CITIGROUP BOMBSHELL: HELPED ENRON HIDE FINANCIAL CONDITION

http://www.drudgereport.com ^ | 7/21/02

[swheats]

He sure does and must work well under pressure.

[nopardons]

Exactly ! Someone should really CCP and postthe names of thhe biggies, who did this garbage and gave to the DNC and Clinton; as well as to those, who are ": investigating " , now. Why didn't they " investigate ", when this was happening ? Hmmmmmmmm ?

To blame President Bush, is not only inexcusable, but it is also patently ridiculous ! Then, there is the little matter, of the government " cooking the books ", under Dem control, for decades . OTOH, some practices have been and are perfectly LEGAL ; which are now being slammed, by those who don't know / understand a thing about business, accounting, the real world . :-)

[kcvl]

THE 2002 FORTUNE 500
Risky Business

J.P. Morgan Chase took a hit in the recession. It took another hit on Enron. The deeper problem, though, goes further back.

FORTUNE
Monday, April 15, 2002
By Shawn Tully

You'll have to forgive William Harrison his optimism. It's in his constitution. As a forward for the University of North Carolina basketball team, the lanky, 6-foot 4-inch Tar Heel was prized more for his slam-dunk enthusiasm than for his jump shot. You can hear the same rah-rahs echoing from the rafters when the genial 58-year-old CEO talks about his current 100,000-member team, J.P. Morgan Chase. "It's clear as a bell that our platform will win, that our stock is very undervalued, that we'll create great value for shareholders," he says, with nary a hint of self-doubt.

The shot clock is ticking, however. Despite some recent gains, Morgan's stock price has been bludgeoned over the past year and a half. Since September 2000, when the marriage between the Chase Manhattan Corp. and J.P. Morgan & Co. was announced, shares of Chase (which became JPM) have fallen 37%, to $36. More than $40 billion in market value has been erased from the combined companies. That market slide is all the more significant given that bank stocks, in general, have held up well during this down market. The Dow Jones Bank Index has risen 6% in the same period, while the BKX, a proxy for larger banks, has stayed flat. Meanwhile, shares of Bank of America, another huge hybrid of commercial and investment banking, have jumped 22%.

On top of that, Morgan has taken a financial--and reputational--wallop from its connection to the Enron mess. And the bank may, in fact, face more exposure to future credit bombs.

As we said, you'll have to forgive Harrison's optimism. The question is, Why is Wall Street's buy-side establishment cheering alongside him? No fewer than 14 of the 21 analysts covering J.P. Morgan garland the stock with buy or strong buy recommendations. (Only two have sells.) Judah Kraushaar, Merrill Lynch's veteran banking analyst, describes his faith with a kind of Zen-like calm. Learning to appreciate this banking powerhouse, he writes, is "learning not to fear one's shadow ... J.P. Morgan Chase's franchise [is] far more solid than many bears assume."

The gushing has everything to do with size, it seems. On paper, J.P. Morgan Chase is a banking Goliath--ranked No. 1 in the world in arranging syndicated loans for corporations, standing first in derivatives and fourth in bond underwriting. It boasts the world's second-largest private bank (UBS holds the top spot) as well as the fourth-biggest asset management franchise.

Harrison, a deft diplomat who orchestrated Chemical Bank's mergers with, first, Manufacturers Hanover, and then Chase in the early to mid-1990s--before uniting with J.P. Morgan--has been building this empire into a one-stop financial shopping mall. For a while Wall Street applauded; the stock soared from the winter of 1998 to mid-2000. And indeed, Harrison's strategy certainly looks compelling. Companies, he says, want to concentrate their dollars by buying a panoply of services from fewer, bigger banks. Morgan has the edge on traditional investment firms like Goldman Sachs, Harrison argues, because it provides what corporate clients covet most--plentiful credit. Using loans as a calling card, Morgan can swipe the more lucrative M&A advisory and underwriting business from the gilded leaders. "When we provide capital to clients, we provide something of great value to them," Harrison boasts. "Evidence is strong they like this model. It's what big companies want."

Here, Harrison is unequivocally right. The model does work. Citigroup is proving it every day, using its big balance sheet to elbow into higher-margin investment-banking business. But so far at least, the same has been less true for Morgan.

Despite Harrison's finesse in cobbling together megadeals and melding corporate cultures, despite his rousing boosterism and ueber-charm, despite choosing what would seem to be the right growth strategy for his company, this CEO power forward has failed to sink the ball. "Too many things went wrong with J.P. Morgan that didn't go wrong with its competitors," says fund manager Mike Holland, who dumped the shares this year. Morgan stands as a classic example of how gaining immense size and following a logical strategy don't necessarily enrich shareholders.

When Chase bought J.P. Morgan in late 2000, for $33 billion, Wall Street buzzed over the yawning upstairs/downstairs gulf in cultures--the prospect of flying plates when the cerebral, upper-crust bankers from the House of Morgan shared the table with the roughhewn folk from Chase. It was finesse vs. brute force, suspenders vs. shirtsleeves, hand-tooled service vs. ATMs and credit cards.

But the lore lovers missed the real drama. The tension between Chase and Morgan wasn't about cultures; it was about risk. The merger brought together two diametrically opposed views of risk management, one swashbuckling (Chase), the other hyperdisciplined and scientific (Morgan). Clearly they could not coexist, and in the immediate aftermath of the merger a battle erupted internally over which view would prevail.

For the old J.P. Morgan, making loans was a mug's game. Like Chase, J.P. Morgan had used corporate lending as a way to to build its investment-banking business. But in the late 1990s, J.P. Morgan reversed course. It reckoned that the potential cost of those loans far outweighed the loans' value as an investment-banking entree. The loans provided tiny profits in good economic times--but in tough times the losses could swamp the puny earnings from the lush years. What especially spooked J.P. Morgan was the hit it took in 1997 from the Asian debt crisis. The lesson was clear: Financial earthquakes can roil credit markets overnight, in ways no expert can predict.

[justshe]

Boo hiss........but VERY clever!

[kcvl]

Citigroup, J.P. Morgan Marketed Enron-Type Deals to Other Firms

Updated: Tuesday, July 23, 2002 01:07 AM ET

Citigroup Inc. (C, news, msgs) and J.P. Morgan Chase & Co. (JPM, news, msgs), already facing scrutiny for devising allegedly deceptive transactions for Enron Corp., marketed similarly structured deals to a slew of other companies, Tuesday's Wall Street Journal reported, citing testimony that a senior congressional investigator will give at hearings that start today.

The names of the other companies weren't disclosed.

The hearings, part of a Senate investigation into the role banks played in Enron's troubled finances, are the latest in a series of investigations into the two banks regarding their ties to Enron, which filed for bankruptcy-court protection late last year. The investigations include separate probes conducted by the Securities and Exchange Commission and the office of Manhattan District Attorney Robert Morgenthau.

Now, a person familiar with the matter says, the Justice Department's Enron Task Force also is looking into the roles that financial institutions, including Citigroup, J.P. Morgan, Merrill Lynch & Co. and National Westminster Bank, now a unit of Royal Bank of Scotland PLC, may have played in Enron's demise.

Citigroup and J.P. Morgan declined to comment on the hearings or the investigations. Merrill and Royal Bank of Scotland couldn't be reached for a comment.

The deals under congressional scrutiny include arrangements known as Yosemite, devised by Citigroup, and Mahonia, devised by J.P. Morgan, both of which were designed to make Enron's public disclosures more appealing to investors, according to the testimony.

An official familiar with the investigation will testify at today's hearings before that panel that Yosemite, Mahonia and other deals allowed Enron to understate its debt by 40% while overstating cash flow by as much as 50%, according to a draft of his statement. Cash flow is a crucial measure of financial health for energy companies such as Enron.

"The evidence indicates that Enron would not have been able to engage in the extent of the accounting deception it did, involving billions of dollars, were it not for the active participation of major financial institutions," says a copy of the testimony.

Banks such as J.P. Morgan and Citigroup were "willing to go along with and even expand upon Enron's activities."

J.P. Morgan, in fact, had a "pitch book" to sell other companies on similar financing vehicles, according to a copy of the testimony. J.P. Morgan entered into similar transactions with seven other companies, while Citigroup shopped such deals around to as many as 14, with at least three entering into such relationships, the testimony says.

The hearings will focus on a commodity-trading vehicle known as a prepay, in which a financier gives money in exchange for future delivery of a commodity such as gas, gold or oil. Such arrangements are common, but in the hands of Citigroup and J.P. Morgan, they became the building blocks for extremely complex transactions that Enron used to disguise debt as trades and create the appearance the company was generating cash, people familiar with the matter said.

Wall Street Journal Staff Reporters Jathon Sapsford and Paul Beckett contributed to this report.

Copyright 2002 Dow Jones & Company, Inc.

[Mo1]

FOFL .. sorry .. I tried

[kcvl]

WallStreetModels.com World Exclusive:

20 MOST POWEWRFUL PLAYERS ON WALL STREET

20. Abby Joseph Cohen – Goldman Sachs Chief Equity Strategist
Regarded as "Princess of Wall Street", her 5% asset allocation change can easily move Dow up or down over 100 points.


19. Stan O’Neal – President and COO, Merrill Lynch.
Only black in this list makes him look like Colin Powell in Washington. CEO David Komansky gave him free hands to reconstruct bulky brokerage house but he can be easily topped out the list if failed.


18. Steve Forbes – Owner of Forbes Financial Publications
Since Forbes Magazine are on every top executives' desks, he is kind of Wall Street Priest.


17. Howard W. Lutnick – Chairman and CEO of Cantor Fitzgerald
9/11 tragedy disclosed one of the most hidden Wall Street powerhouse Cantor Fitzgerald, which handles almost 40% of government bonds.


16. Alan “Ace” Greenberg - Retired Chairman and CEO of Bear Stearns
Famous for asking employees save paper clips. Even with Buffett and Greenspan as best buddies and over 50 years on trading floor, his influence on the street is usually understated by major media.


15. Burton G. Malkiel - Princeton University Professor.
Only Academician in the list. Author of "A Random Walk Down Wall Street", which can be appreciated by both PhDs quants and high school dropout day traders.


14. Peter Lynch – Vice Chairman of Fidelity Investments
Although he no long manages Magellan Fund, his books are still appreciated by people living on Main Street rather Wall Street.


13. Robert R. Gauber - Chairman and CEO of National Association of Security Dealers
As "Boss of Wall Street Workers Union", he deals with all NASDAQ trading related issues.


12. Dick Grasso - Chairman and CEO of New York Stock Exchange
Call up this guy if you want to ring NYSE opening bell. But most of his job is to keep NYSE as a highly regarded symbol of Capitalism.


11. John F. “Jack” Welch – Adviser to J.P. Morgan Chase
As retired Chairman and CEO of General Electric, his influence on the street will certainly be increased in the future.


10. George Soros – Chairman of Soros Fund Management
He bets big and talks loud, but has few followers.


9. William J. McDonough - Chairman of Federal Bank of New York
He is Greenspan's eyes on the street. By successfully organizing big bands to bail out Long Term Capital, he acts like COO of Wall Street & Incorporated.


8. Maurice R. Greenberg – Chairman and CEO of AIG
With his son Jeff leading Marsh & Mclennan, Greenberg certainly has more buying power than anyone on the street.


7. Sanford I. Weill – Chairman and CEO of Citigroup
By taking Salomon Brothers, Smith Barney, Travelers Group and Citibank under the red umbrella, he is at the helm of this financial empire.


6. Warren Buffett – Chairman and CEO of Berkshire Hathaway With his wisdom, his humor and his money, he certainly has more say than anyone else on the street. But he is hided in an Omaha cave and takes low-key approach to the daily activities on the street.


4. Robert Rubin – Former Secretary of Treasury; Co-Chairman of Citigroup
By successfully handling Russian crisis, Asian crisis and terrorism crisis, he is the best person to be ambassador from Wall Street to Pennsylvania Avenue.


4. Harvey L. Pitt - Chairman of Securities and Exchange Commission
Although he is not a household name, he is at the helm of SEC - which has monopoly power of making rules, interpolating rules and executing rules.


3. Alan Greenspan – Chairman of Federal Reserve Bank
He should be at a spot higher than here if most of his recent interest rate cuts were not "as expected".


2. Mike Bloomberg – Owner of Bloomberg L.P. and future Major of New York City
His company constantly feeds street people market data from weather derivatives to exchange rate with Afghan currency. From next year, he will decide how much tax breaks can be given to whom on the street.


1. Miss Market - She makes you laugh and makes you cry; she makes you fear and makes you greedy. No one can consistently predict her next move. The most successful ones on the street are the most humble ones in front of her.

[Mo1]

Thanks for all the research .. you done a great job

Now I off to pull the covers over my head in hopes this is all just a bad dream

Sleep tight and Sweet Dreams

[SauronOfMordor]

Does this mean that the stock market will go down again tomorrow?

In early morning trading, a loota buying in the futures markets, especially dow jones futures, will ensure a strongly up opening market. Whether that lasts past the first couple of hours is anybody's guess

[Alamo-Girl]

Verrry interesting! Thanks for the heads up, piasa! Great catch, kcvl!!!

[bimbo]

I will be SO happy if Robert Rubin is shown to be the crook that I think he is!!

Your instincts about Rubin are probably well-founded, but he is TOO well-connected to the Democrat Powers. While his name may be mentioned in connection with the Citigroup scandal, the media will have the sheeple believing that George W. Bush is running Citigroup.

[bimbo]

So according to this he had a grand total of 2 months and 5 days to do all the financial shenanigans and sleight-of-hands. Methinks a few people should get a grip.

Here's one grip:

Rubin was NOT brought to Citigroup to cook up financial crimes … those criminals were already in place, and well aware of their criminality. Rubin was hired to provide them with Democrat Political Armor.

[Freedom'sWorthIt]

"the media will have the sheeple believing that George W. Bush is running Citigroup."

Yes, they will.

And the poor Saudi Prince who was pumping Citigroup by buying its stock now dead at 44 of a "heart attack".....

It never pays to get involved in any way with the Clinton Mafia! Just ask

Vince Foster

Ron Brown

Charles Ruff

Barbara Alice Wise

Jerry Parks

Mary Mahoney

Jim McDougal (Heart attack also)

Victor Reisner

William Colby

Carlos Ghigliotti (heart attack also)

John Millis

Kathy Ferguson

Bill Shelton

Theodore Williams (Betty Currie's brother)

Just to name a few

[bimbo]

Could it be possible that the RNC is fighting back surreptitiously?

Not likely … unless the RNC has brought only a slingshot to this donkey-hunt. The Sheeple are not hearing the leading Democrat names in connection with the scandals ... The media are effectively relating ALL scandals to Bush, and Bush appears to be accepting them!

[aristeides]

No mention of Rubin in the article. The NY Times continues to protect the guy.

[aristeides]

Clinton's presidency seemed to be going down the tubes in late August '98, after his disastrous appearance on TV admitting that he had lied. Then he showed up in NYC, appeared at the UN and the CFR, and no doubt met with a lot of leaders of big finance, and his presidency gradually seemed to recover after that. I wonder what deals he struck.

By the way, what was that timing of Rubin's bailout of that big hedge fund in '98?

[copycat]

Given these kinds of disparities, it's no wonder some Republicans are now talking about shutting down Ron Brown's export-boosting operation. It would be surprising if they moved very far on that front, though, since their bread is buttered on the same side as Brown's.

Our government in a nutshell.

[Nuke'm Glowing]

The Republican Nation of Cowards fight back? Doubtful. They are scared as to what the FBI files still have on them. You honestly don't think a fat bar bouncer didn't bring those to someone who did not copy everything in them did you?

[maui_hawaii]

To add to our private conversation, I am not into selling my soul for a buck. I believe there are more important things than quick money. I believe in Warren Buffett style of business.

I hate firing people, and never sold a share of what I promote.

Be professional, and compete. Be fair, and we will recognize it. I will give the opportunity to learn and won't condemn for an honest mistake. Bring something to the table though. Contribute something useful. Not everyone can do that.

It should be fun and comfortable to go to work. When people like their jobs, they do their jobs well. In the long term, its your people who make you rich.

Long term innovation, hard work, and square dealing leads to something no one can knock... corporate character. In the long run, these are the only people who survive.

Unfortunately only some of the CEO's create this type of working environment.

[aristeides]

And the poor Saudi Prince who was pumping Citigroup by buying its stock now dead at 44 of a "heart attack".....

Aren't those two different Saudi princes?

By the way, I was suspicious too, when I heard about the "heart attack." What I wonder is whether the dead prince had gotten too close to the U.S. for the liking of Prince Abdullah.