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Big banks helped Enron conceal true financial condition

Dharam Shourie in New York

Big investment banks, which lent bankrupt energy giant Enron hundreds of millions of dollars, helped it conceal its true financial condition.

Houston-based Enron, which filed for bankruptcy in December, taking the investments of millions of people with it, used a web of thousands of 'off balance sheet partnerships' to hide some $1 billion in debt from investors and federal regulators, a media report said.

Senior credit officers of Citigroup misrepresented the full nature of a 1999 transaction with Enron in the records of the deal so that Enron could ignore accounting requirements and hide its true financial condition, it said quoting internal bank documents and government investigators.

The records and interviews with investigators, the New York Times said, demonstrate for the first time that bankers intentionally manipulated the written record of their dealings with Enron to allow the company to improperly avoid the requirements of accounting rules and the law, thus keeping $125 million in debt off its books.

In the 1999 deal, the records show, the bankers knew that a secret oral agreement they had reached with Enron required that the accounting for the transaction be changed.

Instead, investigators said, Citigroup left that side deal out of the written record and allowed Enron to account for the transaction in a way that the bankers knew was improper.

For months, both Citigroup and J P Morgan Chase have been repeatedly criticised by investigators and shareholders' lawyers for structuring billions of dollars of transactions for Enron involving entities with names like Mahonia, Yosemite, Delta and Stoneville Aegean, the Times said.

The banks have responded that those transactions - which critics say allowed Enron to disguise loans as trading liabilities - properly followed accounting rules, and were the product of a widely used business known as structured finance.

The Times, however, said the latest transaction - a previously undisclosed deal called Roosevelt - is far different.

In this case, the determination of the proper way to account for the deal is not coming from outside critics but from internal Citigroup e-mail messages among bankers expressing deep concern about revealing the oral agreement with Enron in the written record of the transaction.

The paper quoted an e-mail message from senior Citigroup loan executive in Houston James F Reilly as saying, "The paperwork cannot reflect their agreement as it would unfavorably alter the accounting."

A spokesman for Citigroup declined to comment, but the Times said he stressed that the bank believed that its dealings with Enron were "entirely appropriate."

A lawyer for Enron, Robert S Bennett, was quoted as saying that he was unfamiliar with the Roosevelt transaction, but he said that he was "unaware that those financial institutions did anything wrong."

The Roosevelt transaction and other deals between Enron and the banks are expected to be examined at a hearing before the Senate Permanent Subcommittee on Investigations.

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