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Former largess buys little sympathy
By Nancy Dunne and Peter Spiegel in Washington - Nov 29 2001 23:22:46
On Inauguration Day this year, no business leader seemed better
positioned politically than Kenneth Lay, Enron chairman and
significant financial backer of both Presidents Bush.
Mr Lay had supported George W. Bush to the tune of nearly $2m, first
when he ran for governor and later in his race for president. He was
a respected adviser on energy issues to both Mr Bush and Dick Cheney,
the vice-president.
But on Thursday, as the Enron empire lay in ruins, the White House
seemed in no way inclined to mount a rescue. Instead, Tom Daschle,
the Senate leader, said Congress would have to ask hard questions.
"We certainly need to try to find answers to the questions involving
the collapse of Enron," said the South Dakota Democrat.
Like dozens of other members of Congress, Mr Daschle had been a
recipient of Enron's campaign largess, but in the end it bought the
company little sympathy. Some say Enron has been a force for good in
Washington, including Roger Ballantine, a former Clinton White House
official, who described the company as "progressive and cutting-
edge".
Others have been less kind. "They were ruthless. That's why they had
no friends when they were in trouble," said one investor.
Besides a possible congressional inquiry, Enron is still subject to a
Securities and Exchange Commission probe investigation, which is
looking at partnerships run by Andrew Fastow, Enron's ousted chief
financial officer.
"You can be sure that we will investigate the situation thoroughly
but quickly, and if wrongdoing occurred, make sure that the people
who are responsible for that will answer," Harvey Pitt, SEC chairman,
said. yesterday.
The SEC began the probe last month, and it is believed to focus on
how Enron reported and accounted for the partnerships in its legally-
mandated financial disclosure statements.
Mr Pitt said one of the issues the Enron collapse has raised was "the
extent to which corporations disclose to their shareholders
information that can have a material impact on what the shareholders
equitable investment and interest is in the corporation".
Enron has insisted Mr Fastow's dealings were legal and properly
disclosed, but experts familiar with the SEC probe have said
executives could face criminal charges. Mr Daschle's comments also
seem to suggest trouble ahead for electricity deregulation. A broad,
free market in electricity was vital to Enron's trading business, and
that is where Mr Lay wielded influence.
Few people noticed when Curtis Hebert, chairman of the Federal Energy
Regulatory Commission, appointed by Mr Bush, was replaced after six
months in office by Patrick Wood. , former head of the Texas public
utilities commission.
According to Mr Hebert, Mr Lay offered to back him against Mr Wood if
he would speed the creation of large regional transmission
organisations. , which would broaden the trading market. Mr Hebert
refused. He was soon replaced.
� Copyright The Financial Times Limited 2001.
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JP Morgan Chase to face greater fallout from Enron
By Gary Silverman in New York - Nov 30 2001 23:05:14
JP Morgan Chase, a lender and adviser to Enron, could face greater
fallout from the energy company's collapse than first thought.
It was learned on Friday that JP Morgan Chase was also a investor in
companies that traded with Enron and could be hurt by its demise.
Bankers fear such secondary exposures could be significant because
Enron was such a big derivatives dealer.
The analyst who uncovered the investments in Enron's counterparties
said they also could raise questions about JP Morgan's role as an
adviser to Enron.
JP Morgan and Citigroup advised Enron in its efforts to sell itself
to Dynergy, a rival energy firm. The deal fell apart on Wednesday as
Enron's credit was downgraded.
"Whose interest were they working on?" said Charles Peabody, analyst
at Ventana Capital, a research boutique. "There are natural conflicts
between the lending side, the advising side and the investing side."
JP Morgan said it has about "$500m of unsecured exposure to Enron
entities, including loans, letters of credit and derivatives."
Another $400m of Enron loans are secured.
Securities and Exchange Commission filings also show that Enron
counterparties have ranked among the top 10 holdings of JP Morgan
Partners, the company's venture capital arm.
As of September 30, JP Morgan said it owned 6.4m shares, worth $97m,
in Encore Acquisition. Encore, an energy company, said on Thursday it
had paid Enron $1.8m for derivatives hedging its exposure to oil and
natural gas prices.
JP Morgan's second-quarter filing showed that JP Morgan Partners
owned 3.1m shares, worth $117m, in Northern Border Partners, a
pipeline owner that said on Thursday it had "a number of
relationships with Enron."
North Border Partners does not appear among the top ten holdings in
the third-quarter, indicating the stake was sold. In the third
quarter, JP Morgan Partners had "strong returns" from the energy
sector, the filing said.
JP Morgan Partners has hundreds of other equity holdings that it does
not list. But a spokeswoman said: "We do not anticipate material
impact on our JP Morgan Partners portfolio from exposure related to
Enron."
Unlike JP Morgan, Citigroup does not detail its venture capital
holdings. A spokesman declined comment on whether it had invested in
Enron counterparties.
Related stories
Video: Banks disclose Enron risks
Enron ceases delivery in mainland Europe
Special: Enron in turmoil
Lex: Enron
� Copyright The Financial Times Limited 2001.
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