ENE--Downgrade to 3S from 1S; Credit Concerns Need To Be Addressed

*	Lower rating to 3S (Neutral, Speculative) from 1S (Buy, Speculative)
*	Enron is the industry dominant player in the energy merchant
industry; their business performance remains intact and should continue
unimpeded if current concerns over credit and liquidity are addressed.  We
believe this is the most likely outcome.
*	However, until management completely clarifies these issues,
particularly the use of off-balance sheet financing, we think growing credit
concerns could put increasing strain on Enron's commercial relationships.
Concern over a now higher probability "worst-case" outcome drives our 3S
rating.
*	Enron's shares represent a "binary" outcome to investors.  We see
low-end valuation of $10 (1x our estimate of book value based on known
off-balance sheet financings), with upside potential to $24 (2.4x bv).  The
expectation of near-term volatility in share price also justifies our
"Speculative" risk rating.

 <<ENE Downgrade 10-26-01.pdf>>  <<ENE Downgrade 10-26-01.doc>> 

                                                  
Raymond C. Niles
Power/Natural Gas Research
Salomon Smith Barney
(212) 816-2807
ray.niles@ssmb.com

s
ADDITIONAL INFORMATION AVAILABLE UPON REQUEST 
Salomon Smith Barney ("SSB"), including its parent, subsidiaries and/or
affiliates ("the Firm"), usually makes a market in the U.S.-traded over the
counter securities recommended in this report and may sell to or buy from
customers, as principal, securities recommended in this report. The Firm or
employees preparing this report may have a position in securities or options
of any company recommended in this report. An employee of the Firm may be a
director of a company recommended in this report. The Firm may perform or
solicit investment banking or other services from any company recommended in
this report.
Securities recommended, offered, or sold by SSB: (i) are not insured by the
Federal Deposit Insurance Corporation; (ii) are not deposits or other
obligations of any insured depository institution (including Citibank); and
(iii) are subject to investment risks, including the possible loss of the
principal amount invested. Although information has been obtained from and
is based upon sources SSB believes to be reliable, we do not guarantee its
accuracy and it may be incomplete or condensed. All opinions and estimates
constitute SSB's judgment as of the date of the report and are subject to
change without notice. This report is for informational purposes only and is
not intended as an offer or solicitation for the purchase or sale of a
security. Investing in non-U.S. securities, including ADRs, by U.S. persons
may entail certain risks. Investors who have received this report may be
prohibited in certain U.S. states from purchasing securities mentioned in
this report from SSB. Please ask your financial consultant for additional
details. This report has been approved for distribution in the United
Kingdom by Salomon Brothers International Limited, which is regulated by the
Securities and Futures Authority. The investments and services contained
herein are not available to private customers in the UK and South Africa.
This report was prepared by SSB and, if distributed in Japan by Nikko
Salomon Smith Barney Limited, is being so distributed under license. This
report is made available in Australia through Salomon Smith Barney Australia
Securities Pty Ltd. (ABN 64 003 114 832), a Licensed Securities Dealer, and
in New Zealand through Salomon Smith Barney New Zealand Limited, a member
firm of the New Zealand Stock Exchange. This report does not take into
account the investment objectives or financial situation of any particular
person. Investors should obtain advice based on their own individual
circumstances before making an investment decision. Salomon Smith Barney
Securities (Proprietary) Limited is incorporated in the Republic of South
Africa (company registration number 2000/025866/07) and its registered
office is at Grosvenor Corner, 195 Jan Smuts Avenue, Rosebank, 2198,
Republic of South Africa. Salomon Smith Barney is a service mark of Salomon
Smith Barney Inc. 
? Salomon Smith Barney Inc., 2001. All rights reserved. Any unauthorized
use, duplication or disclosure is prohibited by law and may result in
prosecution.