2 Early Enron Lenders Didn’t See the End Coming
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Enron’s modern era dates back to the mid-1980’s, and throughout that period Citigroup and J. P. Morgan Chase have been there to lend with both hands. The two giant banks were the biggest lenders to Enron when it collapsed late last year, tacking a painful ending onto long-running and mutually beneficial relationships. Both were also around in the early days of Kenneth L. Lay’s tenure as Enron’s chief executive: J. P. Morgan Chase helped to finance the merger that created Enron in 1985 and Citigroup helped Mr. Lay pay off a corporate raider a year later. Over the years, Enron and the partnerships it controlled paid Citigroup and J. P. Morgan Chase, and their corporate predecessors, for a variety of lending, investment banking and insurance services. Last week, Citigroup disclosed that its exposure to Enron easily exceeded $1 billion, making it one of the company’s biggest lenders. J. P. Morgan Chase had even more exposure to Enron at the end. The ties have been so broad and deep that it is possible one or both of the banks will have made money from Enron even after the big losses they estimated they would suffer. Together, they took more than $680 million in charges against their fourth-quarter earnings to cover potential losses related to the company. Officials of both banks declined to discuss details of their relationships with Enron. Banking industry executives and analysts are not surprised the nation’s two biggest and most aggressive banks were the biggest lenders to Enron, a company so active in deal making that some investment bankers described it as the ”fifth-biggest wallet on Wall Street.” Indeed, some are not altogether surprised that two giant banks that pride themselves on being smart lenders did not seem to see the Enron debacle coming. ”Banks have a habit of making mistakes,” said Henry T. C. Hu, a professor of banking and finance law at the University of Texas. ”There’s a long tradition there.” Mr. Hu traced the banks’ Enron mistakes in part to the way they are organized and the way they reward employees. In the minds of midlevel bankers, he said, the danger of missing out on doing business with a ”deal machine” like Enron surely outweighed the risk that the company would implode. ”When you’re talking about making loan decisions and the like, especially when you’re confronted with a client that is at least by outward appearance successful and rapidly growing, you as an individual banker hate to be the one who raises his hand and says the emperor has no clothes,” Mr. Hu remarked. More : query.nytimes.com |