With Enron Stock Trading at Book Value, Some See Company as a Takeover Target
The Wall Street Journal, 10/31/01
STOCK MARKETS LONDON STOCK EXCHANGE - Shell hurt by Enron bid talk.
Financial Times, 10/31/01
OBSERVER - No show - AVENUE OF THE AMERICAS.
Financial Times, 10/31/01
COMPANIES & FINANCE THE AMERICAS - Rumours of broader inquiry hit Enron.
Financial Times, 10/31/01
WORLD STOCK MARKETS - Wall St suffers as confidence index hits low.
Financial Times, 10/31/01
Waiting for Balance Sheets Amid Enron's Debacle: David Wilson
Bloomberg, 10/31/01

The Art of Trading
TheStreet.com, 10/31/01

S&P Analyst Todd Shipman on Enron Corp.: Credit Rating Comment
Bloomberg, 10/31/01

Enron Fails to Get Funds From Institutional Investor, WSJ Says
Bloomberg, 10/31/01

Takeover Talk Can't Halt Enron Stock Plunge.
The Oil Daily, 10/31/01
Big volume, big drop for Enron shares
Houston Chronicle, 10/31/01
The One-Eyed Man
New York Times, 10/31/01
After the bubble - Tuesday
The Daily Deal, 10/31/01
PGE's financial loss first in years
Associated Press Newswires, 10/31/01
`Enron buy-out offer highly over-priced'
The Times of India, 10/31/01
Indian lenders to Dabhol to meet power secretary today
Business Standard, 10/31/01
Enron Queried by SEC on Debt, Partnership in 1998 (Update1)
Bloomberg, 10/31/01

Enron Probe Is Moved to SEC's Head Office From Texas (Correct)
Bloomberg, 10/31/01

USA: NYMEX plans to start OTC natgas clearing services.
Reuters English News Service, 10/30/01
USA: UPDATE 3-Enron shares plunge 19 percent, hit 1992 levels.
Reuters English News Service, 10/30/01
Enron's stock continues tumbling after investigation reportedly moves to Washington
Associated Press Newswires, 10/30/01




Heard on the Street
With Enron Stock Trading at Book Value, Some See Company as a Takeover Target
By John R. Emshwiller and Rebecca Smith
Staff Reporters of The Wall Street Journal

10/31/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

With growing revenue, a dominant position in major energy-trading markets and a depressed stock price, Enron Corp. would logically be prime takeover bait. But in the topsy-turvy world of Enron, what constitutes logic anymore? 
Takeover speculation has swirled around Wall Street and the energy markets in recent days as Enron shares have plummeted by about two-thirds to their lowest level in a decade, a selloff sparked by a loss of investor confidence in the Houston energy-trading company following big third-quarter write-downs and the disclosure of a Securities and Exchange Commission inquiry into transactions involving its former chief financial officer. Among the names bandied about as potential buyers of all or at least a substantial chunk of Enron are General Electric's GE Capital unit, Warren Buffett's Berkshire Hathaway and Royal Dutch Shell. GE and Berkshire had no comment. A spokesman for Shell couldn't be reached.
Meanwhile, Enron has approached at least one major institutional investor, seeking a capital infusion, according to a person familiar with the matter. But Enron was turned down because of uncertainties over its financial condition, this person says. 
While Enron shares, which are trading at about book value, look cheap by historical standards and even compared with two weeks ago, it isn't clear whether history is much guide when evaluating Enron these days, say analysts and others. Even fans of the stock have long complained about difficulty understanding how Enron operates because of its enormously complex financial structure and relatively sparse disclosure. For years while Enron's stock price was soaring, much of Wall Street didn't seem to care about such issues. 
Now with Enron's stock dropping, that lack of understanding is haunting the company. "How bad could Enron get? That's really the question," says Prudential Securities analyst Carole Coale. Yesterday, Ms. Coale reduced her price target for Enron shares to $9 and maintained the "sell" recommendation she recently put on the stock. At 4 p.m. yesterday in New York Stock Exchange composite trading, Enron shares were down $2.65, or 19%, to $11.16, down from nearly $85 a year ago. 
"When a business like this starts a down cycle, they've got to stop it and stabilize before anyone will be willing to have a really intelligent conversation with them," says Peter J. Solomon, head of Peter J. Solomon Co., an investment-banking boutique. 
An Enron spokesman says the company won't comment on takeover speculation; nor will it comment on whether it had approached potential investors about a possible capital infusion. However, the continued plunge in Enron shares and turmoil surrounding the company are a significant "overreaction in the marketplace. Our core businesses are strong," he says. The company has said that it is taking steps to restore investor confidence. 
For example, Enron is trying to negotiate a new credit line with its major banks. Late yesterday, Enron's bankers were putting the final touches on a new credit line of more than $1 billion, according to people familiar with the discussions. 
Analysts and other observers say that one uncertainty surrounding Enron is the condition of its vast energy-trading operation. As the nation's biggest energy trader, Enron is a principal in one-quarter of all electricity and natural-gas trades. Enron's EnronOnline Internet-based trading platform has transacted more than $884 billion of trades since it was created in November 1999 and does about $4 billion a day in transactions. 
One worry is that Enron's trading partners, edgy about the turmoil swirling around the company, will start demanding much tougher credit terms from the Houston company or simply cut back doing business. Such a trend, if it picked up enough momentum, could have troubling consequences for Enron. "We are all in suspense . . . . It all depends on how the market reacts," says Susan Abbott, a managing director at Moody's Investors Service. On Monday, Moody's downgraded Enron's long-term debt. 
There were some warning signs of unease among trading partners even before the company's third-quarter earnings release set the stage for the huge drop in the stock price. About six to seven weeks ago, Entergy Corp. became worried about its level of exposure in Enron-related deals, says Wayne Leonard, chairman and chief executive officer of the big New Orleans energy company. Since then, Entergy has cut its Enron exposure to about $10 million to $20 million from $90 million to $100 million, he says. Mr. Leonard didn't specify what prompted the worries, which appear to have arisen after the surprise August announcement by Jeffrey Skilling that he was resigning as Enron president and chief executive. Mr. Skilling cited personal reasons as well as his concerns over the falling stock price. 
While the Enron spokesman says the company doesn't comment on specific trading arrangements, he adds that Entergy is one of his company's smaller trading partners. He says major trading partners are doing business with Enron on "essentially the same terms and conditions" and that overall "our trading operations are as strong as ever." 
The company spokesman adds that a few smaller trading partners in Europe are seeking revised credit terms from Enron. "We are working to put together credit terms, which they are more comfortable with," says the spokesman, who declines to be more specific. 
In an effort to bolster its liquidity and position in the marketplace, Enron last week drew down some $3 billion, accounting for the bulk of its existing credit lines. While it used most of that money to buy its outstanding commercial paper, a short-term corporate IOU, the company retained about $1 billion of the borrowings as cash. 
A friendly takeover of all or part of Enron would be likelier than a hostile one. Among the most obvious candidates would be other companies with big trading operations and experience in risk management. Two possible deterrents to a would-be buyer: a flurry of recent shareholder lawsuits filed against Enron and the continuing SEC probe. 
--- 
Robert Frank, Ken Brown, Jathon Sapsford and Matt Murray contributed to this article.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

STOCK MARKETS LONDON STOCK EXCHANGE - Shell hurt by Enron bid talk.
By PETER JOHN, PATRICK LORD and RUTH SULLIVAN.

10/31/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Shell Transport underperformed BP on speculation that it might be poised to launch a multi-billion dollar bid for Enron of the US. 
The company is believed to have been in talks with the indebted energy group earlier in the year.
Enron has a market capitalisation of around $11bn. Analysts say Shell would probably not have to offer a huge premium and could afford to fund a deal with cash. Shell said it would not comment on the speculation. 
Enron would be a good fit but earlier this week Moody's became the first of the main rating agencies to downgrade the Houston-based company's debt by lowering it to just two notches above "junk" status citing "the deterioration in Enron's financial flexibility". 
Steve Turner of Commerzbank said: "I think the market would be very nervous if Shell were to launch a bid for Enron because of the uncertainty about Enron's balance sheet." 
There was another judder to the share price from speculation that Moeara Enim, an investment vehicle whose sole asset is a 55m share stake in Royal Dutch, faces a bid and break up by Fortis, the Dutch-Belgian financial group. Shell fell 14 1/2 to 515p and BP dropped 6 1/2 to 553 1/2p. 
Vodafone accounted for 20 per cent of the Footsie fall after the mobile phone group, which has rallied sharply since September 11, came off the boil. 
The shares dropped 5 1/2 to 157 3/4p on turnover of 435m shares, almost 22 per cent of the total traded across the UK market. 
The shares had rallied 26 per cent over the past six weeks and several brokers had started to call the top. The latest to downgrade was Commerzbank which moved its stance to "reduce" from "hold" with a fair value estimate of 149p a share. 
The broker's move reflected worries that Vodafone's recent revenue per user figures were not sufficient to bolster confidence in forecasts of longer-term sustained customer revenue growth. 
Colt profits taken 
Elsewhere in the sector, Colt Telecom fell 15 1/4 to 121 3/4p as investors took profits and Merrill Lynch downgraded estimates. 
Merrill said that after Colt's recent disappointing third quarter results, it had cut its revenue forecasts for 2001 and 2002 by 1 per cent and 5 per cent respectively. 
Colt had jumped more than 12 per cent on Monday on talk that Cable & Wireless might launch a bid. 
3i fell 60 to 730p after an early release of the group's interim results showed that net asset value per share had slid 22.6 per cent to 631p. The company said it had decided on an early release of its results as it was also announcing organisational changes. It said it was cutting 17 per cent of its workforce in an effort to maintain a strong balance sheet amid poor market conditions. 
Close Brothers fell 37 to 715p as the merchant bank said it remained cautious about the outlook. 
London Bridge Software fell 12 to 129 1/2p as Nomura downgraded its rating and forecasts to reflect the group's high level of US exposure. 
Spirent fell another 11 to 116 1/2p as Deutsche Bank became the latest broker to issue cautious advice. It started coverage of the communications testing group with a "market perform" stance, saying near-term sector risks outweighed the long-term prospects. 
Medisys gained 7 to 62 1/2p after Dresdner Kleinwort Wasserstein initiated coverage on the stock with a "buy" recommendation. 
Shares in GKN fell 9 to 271p after the automotive and aerospace engineer announced that it is to shed 1,250 jobs - including some in the UK. The cuts are likely to be concentrated in the civil aerospace area which has suffered heavily. Credit Suisse First Boston cut its profit forecasts for the next two years. 
Bullough, the engineering holding company, said any improvement in trading in the second half is unlikely. Its shares fell 3 1/2 to 18p. 
British American Tobacco brought some cheer to the FTSE 100 as its shares rose 11 1/2 or almost 2 per cent to 597 1/2p after the company said its four global brands showed an overall growth rate of 9 per cent and reported robust nine month results. 
BAT on the rise 
Michael Smith, an analyst at Morgan Stanley Dean Witter said third quarter results were "slightly better than expected" and showed that BAT can meet its numbers for the full year. 
"It can achieve 8 per cent earnings growth for the full year" he said. But although there was plenty of reassurance for this year, next year will be more of a challenge. "Weak macro-economic conditions and smokers downtrading to cheaper brands are likely to prove a problem next year," he said. Another concern will be countries such as Germany and Malaysia where tax on cigarettes is increasing. 
Some of the fizz went out of alcoholic drinks groups as two leading companies in the sector made cautious comments about future growth prospects after the September 11 terrorist attacks on the US. Despite reporting robust full-year results, Allied Domecq shares fell 11 to 351 1/2p as the group warned that future earnings growth will be harder to achieve than last year. 
Merrill Lynch said that trading profit was 2 per cent ahead of estimates at #543m, against the broker's forecast of #530m but Merrill analyst Mark Puleikis said there will be two hits to profits going forward. 
"Allied will spend #50m on IT over the next few years and a further de-stocking programme of #15m per annum over the next two years," he said. The broker gave a discounted cash flow forecast of 460p and retained its "neutral" recommendation. The broker said it continued to prefer Diageo. 
ABN Amro also retained its "hold" stance. 
Leisure and hotel group Whitbread gained 7 1/2 to 520p after reporting a 32 per cent drop in first half profits, in line with analysts expectations. ABN Amro said it anticipates about a 5 per cent upgrade to its profit before tax estimate for 2002 and retained its "add" stance, while ING Barings Charterhouse Securities switched its recommendation from "hold" to "buy". Regular UK equities updates at www.ft.com/equities. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	


OBSERVER - No show - AVENUE OF THE AMERICAS.

10/31/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Ken Lay, Enron's chairman, knows all about leadership in turbulent times. 
The preacher's son who propelled the US energy group and trader from a pipeline company to the number one energy trading company in the US had been expected to join a host of other leading chief executives and Rudolph Giuliani, New York's mayor, in New York next week.
"Leadership in turbulent times", organised by Fortune magazine, is a benefit conference to tackle the "extraordinary new challenges" faced by US companies in the aftermath of September 11. 
Conference organisers had been keen to ask Lay where he believed his industry, on which all businesses depend so heavily, was headed. 
A timely question. Investors have dumped Enron in recent weeks, triggered by credit rating downgrades, lingering questions over the company's off-balance-sheet deals and potential conflicts of interest for its former chief financial officer. 
Times are perhaps too turbulent for Lay. He cancelled his appearance. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

COMPANIES & FINANCE THE AMERICAS - Rumours of broader inquiry hit Enron.
By SHEILA MCNULTY.

10/31/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Enron's shares continued to fall yesterday on speculation that the Securities and Exchange Commission's (SEC) unofficial inquiry into the financial dealings of the US energy group had been broadened, Sheila McNulty reports from Houston. 
So far the SEC has declined to comment, following its request for information after Enron disclosed a $1.2bn reduction in shareholder equity tied to controversial financing vehicles set up by the recently replaced chief financial officer, Andrew Fastow.
Yesterday, the company would not say whether the probe had been made official or grown beyond that $1.2bn charge. The Houston-based company has lost more than $15bn in market capitalisation since October 16. By the close yesterday, the stock was down 19.19 per cent, trading at $11.16. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

WORLD STOCK MARKETS - Wall St suffers as confidence index hits low.
By MARY CHUNG.

10/31/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

US equities continued to sink in late morning trade as investors took more profits following grim economic data showing a plunge in consumer confidence. 
By midsession, the Dow Jones Industrial Average was down 145.24 to 9,124.26 while the S&P 500 index fell 17.89 to 1,060.41. The Nasdaq Composite gave up 29.69 at 1,669.83.
Wall Street's optimism for a recovery faded, as the consumer confidence index fell for October to its lowest level in seven years. "It's time to take a breather. The consumer confidence number wasn't good and you're going to get a whole week of data that probably aren't going to be very good," said John O'Donoghue, director of equity trading at Credit Suisse First Boston. 
Dow components were broadly lower, with McDonald's taking the lead, down 6 per cent at $25.60 after the fast-food chain trimmed earnings targets for 2002. Philip Morris, the tobacco maker, fell 4 per cent to $47.77 after Goldman Sachs lowered its rating from "recommended" to "market outperformer". 
Eastman Kodak retreated 4.3 per cent at $28.58 on competition fears after Lehman Brothers said Wal-Mart is set to introduce its own private label film. Wal-Mart shed 1.7 per cent at $51. 
Procter & Gamble, however, was a bright spot on the Dow after the company reported a fiscal first-quarter profit that topped Wall Street estimates. Shares gained 0.65 per cent at $71.76. 
Coca-Cola was down 2 per cent at $47.70 after the beverage maker agreed to buy Odwalla, a maker of juices and shakes. Odwalla rose 28 per cent at $15.12. 
Ford fell 0.3 per cent at $16.17 after the company announced the resignation of Jac Nasser as chief executive after an acrimonious split with the Ford family. 
Enron, the embattled energy trading company, continued to decline, off another 19 per cent at $11.20 as credit concerns and credibility questions weighed on the company. 
Technology stocks were mostly lower, with Microsoft off 1 per cent at $59.05 and Intel 1.3 per cent at $23.86. Juniper Networks shed 1 per cent at $23.76 after Merrill Lynch cut its rating. Its rival Cisco Systems gained 1.3 per cent at $16.64. 
Toronto fell in early trading with the weak opening for the Nasdaq weighing heavily on sentiment. The S&P 300 composite index was off 0.8 per cent at 6,838.60 at midsession. 
Technology leaders led the way down. Celestica lost C$1.85 at C$52.65 and C-MAC Industries C$1.60 at C$33.15. Nortel Networks shed 21 cents to C$9.02. 
Golds, boosted by a firm bullion price, were stronger. Barrick added 55 cents at C$25.40 and Placer Dome C$1.15 at C$18.20. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Waiting for Balance Sheets Amid Enron's Debacle: David Wilson
2001-10-31 06:19 (New York)

Waiting for Balance Sheets Amid Enron's Debacle: David Wilson

     (Commentary. David Wilson is a columnist for Bloomberg News.
The opinions expressed are his own.)

     Princeton, New Jersey, Oct. 31 (Bloomberg) -- International
Business Machines Corp.'s press release about its third-quarter
results included this statement, attributed to Louis Gerstner,
chairman and chief executive officer:

     ``IBM's balance sheet remains among the strongest in the
technology industry, or any industry.''

     The largest maker of computers and provider of computer
services wasn't the only company to cite its balance sheet, a
statistical summary of what a company owned, what it owed, and
what was left over for shareholders on a specific date.

     General Electric Co., the largest company by stock market
value, and Citigroup Inc., the No. 1 financial-services company,
made similar references in their third-quarter releases.

     None of the companies really showed people what they were
telling them. IBM, General Electric and Citigroup are among 19
members of the Dow Jones Industrial Average whose most recent
quarterly releases didn't include balance sheets.

     The evidence will come only when the companies submit their
quarterly reports to the U.S. Securities and Exchange Commission.
Balance sheets are required in the so-called 10-Q filings, along
with the 10-K filings that cover the full year.

                        Not Much Publicity

     By then, statistics about the companies' assets, liabilities
and shareholders' equity, the accounting terms for what's owned,
what's owed and what's left over, will be rather outdated.

     U.S. companies have 45 days from the end of a fiscal quarter
to submit 10-Q reports, and 90 days from the end of a fiscal year
for 10-K reports.

     These filings usually don't arrive until weeks after the
publication of earnings releases. So it's easy to overlook the
additional information they provide, especially when it doesn't
receive the kind of publicity that the earnings release does.

     Yet the recent example of Enron Corp. -- another company that
omits balance sheets from press releases -- provides evidence that
investors who forgo the extra effort needed to find them do so at
their own peril.

     Enron, the largest energy trader, reported $1.01 billion in
``non-recurring'' costs in the third quarter from an expansion
into water, telecommunications and retail-energy sales. The
expense contributed to a $618 million loss for the quarter.

     These numbers were part of the Houston-based company's income
statement, a summary of sales, costs and expenses, and profits or
losses during a specified time period. Income statements are the
cornerstone of any company's earnings release.

                      Billion-Dollar Numbers

     The release didn't even mention a larger figure that affected
the balance sheet: a $1.2 billion drop in shareholders' equity
during the quarter. Chairman and CEO Kenneth Lay disclosed the
repurchase in a subsequent conference call.

     This decline resulted from the company's repurchase of 55
million shares from two partnerships, LJM Cayman LP and LJM2 Co-
Investment LP, that helped finance projects. Andrew Fastow, who
ran both partnerships, was ousted from his job as chief financial
officer last week.

     Such a one-two punch dealt a blow to investors' fortunes.
Since Oct. 17, the day after the earnings release, Enron's shares
have fallen each day and have lost two-thirds of their value. The
low of $10.90 yesterday was the lowest price since July 1992.

     Enron's third-quarter statement referred only to a loss on
``finance arrangements with a previously disclosed entity'' which
contributed to $544 million of investment losses. The size of that
item was later put at $35 million.

     The latter number amounts to just 3.5 percent of the overall
figure for ``non-recurring'' costs, and less than 1 percent of the
company's $47.6 billion in revenue for the quarter.

                        Growing Debt Burden

     The $1.2 billion figure is considerably larger not only in
dollars, but also in percentage terms. Enron had $11.74 billion of
shareholders' equity as of June 30, according to the balance sheet
in its second-quarter 10-Q filing. The reduction equaled more than
10 percent of that total.

     Among other things, the balance sheet also shows that the
company relied more heavily on debt financing during this year's
first half. Short-term debt, due in one year or less, doubled to
$3.46 billion. Long-term debt, maturing in more than one year,
rose 9.4 percent to $9.36 billion.

     There's even more to the story of Enron's indebtedness. The
company guaranteed $3.3 billion in borrowing by Osprey Trust and
Marlin Water Trust, which bought some of its power plants. Unless
they pay off the debt by reselling the plants, the company may
have to come up with the difference.

     Nevertheless, any summary of a company's financial position
provides a more complete picture than the income statement alone.
This also holds true for companies whose finances are in better
shape -- IBM, General Electric and Citigroup, to name three.

                        Knowing by Showing

     Other members of the Dow industrials that wait until their
filings to provide balance sheets are American Express Co., AT&T
Corp., Boeing Co., Caterpillar Inc., Coca-Cola Co., Walt Disney
Co., DuPont Co., Eastman Kodak Co., Exxon Mobil Corp., General
Motors Corp., Honeywell International Inc., Johnson & Johnson,
McDonald's Corp., Merck & Co., Procter & Gamble Co. and SBC
Communications Inc.

     Companies that include them in releases are Alcoa Inc.,
Hewlett-Packard Co., Home Depot Inc., Intel Corp., International
Paper Co., Microsoft Corp., Minnesota Mining & Manufacturing Co.,
J.P. Morgan Chase & Co., Philip Morris Cos., United Technologies
Corp. and Wal-Mart Stores Inc.

     Citigroup's third-quarter earnings release has this quote
from Sandy Weill, chairman and CEO: ``We have the balance sheet
strength to make timely acquisitions to expand our franchises.''
The New York-based company had more than $85 billion of ``total
equity,'' Weill said in the statement.

     General Electric's release quoted Chairman and CEO Jeffrey
Immelt as saying ``our strong balance sheet, which gives us the
flexibility to pursue strategic opportunities,'' is one of the
Fairfield, Connecticut-based company's ``fundamental strengths.''

     Investors can only take these CEOs at their word for now.
Their companies, and many others, are only telling rather than
showing -- at least in their earnings releases.

--David Wilson in the Princeton newsroom (609) 750-4546 

The Art of Trading
By James J. Cramer <mailto:jjcletters@thestreet.com>

TheStreet.com
10/31/2001 08:24 AM EST
URL: <http://www.thestreet.com/p/rmoney/jamesjcramer/10003263.html>

Throughout this tremendous downturn in the fortunes of big-cap stocks turned small-cap and large growth stocks turned into small value plays, we have seen mutual fund families fall by the wayside as they weren't able to dodge the quickly changing market. 
We tend to want to believe that it is just stock selection that sunk a First Hands or a Janus or an Invesco or a Van Wagoner or those ne'er-do-well Putnam funds. 
But it's not. It's also trading. Many of the funds that gained great renown in the 1990s that have now fallen on such hard times since the bear market began in 2000 are funds that don't know how to sell, that don't know how to get out of stocks. 
You won't read this kind of criticism in the mutual fund ratings, which tend to be antiseptic and mathematically derived. And you won't read it in the magazines like Money or the SmartMoney, outlets that, while strong in some departments, really don't understand trading at all. 
But it is what determines good from bad in tough markets, and right now you are seeing some really horrible trading from some of these giant mutual funds. They are simply unable to extricate themselves from loser positions without hurting themselves on the go out. 
Trading's an art. For those of you who are football fans, trading is like what happens in the interior line, the trenches. You know that's where the game can be decided. Basketball fans? Trading is the movement of other players who don't have the ball. It is the invisible game that determines what is going to happen. 
I take it seriously because I was a trader and most of my friends are traders. We will often joke about how some of these mutual funds just don't have a clue when they are trying to get out of stocks. They blow them to kingdom come with their sloppiness and their inability to execute. 
Others, however, can trade magnificently and know how to play the game. Have you noticed, for example, I never make fun of Fidelity in my litany of fund criticism? One of the reasons is that Fidelity is a fabulous trader. FIDO has a great trading desk that is incredibly adept at getting in and out of stocks. They are masters. It saves their portfolio managers' fortunes. I know this because I have handled their orders and because I have many friends who currently handle their orders and we all talk, as we always have, about this stuff every day. 
When we look at sagas like Enron (ENE:NYSE - news - commentary) , where mutual funds were caught trying to exit, caught like trapped deer on an interstate, we have to remember that not all mutual fund trading desks are created equally. Some simply don't have a clue. 
Getting out of stock, especially when you have built up a huge concentration in one position, is an art, an art that many funds of the world never had. They even denigrated the profession by never emphasizing it as a virtue. In these days when the market blitzes positions it doesn't like, if you don't have a good trading line, you could be history. 
Many of these mutual fund "families" will turn out to be history when this era ends. Don't let them make your nest egg history, too. Especially when there are other fund groups that do know the value of good trading and can handle these markets with much more poise and far fewer losses. 
Random musings: Pit yourself against others and make money in our trading contest. And create a record to show others that you know how to trade so you can catch on with or create your own hedge fund! That's what this contest is all about. Click here for more info. 

S&P Analyst Todd Shipman on Enron Corp.: Credit Rating Comment
2001-10-31 08:18 (New York)


     New York, Oct. 31 (Bloomberg) -- Todd Shipman, a director at
Standard & Poor's, a credit rating company, comments on Enron
Corp, the Houston-based largest energy trader.

     S&P affirmed the company's long-term credit rating at
``BBB+'' on Oct. 25. It lowered its outlook to negative from
stable following the announcement that the U.S. Securities and
Exchange Commission is investigating the company's financial
dealings with affiliates that were run by ousted Chief Financial
Officer Andrew Fastow.

     Enron's shares have fallen 87 percent this year. They
finished yesterday down $2.65, or 19 percent, to $11.16.

     ``What little bit of credibility management had with
investors has continued to erode,'' he said.

     ``People, I don't believe, are acting based on facts that are
coming out.'' They are trading on the ``uncertainty as to what the
real story is, what the exposures are, and what Enron will do to
rectify the situation.

     ``Until Enron gets out there to explain what the facts are
and what they are going to do about it, you could see a
continuation of these problems.

     ``The market is dealing with an information vacuum of the
company's own making. In the face of that uncertainty, it looks to
me like there are more and more people bailing out.''

On S&P's Negative Outlook:

     Traders see differences between the terms ``negative
CreditWatch'' and ``negative outlook,'' he said.

     ``I consider both to be serious indications that there is a
chance the rating is going to be downgraded, and I wouldn't
hesitate, if it were justified, to downgrade Enron off a negative
outlook. It is just as likely from a negative outlook as from a
negative CreditWatch.''

     ``CreditWatch is tied much more to an event.''

     ``Negative outlook should be sending just as serious a signal
as a negative CreditWatch would.''

On Counterparty Exposure:

     ``I fully expected'' counterparties to cut back their
exposure. ``It doesn't mean they are doing less business or are
shying away from Enron on concerns they won't get paid. Prudent
credit practices would dictate to any of these marketers that they
have to pay attention to what their exposure is to Enron at any
given time.''

     There won't be ``any real short-term or long-term damage to
the franchise value of Enron's marketing and trading business as
long as everything gets fixed, and they get past this current
situation and have the opportunity to deal with their credit
quality in the long run, then there isn't any long-term
implication or any real significant impact on their ability to
remain the market leader there.''

     ``The credit extended to Enron by its counterparties is
something that Enron looks at day to day.''

     ``We have no indication that'' firms have stopped dealing
with Enron, but if that happened, ``the situation could get
serious.''

On the Possibility of Being Downgraded to Junk:

     It is still a ``fairly remote possibility'' at this time that
Enron could lose its investment grade credit rating, he said.
``They have plenty of liquidity in the short-term that will get
them through the current situation.''

     ``There is a credible case to be made that'' there are
actions management has ``to take to restore the balance sheet to
investment-grade quality. Management is both willing and able to
take the steps necessary to do that. There's a really good chance
that if they can get through this period of uncertainty, they'll
be able to accomplish that.''

On Off-Balance Sheet Exposure:

     ``I don't think anybody has a good handle on exactly what the
shortfall might be there on all those vehicles. Part of the
company's responsibility at this point is to make the case to
rating agencies and outside investors and to all interested
parties, to lay out the facts, give assurances that there aren't
more surprises, that there is value in the assets there, and
should those assets fall short of the obligations, the willingness
to issue equity to make up that shortfall is there.''

--Liz Goldenberg in the New York newsroom at (212) 893-3940 


Enron Fails to Get Funds From Institutional Investor, WSJ Says
2001-10-31 05:48 (New York)


     Houston, Oct. 31 (Bloomberg) -- Enron Corp. tried to get
financing from at least one institutional investor and was turned
down, the Wall Street Journal reported in its ``Heard on the
Street'' column, citing a person familiar with the situation.

     Enron was rejected because of uncertainties regarding its
finances. Late yesterday, the company's bankers were finishing
work on a new credit line of more than $1 billion, according to
people close to the discussions.

     General Electric Co.'s GE Capital, Berkshire Hathaway Inc.
and Royal Dutch Petroleum Co. are considered potential buyers for
at least part of Enron, whose stock has fallen to 10-year lows and
is now trading at about book value, the paper said.

     An Enron spokesman wouldn't comment on the possibility of a
takeover or whether the company had approached prospective
investors, the paper reported.


Takeover Talk Can't Halt Enron Stock Plunge.

10/31/2001
The Oil Daily
(c) 2001 Energy Intelligence Group. All rights reserved.

Not even rumors of an impending buyout offer could stop the meltdown in Enron common stock on Tuesday. 
Enron shares fell $2.65 to close at $11.16/share Tuesday in spite of reports that either BP, General Electric, or Royal Dutch/Shell was about to make a bid for the battered natural gas and power trading giant.
"I've heard all the rumors since Enron stock was in trouble the last time four years ago, and I don't put any credence in them," said Carol Coale, a natural gas analyst for Prudential Securities in Houston. "I would question why anyone would want to buy Enron when we don't know what the equity side of the balance sheet is." 
Coale predicted that the stock could fall to the $10-$11/share range before stabilizing. That is the range she estimates for Enron's current book value, the worth it assigns to its assets. At the end of the second quarter, the book value was more than $13/share, she said. 
The rumors apparently originated on various internet bulletin boards. 
Enron stock has fallen more than 60% since third-quarter financial results showing a $1 billion asset write-down, a $632 million net loss, and a $1.2 billion charge to equity were disclosed two weeks ago (OD Oct.17,p1). While various charges against earnings had been expected, the equity issue had not been revealed previously. Investors and analysts were livid that Enron had not honored its pledge to be more open and transparent about its financials. 
The equity charge was related to the termination of two off-balance-sheet financing vehicles that had been headed by Enron's former chief financial officer, Andrew S. Fastow, at the same time he was a corporate officer. Since then, investors have filed multiple lawsuits charging Enron's management with conflicts of interest and failure to perform fiduciary duties. Fastow resigned last week (OD Oct.25,p2). 
Another factor driving the stock down further was the US Securities and Exchange Commission's decision to transfer an informal inquiry into the Fastow situation to Washington, D.C., from Houston. The agency has not changed the status of the matter to an investigation. 
This week the company has been dealing with liquidity issues as it tries to arrange a new line of credit to augment the $3 billion it drew down from existing financial arrangements last week. 
Enron Vice President Mark Palmer told Oil Daily that several parties in crude and refined products trading had asked Enron to renegotiate credit terms, which the company will do. Those commodities represent only about 2% of Enron's total trading book. 
Natural gas and electricity make up around 98% of the company's business, and those products "are trading as usual," he said. 
Barbara Shook. 
(c) Copyright 2001. The Oil Daily Co. 
For more infomation, call 800-999-2718 (in U.S.) or 
202-662-0700 (outside U.S.).

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Oct. 31, 2001
Houston Chroncile
Big volume, big drop for Enron shares 
Shares of troubled energy trader Enron Corp. followed the rest of the market Tuesday, closing down 19 percent at $11.16, its lowest level since 1992. Trading volume was high at 42.7 million shares, 47 percent more than any other stock on the New York Stock Exchange. 
Enron has lost more than $17 billion in market capitalization in the past two weeks after a third-quarter earnings release that revealed deep losses caused in part by murky off-balance-sheet deals. Those deals, with partnerships run by its former chief financial officer, led to a U.S. Securities and Exchange Commission inquiry and a lower credit rating by one rating agency. 
On Tuesday, Prudential Securities analyst Carol Coale issued a report that said the stock price could fall as low as $9 since the company may need to sell $6 billion in assets at a 20 percent discount in order to keep other credit-rating agencies at bay. That could result in the issue of 120 million more shares, she said. 
Coale also took note of speculation that Enron may be a takeover target but said such an attempt would most likely be made after the SEC inquiry is complete. SEC officials confirmed Tuesday that the inquiry has been moved from its Fort Worth office back to its New York headquarters. 
"While we continue to believe that Enron is a going concern and that it will avoid losing its investment-grade credit standing by selling assets and issuing stock, we believe that the market will treat it as a credit risk," Coale said. 
That could change when the company provides more details on its financing partnerships and secures new lines of credit from banks. News of the credit lines is expected today. 
Bottom of Form 1



October 31, 2001

RECKONINGS 
The One-Eyed Man
By PAUL KRUGMAN
New York Times
Somewhere I read that to really understand legislation you have to look for the clause giving special consideration to one-eyed bearded men with a limp - that is, you have to look for the provision that turns a bill ostensibly serving a public purpose into a giveaway for some special interest. 
Most of the commentary about the "stimulus" bill passed by the House last week focuses on the huge benefits it lavishes on giant corporations. But that doesn't tell us much about the specific interests being served. What's good for corporate America is good for General Motors; it would be hard to devise a bill that consists mainly of corporate giveaways without giving a lot of money to the biggest companies. To understand what the bill is really about, you have to look at the big payoffs to not-so-big companies.
One piece of the bill is custom- designed to benefit a small group of multinational financial firms. Another is clearly there for the sake of certain health insurors. But the most remarkable thing is how much of the benefit from repeal of the alternative minimum tax - a measure that is also included in the Bush administration's supposed stimulus plan, and which seems to be one of the administration's key priorities - goes to companies that are not all that big.
For example, it's not too surprising that calculations by Citizens for Tax Justice show General Motors, with its 380,000 workers, getting a check for $800 million. But it's quite amazing that TXU (formerly Dallas Power and Light), a company with only 16,000 employees, would get a check for $600 million. And there are a number of medium-sized companies that, like TXU, are in line for surprisingly big benefits. These companies include ChevronTexaco, Enron, Phillips Petroleum, IMC Global and CMS Energy. What do they have in common?
Well, they tend to be in the energy or mining businesses; and they tend to be based in or near Texas. In other words, the one-eyed bearded man with a limp looks a lot like Dick Cheney.
There is almost certainly a lot of overlap between the companies that would derive large benefits from alternative minimum tax repeal and those that would have received large subsidies under the energy plan devised by Mr. Cheney's task force. You may remember that the administration, in apparent defiance of the law, refused to make the records of that task force's meetings available to Congress; that's one of those issues that seems to have been dropped after Sept. 11. 
And I guess it's superfluous to point out that the big winners in all this seem to be companies that gave large, one-sided donations to the Republican Party in the last election. (This is not to suggest that Democrats are any less susceptible to the influence of money.) 
To me, the story of the Bush administration is starting to look like the plot of "Victor/Victoria." First we had a candidate who was supposed to be a moderate. Then we learned, or thought we learned, that this was a mask; he was really a hard-line conservative who pretended to be a moderate in order to gain office. 
But the latest economic proposals from the administration, like the Cheney energy plan, don't look as if they came from serious free-marketeers. They don't make sense in terms of either demand-side or supply-side economics, but they do give a lot of money to certain companies. So maybe ideology was just another mask for someone who was really the candidate of corporations - not corporations in general, but a small group of companies with a quite specific set of business interests - and who is only pretending to be a hard- line conservative who pretended to be a moderate in order to gain office.
It's an interesting and all too plausible picture. But it's a picture that most people will never see on their TV, and that many people would refuse to accept no matter how strong the evidence. That, of course, is what makes the whole thing possible. In the land of the blind, the one- eyed bearded man with a limp is king.
In last Wednesday's column I said the "original" war bonds were issued during World War II. In fact, war bonds were also issued during the Civil War and World War I. I don't think this affects the argument. 




Deal Sense
After the bubble - Tuesday
by Ed Paisley

10/31/2001
The Daily Deal
Copyright (c) 2001 The Deal LLC

When bubbles burst, glimpses into the inner workings of deals often follow. The Internet bubble is proving no different. 
At first glance, there doesn't seem to be a lot in common between embattled online energy trader and broadband telecom wannabe Enron Corp. and the MeVC Draper Fisher Jurvetson I Fund, a New York-listed closed-end venture capital fund.
Yet Enron and Draper, Fisher Jurvetson not only epitomize a new-economy thinking that's gone awry but a kind of insider excess that was characteristic of those now-departed go-go years. 
Enron's shares have been falling since the markets began to recognize the dangers of its plans to shed real assets to try its hand at selling broadband capacity alongside its big online energy trading business. Similarly, the MeVC Draper Fisher Jurvetson Fund I ? a retail fund that took the Draper Fisher name but that wasn't run by the Silicon Valley VC ? now trades at a 42% discount to its net asset value since its much-ballyhooed launch in 2000. 
Enron thought the Internet would revolutionize its business, and it did ? by further commoditizing the energy products the company sold. DFJ thought that venture capital itself could be commoditized and branded, and then peddled to retail investors eager to pan for Internet gold dust. 
Neither strategy worked; both failed to account for the risk in a changing economic climate. 
Today, Enron finds itself a huge player in online energy trading and a struggling startup in a battered telecom industry, strategic shifts that could well threaten its survival. The Houston company is making the rounds with bankers trying to secure a lending line large enough to avoid yet another potentially crippling credit downgrade. 
DFJ engineered a truly top-of-the-bubble move into the VC "space," franchising the firm's name to another band of VCs so that they could list a retail fund on the New York Stock Exchange. Closed-end funds rarely succeed in the best of times; mixing VC and the closed-end fund formula just as the Internet economy deflated proved even more problematic. 
But while MeVC's investors are surely out of pocket, DFL itself is still pulling in handsome management fees. MeVC Advisers Inc. and sub-adviser The Draper Fisher Jurvetson MeVC Management Co. earn a 2.5% advisory fee and 20% incentive fee from its franchisee. High fees paid to various advisers are hardly unknown in Silicon Valley, where institutional investors and pension funds know the risks and are willing to pay the price to play. But MeVC Draper Fisher Jurvetson Fund I was always meant to go to retail investors (with the obligatory SEC disclosures about risk and the fund's fees buried high up in the prospectus) who are, presumably, not as sophisticated. 
Enron, of course, also chose to bury the cost of its dealings with its own executives in an SEC filing. The hefty fees paid to Enron executives to manage the risk of its new online trading strategy cost Enron CFO Andrew Fastow his job last week. 
When bubbles burst, glimpses into the inner workings of deals often follow. The Internet bubble is proving no different. 
www.TheDeal.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

PGE's financial loss first in years

10/31/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

PORTLAND, Ore. (AP) - Saddled with surplus power, Portland General Electric posted a $5 million loss for the third quarter. 
PGE recorded a total of $905 million in sales, but that didn't make up for high-priced electricity and an unpredictable wholesale market.
"Fuel costs and purchased power really ate away at net income," said Scott Simms, a utility spokesman. 
Until recently, PGE had benefited from a surge in wholesale electricity prices, which hit the West in the spring of 2000. But earlier this year wholesale prices plummeted, electricity shortages eased and PGE found itself with surplus power it no longer could sell for a gain. 
PGE officials say they can't remember the last time the utility had recorded a quarterly loss. 
A third-quarter jump in expenses clearly showed through in PGE's financial report. The utility spent a record $814 million for wholesale electricity and fuel, compared with $523 million for the year-ago period when energy shortages and skyrocketing power costs first began showing up in financial reports. 
During the third quarter of 1999, a time of relative stability for energy markets, PGE spent $241 million for electricity and fuel. 
PGE owns power plants capable of meeting roughly half the demand of its 730,000 residential and business customers. It buys the rest of its electricity on wholesale markets. 
A subsidiary of Houston-based Enron, the utility serves more Oregon customers than any other utility. Its territory covers most of the populous northern Willamette Valley. 
PGE attributed the recent steep drop in electric power prices to federal price controls, mild summer weather, added generation from new power plants, a fall in natural gas prices and conservation. 
Drought conditions, which forced PGE to rely more heavily on natural gas-fired power plants rather than hydroelectric generation, further increased the utility's costs, PGE reported. 
PGE disclosed its third-quarter loss in a filing late last week with the Securities and Exchange Commission. The utility will submit its full quarterly report in mid-November. 
Consistent gains PGE had posted a steady stream of quarterly gains at least since 1992, according to utility records. 
Large rate increases, effective Oct. 1, are expected to generate an additional $400 million annually and push earnings back into positive territory. Utility officials say the extra revenue will be used almost entirely for electricity and fuel purchases. 
Several business and consumer groups have objected to the Oct. 1 increases and have asked the Oregon Public Utility Commission to re-evaluate the decision that put the new rates into effect. 
Regulators will decide by Nov. 23 whether to reconsider their decision. 
Portland-based Northwest Natural Gas also is closely watching PGE's situation. NW Natural on Oct. 8 announced plans to buy PGE from Enron for almost $3 billion in cash, stock and assumed debt.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

`Enron buy-out offer highly over-priced'
Seema Kamdar

10/31/2001
The Times of India
Copyright (C) 2001 The Times of India; Source: World Reporter (TM)

MUMBAI: Energy analysts and anti-Enron activists have criticised the reported move by Indian financial institutions to buy out Enron's exposure to the tune of $1.3 billion at a 30 per cent discount. 
A recent report suggested that a consortium of financial institutions led by the Industrial Development Bank of India, which is also the lead banker for the project, was negotiating picking up Enron's exposure in the project at a 30 per cent discount.
The reported pay-out for Enron's stake in the Dabhol Power Company is grossly in excess of what the Madhav Godbole Committee had recommended. 
Contending that the offer was highly over-priced, convenor of the Enron Virodhi Andolan, Pradyumna Kaul, said, ``Enron, along with General Electric and Bechtel, has an equity stake of $900 million and a bridge loan of $300 million, which takes their total exposure to over $1 billion. The Godbole committee had recommended in its renegotiation report a five-year moratorium on all loans and a discounting of Enron's equity to $250 million.'' 
The state government had accepted this formula while the Centre has talked in terms of paying $500 million. ``All these computations are much lower than the $700 million to $800 million that the financial institutions are willing to pay,'' he said. 
Mr Kaul said an independent study commissioned by his NGO had suggested a formula much different from what Enron is hoping to negotiate. ``Out of the $3.1 billion project cost, the study says $1 billion can be written off. Half of this capital cost restructuring would come from writing down equity.'' 
To the argument that Indian FIs would lose out if they wrote off such huge amounts, he said, ``Here, we are talking of writing off about Rs 5,500-6,000 crore out of Rs 13,000 crore. In the capital restructuring in the steel sector, amounts of about Rs 20,000 crore were recently written off,'' he asserted. 
Abhay Mehta, author of `Power Play', an expose of the Enron deal, said, ``If the FIs think they have evaluated Enron's stake fairly, it is a matter of grave concern.'' 
An analyst with the Prayas Energy Group, Shantanu Dixit, questions the validity of Enron's insistence that it should be paid even for its ``development expenditure''. ``It has factored in $200 million on this count. But this amount was spent before the project went online. How can that be clubbed with the project's capital cost?'' he said. 
``The fundamental issue is where did they spend this money. This claim is of a piece with Enron executive Linda Powers' statement that the company spent $20 million on educating Indians,'' Mr Dixit said. 
It is learnt that IDBI is not too happy with Enron's inclusion of $200 million as development expenditure and $140 million as earnings to be retained, in its tally of $1.3 billion. 
``Against this figure, the 30 per cent discount is notional,'' a source said. ``Without these two add-ons, there is simply no discount,'' he pointed out. 
Another analyst who has followed Enron closely says that by no stretch of imagination can development expenditure be so high. ``The big question here is how Enron has managed to inflate its cost? The Kirit Parikh committee had claimed to have brought down the costs of the project from $2.8 billion to $2.5 billion. But Enron overshot the original estimate of $2.8 billion by another $300 million. What is the explanation for this and why should financial institutions pay for it?'' he said. 
A Mantralaya official pointed out that a related issue was the future of the LNG shipping company, Greenfield, floated by Enron to build a ship to supply fuel to Dabhol. Enron had a 30 per cent stake in it and the Shipping Corporation of India had a 40 per cent stake. ``It has refused to pay its $11 million equity in that venture,'' he said.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	


Indian lenders to Dabhol to meet power secretary today
Our Economy Bureau NEW DELHI

10/31/2001
Business Standard
3
Copyright (c) Business Standard

The urgency to resolve the Dabhol power project imbroglio has gathered momentum with the Indian lenders to the project meeting senior officials in the power ministry tomorrow. 
Sources said that the Indian lenders led by IDBI chairman P P Vora would brief power secretary A K Basu on the progress in talks with prospective buyers, BSES Ltd and Tata Power, for the foreign stake in the project. The lenders will also discuss the roadmap for revival of the project.
Vora is also slated to meet top Enron officials in London later this week to discuss possible solutions for breaking the deadlock. Tata Power and BSES have already held parleys with the Indian institutions to pick up 85 per cent foreign equity in DPC. 
Meanwhile, sources said that IDBI, ICICI and SBI have agreed to take over IFCI's share of guarantee as had been proposed by Japan Bank for International Cooperation (JBIC). 
JBIC had also sought an acceleration in the payment of foreign loan which IDBI is negotiating. Indian lenders have also agreed to pay the loan taken by DPC from JBIC and Japan's ministry for international trade and industry which has been due since October 1.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron Queried by SEC on Debt, Partnership in 1998 (Update1)
2001-10-30 19:57 (New York)

Enron Queried by SEC on Debt, Partnership in 1998 (Update1)

     (Adds new CFO in eighth paragraph.)

     Houston, Oct. 30 (Bloomberg) -- Enron Corp. was asked by the
Securities and Exchange Commission in 1998 to explain its
finances, including a partnership designed to take debt off its
books, according to an SEC letter.

     The 23-page document included 138 questions that asked about
the Jedi II partnership, Enron cash flows, hedging policies and
accounting for energy reserves. The agency this month began to
probe Enron's relationship to limited partnerships run by former
Chief Financial Officer Andrew Fastow.

     ``The 1998 questions are pretty much the same disclosure
issues that we are hearing about today, just different deals,''
said John Gavin, president of Plymouth, Minnesota-based SEC
Insight, a private research company that obtained the letter
through the Freedom of Information Act.

     SEC Insight provided a copy of the letter to Bloomberg News.
Enron Chief of Staff Steve Kean said the letter is from the SEC's
corporations and finance division, which he said regularly sends
questions to companies about the form and content of their
corporate filings.

     ``This is a quite common,'' Kean said. ``I'm sure that if you
did Freedom of Information Act requests for other large companies,
you would find similar letters with lengthy commentary.'' He said
``you can't really make a connection'' between the letter and the
current SEC inquiry.

                           Fastow Fired

     SEC spokesman Michael Robinson declined to comment on whether
the agency questioned Enron in 1998 or 1999, and wouldn't confirm
or deny that letters to Enron were sent.

     Enron shares fell for a 10th straight day, tumbling 19
percent after touching their lowest level in nine years. Moody's
Investor's Service placed the energy company's commercial paper
rating on review for downgrade and lowered its long-term debt to
two notches above junk status.

     The stock dropped $2.65 to $11.16.  Enron fired Fastow
Wednesday, the day after Enron disclosed the SEC had started an
inquiry into two partnerships formed in 1999. Transactions with
those partnerships cost Enron $35 million in the third quarter and
reduced shareholders' equity by $1.2 billion. Enron promoted Jeff
McMahon, head of the industrial markets unit, to CFO.

     In its most recent inquiry, the SEC has asked Enron about the
two partnerships, LJM Cayman and LJM2 Co-Investment, that were run
by Fastow and dealt in Enron assets and shares.

     The SEC has moved that inquiry to its Washington from its
offices in Fort Worth, Texas, a person familiar with the inquiry
said.

     Enron has formed dozens of affiliated companies to buy assets
such as power plants. Investors have been pressing Enron for more
details on the affiliated companies because some of them bought
company assets with borrowed money Enron will have to pay back if
the affiliates can't.

                      Partnership Questioned

     The workings of one affiliated company, Jedi II, stumped the
SEC in 1998.

     The agency asked Enron to ``either explain or cross reference
to discussion'' a fuller description of Jedi II. The company's
annual report to the SEC for 1998 lists Jedi, or Joint Energy
Development Investments LP, as an ``unconsolidated affiliate.''
Enron owned 50 percent of the company, the filing says.

     Fastow, Treasurer Ben Gilsan, President Greg Whalley and nine
other Enron executives are listed on Texas secretary of state
records as officers or partners of Jedi II. Enron has said in
recent days that employees listed as officers of affiliates do so
to represent Enron's interests and receive no compensation for
that role.

--Russell Hubbard in the Princeton newsroom at 609-750-4651


Enron Probe Is Moved to SEC's Head Office From Texas (Correct)
2001-10-30 18:52 (New York)

Enron Probe Is Moved to SEC's Head Office From Texas (Correct)

     (Corrects to $35 million the cost of financial dealings with
affiliate in fifth paragraph.)

     Washington, Oct. 30 (Bloomberg) -- The Securities and
Exchange Commission, by transferring a probe of Enron Corp.'s
finances from Texas to Washington, may be handing the case to a
task force of enforcement lawyers and accountants, a former SEC
counsel said.

     The case was moved from the agency's Forth Worth district
office, a person with knowledge of the inquiry said. The transfer
was reported earlier today by the Wall Street Journal. An SEC
spokesman declined to comment, citing the agency's refusal to
discuss any investigation. Hal Degenhardt, administrator of the
Fort Worth office, didn't return a phone call.

     The SEC set up the accounting task force in Washington about
18 months ago, saying the unit's goals were to bring accounting-
related cases more quickly and to deal with complicated or novel
accounting issues. Under former Chairman Arthur Levitt, who left
the commission in February, the SEC declared accounting fraud to
be its top enforcement priority.

     ``It's possible that the SEC decided that it wanted that
group to handle the case,'' said Christian Mixter, a partner with
Morgan Lewis & Bockius in Washington and former SEC chief
litigation counsel.

     Last week, Houston-based Enron ousted Chief Financial Officer
Andrew Fastow, after saying the SEC had sought information about
Enron's financial dealings with affiliates, run by Fastow, that
cost the largest energy trader $35 million.

     The SEC's headquarters staff has more enforcement
investigators with accounting expertise than do its regional and
branch offices, lawyers said.

                   Accounting Investigators

     The district offices ``are principally engaged in
investigating broker-dealer, investment-adviser and offering
violations,'' said John Sturc, a partner at the Gibson Dunn &
Crutcher law firm and former SEC associate enforcement director.

``While a few of them have the staff to investigate accounting
issues, generally the depth of experience is in the headquarters
office.''

     The SEC staff has opened investigations of dozens of large
companies, including Xerox Corp., ConAgra Foods Inc. and Lucent
Technologies Inc., that still are pending. As of mid-July, the SEC
was conducting about 260 accounting-fraud investigations,
including about 40 probes of large companies.

     SEC Chairman Harvey Pitt last week said the SEC will shift
its main accounting focus more toward improving financial
disclosure than prosecuting corporate financial fraud. ``I'm more
concerned about protecting investors before violations occur,''
Pitt said in an interview.

     Enron shares fell 19.2 percent today, after Moody's Investors
Service yesterday placed the company's rating for commercial paper
on review for downgrade and lowered its long-term debt to two
notches above junk status. Enron stock has plunged almost 46
percent since it disclosed the SEC's inquiry, and fell $2.65 today
to $11.16.

--Vicky Stamas in Washington at (202) 624-1958 


USA: NYMEX plans to start OTC natgas clearing services.

10/30/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Oct 30 (Reuters) - The New York Mercantile Exchange (NYMEX) said on Tuesday it plans to offer credit intermediation through clearing services and trading tools to the over-the-counter (OTC) natural gas market. 
The plan includes launching exchange of futures for swap (EFS) transactions and large order executions to the natgas futures market within the next few weeks, adding to its previously announced electronic trading of cleared natural gas swaps and basis contracts.
"Recent events in the natural gas market have served to reinforce the necessity of counterparty credit risk management and have accelerated the Exchange's plans to introduce a full array of risk management tools under the umbrella of our clearinghouse," NYMEX President J. Robert Collins said in the statement. 
A swap is an unregulated contractual agreement between two parties which involves a guaranteed fixed price on an underlying commodity for a set period of time that is later settled in cash. 
Traders said the NYMEX announcement was well-timed in light of credit concerns swirling in the gas market following Enron's recent stock plunge. 
Houston-based Enron Corp. , the biggest U.S. natural gas and electricity trading house, saw its shares slump 19 percent Tuesday to $11.16, their lowest level since 1992. 
NYMEX said $500 million will be available as a guarantee to participants on each of the Exchange divisions through a fund backed by exchange clearing members, nearly eliminating credit risk between individual parties. 
EFS transactions - similar to exchange of futures for physical (EFP) transactions - allow two parties to privately negotiate an integrated OTC swap and related futures transaction priced according to their own mutual terms. 
The transaction must involve approximately equal but opposite side-of-market quantities of futures and swap exposures in the same or related commodities and will be permitted until two hours after trading terminates in the underlying futures contract. 
EFS transactions will be permitted to liquidate, initiate, and transfer futures market positions between the two parties involved in the transaction. 
The clearing member representing each party will be responsible to notify NYMEX of the amount and type of futures contracts involved, the price at which the futures transaction should be cleared, and the identity of the parties involved. 
NYMEX will also start letting traders execute block trades of 250 natural gas futures contracts or more in the first two nearby months at the best bid or offer for that size. These trades will not be permitted during the closing range. 
The exchange said that early next year it will launch a cleared Henry Hub natural gas swaps contract, providing the marketplace with direct clearing on the most popular energy swaps contract over the last several year. 
As part of this move, NYMEX said it will clear OTC-executed transactions through its EFS mechanism.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

USA: UPDATE 3-Enron shares plunge 19 percent, hit 1992 levels.
By C. Bryson Hull

10/30/2001
Reuters English News Service
(C) Reuters Limited 2001.

HOUSTON, Oct 30 (Reuters) - Shares of Enron Corp. dropped 19 percent to their lowest level since 1992 on Tuesday, amid fears of a credit crunch and persistent investor concerns over its silence about the energy giant's finances. 
The stock was the most active by far on the New York Stock Exchange as the biggest trader of natural gas and power in North America suffered another rout in its 10th straight day of losses.
Houston-based Enron has shed more than $17 billion in market capitalization in the past two weeks amid a series of disclosures about murky off-balance-sheet deals with partnerships run by its then chief financial officer. 
The disclosures destroyed the stock, forced the ouster of CFO Andrew Fastow, led to a U.S. Securities and Exchange Commission conflict-of-interest inquiry and have caused at least one credit rating agency to slash Enron's senior-debt credit status. 
Enron stock closed down $2.65 to $11.16 in trading volume of 42.7 million shares, a good 47 percent more than the next most active stock on the NYSE. 
The shares crossed the $12 threshold in the morning for the first time since January 1993, then repeatedly tested the $11 barrier throughout the session before touching a low of $10.95 shortly before the close - its lowest level since July 1992. 
"This Enron situation is unique, and uniquely bad. The inability of the management to make a satisfactory response to all these claims and innuendoes has caused a mighty run on the stock for these past few weeks," said Sanders Morris Harris analyst John Olson. 
"I for one am at a loss to explain their reticence to respond." 
Enron said it was working to address its credibility gap. 
"We have heard the criticism loud and clear and we have made a commitment to change those perceptions. (Chairman and Chief Executive Officer) Ken Lay and everyone else on this management team has made it their priority to bring investor confidence up to the strong level of our core business," Enron spokesman Vance Meyer said. 
FOCUSING ON NEAR-TERM 
One analyst suggested that Enron was focusing management firepower on clearing the SEC inquiry and securing new credit lines from its banks to address the concerns of the credit rating agencies. 
"They're focused on those two things, and I think if they successfully do those things they will find they will not be downgraded below investment grade," Commerzbank Securities analyst Andre Meade said. 
If Enron's credit drops below investment grade at current stock levels, it would be forced to issue more shares and further dilute the stock. Worse, Meade said, it would drastically increase Enron's cost for trading, as counterparties demand more cash and guarantees for deals. 
Olson said the stock price was irrationally low, even assuming a conservative valuation of Enron's businesses at 14 times estimated 2001 earnings per share of $1.81. 
The company's core trading business is worth about $23 per share at those levels, Olson said. The total company, even accounting for losses from the failing broadband business, is worth about $27 now as opposed to $37 two weeks ago, he said. 
After cutting Enron's rating on Monday, Moody's Investors Service warned it could lower the rating even further, as well as cut Enron's short-term debt status. The cut coincided with Enron's confirmation that it was seeking additional credit lines to increase its liquidity, after tapping its full $3.3 billion revolving credit line last week. 
Enron has seen its credibility demolished as it has given piecemeal answers about its involvement in financial partnerships so complex as to confound even seasoned financial analysts who make their living unraveling earnings statements and balance sheets. 
Fastow was general partner in two partnerships, which paid him millions in management fees, that did business with Enron. They caused a $1.2 billion loss in shareholder equity after Enron was forced to repay the partnerships with stock once their investments, many into broadband, soured.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron's stock continues tumbling after investigation reportedly moves to Washington

10/30/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

HOUSTON (AP) - Enron Corp.'s stock plummeted to a nine-year low on Tuesday, pushed down in part by reports that an investigation by the Securities and Exchange Commission moved to the agency's headquarters in Washington from a regional office in Fort Worth, Texas. 
Shares of Enron, the nation's largest natural gas and power marketer, fell $2.65, or by 19 percent, to $11.16, a level not seen since 1992.
Enron's stock price decline steadily from nearly $85 at the beginning until the middle of October, when the company reported earnings and serious questions about its fiscal health were raised. 
Since reporting a disappointing quarterly losses on Oct. 16, Enron has been negotiating with banks to establish new credit lines and has been surrounded by turmoil because of losses stemming from partnerships managed by the company's former chief financial officer. 
The partnerships have raised concerns about a potential conflict of interest and touched off an inquiry by the SEC. 
The Wall Street Journal reported Tuesday the SEC investigation has been moved to the agency's Washington office. 
Analysts say the change was interpreted to mean the investigation is more serious than originally thought. 
"I would imagine that (the falling stock price) must be attributed to the SEC shift in venue. That is today's goblin" with Enron's stock price, said Robert Christensen, an analyst with FAC/Equities in New York. 
Enron officials did not immediately return messages left Tuesday by The Associated Press. SEC spokesman Michael Robinson declined comment and would not confirm or deny the investigation had been moved. 
Shares of Enron were sacked by more than 10 percent on Monday after Moody's Investors Service downgraded the company's long-term debt and warned of possible further downgrades. 
Enron reported a net loss of $638 million in the third quarter, taking a one-time charge of $1.01 billion attributed to investment losses, troubled assets and unit restructurings. 
Enron's stock has dropped ever since as it became apparent some of those losses were tied to partnerships managed by Enron's former chief financial officer, Andrew Fastow, who was ousted last week. 
The company last week decided to cash in about $3 billion in revolving credit it has with various banks to shore up investor confidence. 
Christensen said it's premature to discuss any possibility that Enron could be taken over if its current financial woes don't improve. 
"A vote of confidence by an outside financial institution, a commercial bank or two extending them additional credit and or a white knight investor stating that they have reviewed the basic book of business of this company and that it's OK would work wonders," Christensen said. 
Christensen said Enron's core business model of energy marketing is a very good one. 
"The sidelines and hobbies Enron was attracted to in the last five years have come home to roost but its basic business function appears to be valid," he said. 
Christensen said other energy companies, whose stock prices have suffered because of the Enron tumult, do not appear to be hurt by what has been happening to Enron recently. 
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On the Net: 
http://www.enron.com

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