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J P Morgan sues Enron for $2.1 billion

J P Morgan Chase & Co., one of Enron Corp.'s biggest creditors, on Tuesday filed a $2.1 billion lawsuit against the troubled energy trader, in a move to protect some money it loaned.

The New York-based bank -- which up until now has been an Enron ally even after the company revealed a string of questionable financial transactions and filed for bankruptcy protection -- claimed rights in a suit filed in the US bankruptcy court in New York to Enron assets such as accounts receivables, commercial paper, cash, and other property.

"It sounds like they are trying to get some of their money back," said Andre Meade, an analyst at Commerzbank.

The suit comes the day before the first formal meeting of Enron's largest unsecured creditors at New York's Hilton Hotel, which is expected to be a heated exchange. Enron is the largest bankruptcy in U.S. history and has drawn widespread attention.

Enron spokesman Vance Meyer said he had not seen the suit yet so could not comment.

While the suit, over complex securitisations of Enron's accounts receivables, appeared confrontational, J.P. Morgan was interested in safeguarding its money and seeing the books and investments related to a group, Sequoia Financial Assets, that securitised Enron bills, one J.P. Morgan source said.

Citigroup Inc. and J P Morgan each have hundreds of million dollars of exposure to Enron. They also are trying to line up investors to participate in a $1.5 billion loan to help Enron run its business while it reorganizes. Citigroup was not immediately available to comment on J P Morgan's suit.

J P Morgan said its exposure as a lead agent in transactions that securitised Enron's receivables is under $100 million. The total value of the assets in question, which also involve other banks like Bank of America Corp. and FleetBoston Financial Corp. unit Fleet National, is $2.1 billion, the suit said.

J P Morgan said last month it has around $500 million of unsecured exposure to Enron entities, including loans, letters of credits and derivatives. It has additional secured exposures, including $400 million in loans backed by the Transwestern and Northern Natural pipelines.

"We are suing on behalf of the bank groups for various facilities on which we are lead agents," J P Morgan spokeswoman Kristen Lemkau said. "We are seeking information to verify and confirm the extent of the security."

A special purpose entity, Sequoia Financial Assets, allegedly bought accounts receivables from Enron and reinvested the money collected on the bills in short-term paper issued by Enron and its Enron North America unit, the suit said.

Because Sequoia is capitalized separately, J P Morgan has alleged it is outside Enron's bankruptcy proceedings so the assets are not guarded from creditors. Enron is holding the assets in dispute merely as a servicer, the suit alleged.

Enron failed to surrender the assets or even give information about the assets, despite J P Morgan's demands, the suit said.

J P Morgan acted as an agent in two credit facilities -- called Choctaw and Zephyrus -- whose proceeds helped fund two accounts receivables transactions between Enron and Sequoia, the suit said.

In the $485 million Choctaw loan, proceeds went to buy the preferred equity in a special purpose entity known as Cherokee formed to lend Sequoia money. Another group, Cheyenne Finance, contributed $750 million to buy all the common equity of Cherokee, the suit said. Lenders separately contributed $482 million to the Zephyrus facility, which took a stake in another special purpose entity set up to loan money to Sequoia, the suit said.

The suit precedes a creditor meeting that is expected to set up a committee or committees of various kinds of creditors to negotiate for a share of Enron's assets. The committee will likely include eight to ten financial institutions that are Enron's largest creditors, including J.P. Morgan.

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