaries , officials who were administrators of the savings plan and by the companies that insured it , " sarko said .
*
flanigan reported from los angeles and kraul from houston . times staff writer jerry hirsch contributed to this report .
graphic : fallout on wall street / los angeles times ;
copyright ? 2000 dow jones financial desk
markets enron troubles , uncertainty send stocks tumbling wall st . : sellers gain the upper hand , but many analysts say markets were due for a pullback .
from times staff and wire reports
11 / 29 / 2001
los angeles times
home edition
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copyright 2001 / the times mirror company
stocks tumbled wednesday amid investors ' nagging uncertainty about the economy and as energy giant enron headed toward financial collapse . meanwhile , treasury bond yields were little changed . after sliding early in the session , they rebounded after the government got a tepid reception for a record sale of two - year notes .
on wall street , the dow industrials slid 160 . 74 points , or 1 . 6 % , to 9 , 711 . 86 . the market was in a steady decline most of the session .
the tech - dominated nasdaq composite suffered a 2 . 5 % decline , off 48 points to 1 , 887 . 97 .
losers topped winners by about 2 to 1 on the new york stock exchange and on nasdaq .
early in the week the market seemed poised to retake the 10 , 000 level on the dow and the 2 , 000 level on the nasdaq index . instead , sellers have gained the upper hand .
analysts noted that many investors aren ' t convinced the economy will improve in the first half of 2002 . for weeks , hopes that business will improve early next year have been boosting the market .
" we ' re not out of the woods yet " with the economy , said richard jandrainof banc one investment advisors corp .
the federal reserve ' s latest report on conditions by region , released wednesday , painted a generally somber picture of the economy .
still , many analysts said stocks ' sell - off this week doesn ' t appear to be anything special .
" the reality is , we were due for some pullback , " said barry hyman , chief investment strategist at ehrenkrantz king nussbaum .
hyman and other analysts were actually pleased to see investors take a cautious step back after fearing that the market was rising too much and too quickly .
the market ' s softness was spread across most sectors , but one of the weakest spots was utilities , which dropped after dynegy backed out of its planned merger with enron .
nyse - listed enron broke the record for heaviest trading in a single day with more than 339 million shares changing hands , as it fell $ 3 . 50 to 61 cents . the previous volume record was the 304 million shares of intel traded on nasdaq on sept . 22 , 2000 .
investors were selling most utility stocks wednesday . the dow utilities average fell 2 . 9 % to a 52 - week low of 279 . 95 .
financial stocks were slammed on worries about spillover from an enron collapse . j . p . morgan chase sank $ 2 . 30 to $ 37 . 50 , and citigroup dropped $ 2 . 75 to $ 47 . 80 . both are in the dow .
retailing issues remained vulnerable to concerns that this holiday shopping season will be the worst in a decade . gap stumbled 79 cents to $ 13 . 61 after prudential securities reduced its rating on the clothier to " sell " from " hold " and called its holiday merchandise poor . electronics retailer best buy fell $ 1 . 18 to $ 69 . 90 , and bed , bath & beyond declined 74 cents to $ 32 . 34 .
technology also was weaker as investors fear there is still too much inventory and not enough demand . chip equipment maker altera fell $ 1 . 83 to $ 21 . 83 ahead of its update on business in the fourth quarter . after the market closed , altera reaffirmed its revenue projections for the year ' s final three months .
ibm , another dow stock , dropped $ 2 . 05 to $ 112 . 15 after announcing it will cut 1 , 000 jobs from its seven u . s . chip plants because of a slowdown in the microprocessor industry .
what was bad for stocks normally would be good for bonds , but that wasn ' t the case by the close of trading wednesday .
yields fell early in the day , then reversed after the government ' s biggest sale ever of two - year notes flooded the market with debt .
the treasury sold $ 21 billion of the two - year notes at a yield of 3 % , up from $ 19 billion sold in october , part of an effort by the government to finance a spending increase using short - dated debt .
the five - year t - note yield ended unchanged at 4 . 29 % . the 10 - year t - note ended at 4 . 93 % , up from 4 . 92 % .
copyright ? 2000 dow jones bankruptcy expected
by laura goldberg
copyright 2001 houston chronicle
after dynegy pulled out of its deal to buy enron corp . wednesday morning , it appeared the most likely option for enron was bankruptcy protection .
from wall street to houston , it was widely expected enron would file for bankruptcy , perhaps as soon as today .
" it ' s probably imminent , " said andre meade , a stock analyst with commerzbank securities in new york .
jeff mcmahon , enron ' s chief financial officer , said wednesday night that enron was evaluating all its options for restructuring its balance sheet and debt , and ways to return its business to health .
mcmahon said enron wasn ' t considering a chapter 7 bankruptcy filing , which would involve a liquidation or selling of all assets .
he didn ' t rule out a chapter 11 filing , which lets a company protect assets while it works out a reorganization plan , but he stressed that enron was also reviewing other options .
he declined to describe what the options are , but said he prefers to fix enron without a bankruptcy .
earlier wednesday , enron said it had suspended making payments other than those needed to maintain core business operations and it was working to retain employees needed for its trading and other core energy businesses . no layoffs were announced .
wall street doesn ' t believe enron has real choices other than bankruptcy . shares in enron lost much of their value wednesday , closing at 61 cents . the company , which was dropped from the standard & poor ' s 500 index , also broke the record for most shares traded in a day .
before oct . 16 , a buyout by dynegy , let alone a bankruptcy , were unthinkable for houston ' s largest company and the world ' s largest energy trader . but that day , enron disclosed millions in financial losses related to investment partnerships it did business with and were run by enron ' s since - ousted chief financial officer .
in the days and weeks that followed , the securities and exchange commission started investigating enron , a stack of shareholder and employee lawsuits were filed , enron restated earnings and made disclosures about its balance sheet that wall street found troubling .
dynegy swooped in to rescue enron when the two companies agreed to a merger deal nov . 9 . but continuing bad news surrounding enron put pressure on that deal .
until wednesday morning , it appeared enron and dynegy would find a way to rescue the merger by revamping its terms .
after several days of talks among the companies , bankers and others , chuck watson , dynegy ' s chairman and chief executive , said in an interview he concluded a solution wasn ' t reachable .
the final confirmation for watson was when standard & poor ' s wednesday morning cut enron ' s credit rating to so - called junk status , effectively halting enron ' s ability to run its core business of energy trading and marketing , which is dependent on access to cash and credit . that trading franchise was a key reason for dynegy ' s interest in enron .
s & p said in its rating report that it cut enron ' s credit rating because it didn ' t believe the merger , which wasn ' t expected to close for six to nine months , would go through .
when the companies inked the deal on nov . 9 , watson said he expected no more surprises about enron ' s financial state . but the deal included escape clauses just in case .
among reasons dynegy cited for ending the merger were " breaches of representations " by enron . it also invoked an escape provision that let dynegy to walk away if enron had a " material adverse change " in its business .
" we have never been willing to risk our franchise , our credit or our credibility , " watson said . " we knew when to say no and this morning we said no . "
since nov . 9 , enron made new financial disclosures and saw significant drops in its stock price and trading business . all of that caused dynegy to seek new terms for the merger agreement , including a lower price , cash infusions to stabilize enron and a restructuring of enron ' s debt repayment schedule .
watson traced the beginning of the end to nov . 19 , the day enron filed its 10 q with securities regulators . companies must file their 10 q every quarter with details of their earnings and balance sheet with the sec .
dynegy was hit by surprise when enron disclosed it would have to pay off a specific debt obligation worth $ 690 million almost immediately and when it saw that enron ' s cash situation wasn ' t what it expected , watson said .
those disclosures , he said , caused enron ' s trading business , which had somewhat of an uptick after the merger announcement , to go " down again and down again . "
" that was sort of a blow that we never really recovered from , " watson said .
watson said he worked hard to rescue the deal , but would only go for a " global solution " that would take care of all the problems . for one , he said , enron needed another $ 1 billion - $ 3 billion infusion to keep going .
sources told the chronicle that j . p . morgan chase other firms reassuring investors
another jolt
by michael davis
copyright 2001 houston chronicle
shortly after enron corp . ' s bond ratings were cut to junk status wednesday , energy trader charlie sanchez watched the company ' s trading business simply vanish from his computer screen .
" i watched their different markets just peel off my screen , one by one , " said sanchez , energy markets manager at gelber & associates in houston .
although enron ' s troubles were well - known , the collapse of enron ' s trading business wednesday still jolted traders . sanchez just said , " i ' m in shock . "
the downgrade of enron ' s debt was the first domino to fall wednesday , followed by the shutdown of enron ' s online trading business and then the announcement that dynegy had called off its deal to buy enron .
enrononline , the company ' s internet commodity trading platform , went down early wednesday , signaling that the company had temporarily halted trading altogether . enrononline handles about 60 percent of the company ' s trading business , or about $ 2 . 8 billion a day in deals .
enron ' s chief financial officer jeff mcmahon said he didn ' t know when enrononline would be up for trading again . however , the company continues to do telephone transactions , he said .
the commodities markets appeared to weather the event . but the shutdown of the company that was by far the biggest player in the market led other companies that regularly dealt with enron to hastily issue statements assuring investors they were not going to be dragged down as well .
with enrononline down , many traders had to revert to calling around to numerous sources to find out what the market was doing rather than simply logging onto enrononline and clicking on a single tab to size up the market where they wanted to trade .
but as far as the overall impact on commodities markets and the new york mercantile exchange , the loss of enron ' s trading business for whatever period likely will not be that big , said kyle cooper , oil analyst with salomon smith barney in houston .
" it could widen the bid - ask spreads in a few places , but in terms of liquidity on the nymex , you ' re talking about a few thousand contracts out of 60 , 000 to 70 , 000 contracts in all , " cooper said .
one trader described enron as " a needle in a haystack in terms of the total long - term capital markets . "
nonetheless , the shutdown prompted a call for closer monitoring during a briefing at the white house .
u . s . treasury department officials kept a close eye on the credit and energy markets wednesday but discerned no upheavals from the troubles at enron .
" we are monitoring credit markets as we do every day " treasury spokeswoman michele davis said . " we haven ' t seen anything extraordinary . "
the exit of enron will lead to a change in the balance of power in the trading business . traders said companies that likely will benefit from the loss of enron ' s trading activities include el paso corp . , mirant corp . , reliant energy and duke energy .
the market appeared more worried about possible losses connected with enron .
el paso corp . ' s stock took a beating wednesday - - down $ 3 . 59 to close at $ 44 . 91 - - over concerns that it had too much exposure to enron through its trading business . the company issued a statement saying it had " systematically reduced its trading with enron " over the past few weeks .
" due to enron ' s loss of investment grade status , any new business will have to be supported by cash collateral . el paso foresees no material disruptions in the energy trading markets resulting from today ' s downgrades or the potential of an enron bankruptcy filing , " according to the company ' s statement .
el paso ' s natural gas and power trading exposure to enron is about $ 50 million , the company said , adding that it does not expect any adverse earnings impact from enron ' s difficulties .
atlanta - based mirant said its exposure to enron is $ 50 million to $ 60 million , noting that it too had begun limiting its exposure risk early in what it described as " the enron crisis . "
calpine corp . said it had no " net exposure " to enron , which means that what enron owes calpine for gas and electric trading is offset by calpine ' s liabilities to enron .
enron faced a cash crunch in part because some trading partners lost confidence the company would have the cash to pay bills . as a result , they were either demanding more collateral to ensure it delivered on trades or restricting dealings with the houston - based company .
" each company is going to have to evaluate what their situation is from producers to utilities , it ' s going to be a case - by - case situation . it ' s going to take a long time to figure it all out , " said one trader who asked not to be quoted by name .
shortly after the news of the company ' s latest problems broke , a flood of huge trading orders came out of enron , leading traders to speculate that the company was scrambling to clear its accounts before filing for chapter 11 bankruptcy protection .
a typical order from the company would be for 100 contracts in a single lot to buy or sell commodities such as natural gas . after the debt downgrade was announced , single orders for 1 , 000 to 2 , 000 contracts began coming from the company .
the flood of large orders out of enron caused the near - month futures contract on the new york mercantile exchange to spike up and then fall off just as quickly in late morning trading .
" they could not leave this exposure to the whims of the market , " one trader said . " they needed to get out . "
enron reportedly has been working over the past few weeks to line up alternate parties to hand off their thousands of contracts the company handles daily , many of which are for long term periods such as 10 to 15 years .
but some of the more obscure contracts on items such as emissions credits and weather derivatives may be more difficult to unload . in addition to natural gas , power and oil , enron trades such items as broadband , paper , metals and water .
" i really think that a lot of the kinds of stuff that is foreign and esoteric that enron has been making a market in will take a while for others to pick up , " sanchez said .
nov . 29 , 2001 , 12 : 54 am
houston chronicle
bankruptcy filing by enron could be largest ever
by tom fowler
copyright 2001 houston chronicle
if enron files for chapter 11 bankruptcy this week , as many observers expect it will , it may be the largest such event to date .
with $ 61 . 7 billion in assets on its books as of sept . 30 , the deal would top texaco ' s 1987 bankruptcy , which sought protection for a company with $ 35 . 9 billion in assets . it would also beat the 1988 bankruptcy of financial corporation of america , which had $ 33 . 9 billion in assets .
the value of the assets and liabilities on enron ' s books continues to be a moving target , however . while enron ' s unaudited quarterly financial report indicates $ 61 . 7 billion in assets , $ 27 billion in liabilities , $ 6 . 5 billion in long - term debt and $ 15 . 3 billion in deferred credits , the turmoil of the past month has changed much of that .
on the asset side , for example , the company says properties like its natural gas transmission lines , fiber optic network and electric generation facilities are worth close to $ 14 . 6 billion . much of the gas pipeline properties have been encumbered in recent weeks , however , by the company ' s efforts to raise additional cash and credit from banks .
and the likelihood the company could find buyers to pay its asking price for assets like the fiber optic network or overseas power plants is highly unlikely , said ralph pellechia , a credit analyst with rating agency fitch .
" it ' s really a buyer ' s market , not a seller ' s market , " pellechia said . " it ' s anticipated a lot of their assets , particularly their international assets , would go for a lot less than the initial investment in them . "
the company also counts $ 7 . 1 billion in investments and advances to " unconsolidated affiliates " as assets , which could include enron equity that was used to back some of the complicated off - balance - sheet financing partnerships that led to the company ' s current woes . given the constant surprises surrounding those partnerships and the company ' s steeply dropping stock price - - now worth less than a cup of coffee - - that $ 7 . 1 billion figure is also suspect .
several unexpected debt obligations related to the partnerships enron operated have also changed the tally since sept . 30 . analysts say debts for the company range between $ 13 billion and $ 17 billion , including another $ 3 . 9 billion in debt repayments related to two special partnerships , osprey trust and marlin water trust , that will come due more quickly than expected following the credit rating agency downgrades on wednesday .
" all these changes are making the situation like sand falling between their fingers , " said bill porter , chairman of houston law firm porter & hedges . " the only alternative left to them to stabilize their situation is bankruptcy protection . "
company officials say they ' re still reviewing options , but on wednesday said they are temporarily suspending all payments to creditors other than those needed to maintain core energy trading operations .
" with dynegy ' s termination of the merger and the ratings agency downgrades , we are evaluating and exploring other options to protect our core energy businesses , " enron chairman and ceo ken lay said in a statement .
sources familiar with the broken enron - dynegy deal said the paperwork for a bankruptcy filing has been in the works for weeks , and even preceded the nov . 9 merger announcement . they say if the preliminary deal had not been secured that day , enron would have had to file for bankruptcy the following monday .
recent efforts by enron ' s bankers , including j . p . morgan chase and citigroup , to get creditors to hold off on demanding payments may mean the pending bankruptcy filing will be what is known as a prepackaged deal .
in a prepackaged bankruptcy , creditors agree beforehand how the sale of the company ' s assets would be divided among them . it would save all parties untold millions in legal fees that would be spent fighting over the company while assuring at least some recovery of their investments .
prepackaged bankruptcies are common , said jay westbrook , a professor at the university of texas school of law , because they allow companies to buy parts of the faltering business they want without the hassles of long , drawn - out legal battles .
" the purchasers will essentially just pay their money and walk away , with the proceeds getting divided up among those holding claims , " westbrook said .
chapter 11 bankruptcy has the added benefit of freezing the many lawsuits that have been filed by angry shareholders . those lawsuits would eventually be handled by the bankruptcy court , including determination of the validity of the claims in the suits .
if enron ' s bankruptcy is not prepackaged , it ' s almost assured that the value of enron ' s remaining businesses , such as its energy trading , will disappear , said bob chapman , a principle with houston management consulting firm king , chapman & broussard .
" the only guys that do well in bankruptcies are the lawyers , " chapman said . " what you usually see is a long period of people trying to carve up the beast where what remains of the business will continue to atrophy . "
because the company will most likely look to simply liquidate its assets , what would at first be a chapter 11 bankruptcy filing could later be converted to a chapter 7 filing , where a court - appointed trustee overseas liquidation of the remaining assets .
" from our perspective , a lot of the future rests in the hands of the banks , " said fitch analyst glen grabelsky . " what their intentions are in granting forbearance , what kind of liquidity they ' re willing to extend to enron , only they can answer . "
nov . 29 , 2001 , 12 : 56 am
houston chronicle
ballpark place project stopped dead in tracks
by ralph bivins
copyright 2001 houston chronicle
construction of the ballpark place tower has been postponed , partly because of the uncertainty surrounding enron corp . , the project ' s developer announced wednesday .
trammell crow co . had anticipated breaking ground this week on the 34 - story tower across from enron field , said matt khourie , who heads trammell crow operations in houston .
ballpark place was planned for a parcel of land owned by the developer , bounded by preston , prairie , crawford and la branch streets .
the $ 108 million ballpark place was expected to be a dominant skyline feature , rising over left field at enron ' s namesake stadium .
ballpark place would have included 253 , 000 square feet of office space , 216 apartment units , ground - level retail space and several levels of covered parking .
questions surrounding the future of enron corp . , a major employer in downtown , was key in encouraging trammell crow to shelve its plans , khourie said .
enron has about 3 million square feet of downtown office space , including a 40 - story building under construction . as enron ' s need for space decreases , the downtown office market is sure to feel the aftershocks .
" given the national economic uncertainty and the uncertainty associated with the future availability of class - a space springing from the recent events at enron , we have decided to delay our construction start until the future visibility improves , " khourie said in a written statement .
it has been widely speculated that dynegy , another houston energy firm , would move into the new enron building .
but dynegy ' s plans to buy enron fell apart wednesday , leaving questions about the the new 1 . 2 million - square - foot tower .
trammell crow has not abandoned its plans for ballpark place .
khourie said the company intends to start construction , perhaps next year , after the economy improves .
" we are still very bullish on the project ' s residential / office mixed - use concept for our unique location and also are optimistic on the mid - and long - term prospects for houston ' s central business district , " khourie said .
" the decision to delay relates directly to the short - term environment that we are currently facing . "