Skip to comments.Banks fall as Congress probes Enron ties
Posted on 07/23/2002 5:18:44 PM PDT by DeaconBenjamin
Citigroup and JP Morgan Chase shares went into free fall on Tuesday as congressional investigators showed how the two biggest US banks helped Enron disguise its debts through complex deals that hid their own involvement.
Investors took fright at the potential damage to the banks from their role in the energy trader's collapse, which has already brought down its auditor Andersen. Citigroup shares fell nearly 16 per cent on Tuesday with JP Morgan down 18 per cent, a combined loss of market value of over $34bn. Citigroup has lost a quarter of its value in two days.
Congressional investigators yesterday portrayed the banks as knowing participants in Enron's efforts to make its debts appear as trades through the use of "prepaid" energy contracts.
Senior executives from both banks defended their actions, telling the congressional inquiry that "prepay" transactions were legitimate financing structures used widely on Wall Street and any improper accounting was the fault of Enron and Andersen.
"During our business relationship with Enron, we thought we we re dealing with honest managers who had a legitimate business purpose for the transactions we did with them," said David Bushnell, managing director of Citigroup's global corporate and investment banking business. "Our employees did transactions that were common throughout Wall Street, and they believed those transactions were entirely appropriate."
Senator Carl Levin, chairman of the subcommittee on investigations, said the banks "knew what Enron was doing, assisted Enron in the deceptions, and profited from their actions".
Investigators insisted Citigroup and JP Morgan employees realised the deals were inappropriate, pointing to internal documents showing bankers attempting to keep the prepays secret. The documents also show the banks helped Enron make sure the trades could be accounted for as cash flow, rather than debt, a fact investigators said made them complicit in Enron's faulty financial statements.
Mr Levin is due to send his evidence to the Justice Department, which began a criminal investigation into financial fraud at Enron seven months ago.
The controversies have been a personal embarrassment for Sandy Weill, Citigroup's chairman and chief executive, who has been calling recently for corporate governance reforms. Mr Weill told Citigroup employees yesterday that the bank's share price had "decoupled" from its performance.
Analysts said the share price declines reflected fears the banks could face heavy fines or restrictions on their business activities. Tanya Azarchs, banking analyst at Standard & Poor's rating agency, said: "There is no way to quantify what the impact will be. Investors are assuming the worst."
Additional reporting by Jenny Wiggins in New York
Can someone tell me what a prepay transaction is? Sorry for my ignorance.
Jeepers mister Levin, did the FORMER TREASURY SECRETARY OF THE UNITED STATES OF AMERICA UNDER cLINTON have anything to do with abusing the trust of Citicorp to get clinton's buddy ken lay out of the jam that his corrupt dealings with the indian government landed him in?
Lets be careful which rocks we turn over, huh levin baby?
You know, its when coporations run like government does. The government loots your social security fund, spends the money on butt floss, then claims its IOU is an asset. This is your government running like a top.
Similarly, Citibank floats Enron a loan to cover their exposed corrupt clinton-screwed back sides, then claims the loan is an Enron asset, not a debt. This is corporate America running a moon sized fraud.
My god. Are we about to go over the edge?
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