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
This has the making of a bad horror movie.
LOL!...You forgot to close your tag < /sarcasm >
Pretty simple actually. Citibank gives Enron $500 million, and has a signed agreement that in a year Enron will give them $650 million worth of oil and natural gas. Enron then tells everyone "Look! We've sold $500 million of oil and are making lots of profit!". That's a prepay transaction.
Unfortunately for Citibank, it is not only blinding obvious that there is no oil pipline from Enron to Citibank, but there is also a memo in which an executive lets the cat out of the bag -- Enron will pay cash rather than oil. So this "Income" is actually a loan.
I believe much of America is about to enter into a period of judgement. There is a blessing-judgement cycle recorded in the Bible as regards to Israel, that applies to some extent to all nations. When they live moral, honest, reverent, and respectable lives, the nation is blessed. They get to feeling all proud and complacent. Respect for righteousness and God errodes. Soon the people who proclaim truth go from being respected to being ridiculed.
The bible teaches that when ridicule of the people of God turns to emnity and hostility, a "Day of the Lord" (period of judgement) comes. At that point the people go through great trials, are humbled, and repent. Only in Revelation, at the LAST Day of the Lord, are people so hardened that even when judgement falls they do not repent, but rather curse God and persecute His people all the more.
This thing might not be too funny in the near future. When our banks start going under, we are in trouble.
You ain't just whistling Dixie.
demkicker, I have to agree with you. The leftist media will make sure the blame goes to the "right people."
Are the figures of $500 million and $650 million the actual figures, or were you using them as an example to illustrate your point?
If those are the figures, that's a 30% interest charge for one year!
Nothing makes a mess quite like a gravy train, brought to a sudden stop...
Lieberman. Good luck. He ain't calling Rubin to testify, no way, no how.
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