Skip to comments.Breaking:Citi-Group About To Release Enron Like Problem
Posted on 07/22/2002 11:39:57 AM PDT by My Favorite Headache
Radio and I just see FOX reporting this. Big lender to worldcom and other giants...in trouble.Markets now back to falling...here we go.
Don't forget the Cinna-sticks!
Citigroup Inc. (NYSE: C - News) arranged an unusual financing technique for Enron Corp. ( ENRNQ) that enabled the energy trader to appear rich in cash rather than saddled with debt, Monday's Wall Street Journal reported, citing internal documents of both companies.
Details of the controversial arrangement are only now coming to light as Congress turns to probing the role played by Enron's banks in enabling its illusory growth.
In a series of deals known as Yosemite, the documents show, Citigroup's complex scheme helped Enron borrow money over the past three years that was booked as coming from trades instead of loans. The deals, involving bond offerings and trades with an offshore entity, helped boost the company's weak cash flow to match its growth in paper profits, at a time when the gap between the two had grown to as much as $1 billion a year, according to one Enron memo.
Investigators want to determine whether Enron would have been able to defraud investors if not for the willing participation of Wall Street. The documents amount to the most in-depth evidence yet of the extent to which Citigroup, the nation's largest financial institution, helped Enron disguise debt on its balance sheet through some of the most complex financial accounting arrangements at the Houston energy company.
Although Citigroup's actions technically may have been in accordance with accounting principles, they raise questions over whether Citigroup helped shield important information from Enron investors. Citigroup says it has done nothing wrong, noting that lenders shouldn't be held responsible for how a client such as Enron accounted for the financing arranged by its bankers. Citigroup said in a statement, "The transactions we entered into with Enron were entirely appropriate at the time based on what we knew and what we were told by Enron. We were assured that Enron's auditors had approved them, and we believed they were consistent with accounting rules in place at the time." Enron officials did not return calls seeking comment.
The deals will be scrutinized in new detail as part of hearings the Senate's Permanent Subcommittee on Investigations will launch Tuesday, examining to what extent Enron's banks helped disguise the true nature of its finances until its spectacular flameout and filing for bankruptcy protection last December.
"It has become common knowledge that Enron engaged in accounting deceptions to convince lenders, investors and analysts that the company was in better financial shape than it was," said Senator Carl Levin, the Michigan Democrat who will act as co -chairman of the hearings. "The question the Subcommittee will examine is the extent to which major financial institutions knew of and aided Enron's accounting deceptions."
Citigroup rival J.P. Morgan (NYSE: JPM - News) Chase & Co . also will face scrutiny in the hearings this week for similar deals through a vehicle known as Mahonia, which was the subject of a page one story in The Wall Street Journal in January. Mahonia has drawn wide scrutiny following a lawsuit with insurers who guaranteed the transactions through surety bonds. The insurers refuse to pay Morgan, arguing that prepaid transactions effectively generated loans, not trades. Their viewpoint struck a chord with the judge overseeing the case, U.S. District Judge Jed S. Rakoff, who said in a March opinion that the Mahonia transactions "now appear to be nothing but a disguised loan."
The Securities and Exchange Commission ( news - web sites) is investigating both Citigroup and J.P. Morgan over whether the banks helped Enron hide debt and artificially boost cash flow, and the office of Manhattan District Attorney Robert Morgenthau also has been examining the deals, people familiar with the matter say. A spokesman for J.P. Morgan said the company believes "the prepaid transactions were properly accounted for by our firm and Enron."
Wall Street Journal Staff Reporters Jathon Sapsford and Paul Beckett contributed to this report.
Isn't that called "money laundering?"
Paging Mr. Lieberman, Paging Mr. Lieberman, the ethic committee would like to speak to you.
Guys it looks like Robert Rubin just got Enroned!!!!!!
NEW YORK - Prince Alwaleed Bin Talal, nephew of Saudi Arabia's King Fahd, has invested an additional dlrs 500 million in Citigroup Inc., the prince said Thursday.
Alwaleed, Citigroup's largest shareholder since 1991, said after the Sept. 11 terrorist attacks that he would invest about dlrs 1 billion in slumping U.S. and European shares.
The billionaire investor, who ranks 11th on Forbes's list of the richest people in the world, also has stakes in AOL Time Warner Inc. and Priceline.com Inc.
The latest investment by Alwaleed brings his total investment in Citigroup to more than dlrs 10 billion, or about 4 percent of the company.
Alwaleed said Thursday that Citigroup's shares were "at too attractive a price," prompting him to boost his investment in the New York-based financial-services giant.
Citigroup's shares dropped as low as dlrs 34.51 after the Sept. 11 attacks and recently traded only slightly above that level, at dlrs 37.52, down from the 52-week high of dlrs 52.50 set Jan. 7.
Wednesday, Citigroup reported a 15 percent rise in second-quarter earnings, boosted by growth in consumer credit-card, retail-banking and consumer-finance businesses.
Alwaleed, the 44-year-old chairman of Kingdom Holding Co., made headlines after the Sept. 11 attacks when he handed a dlrs 10 million check to New York City Mayor Rudy Giuliani following a visit to the site of the World Trade Center.
However, the Saudi prince also suggested that the United States take a more balanced approach toward the Palestinian cause, and Giuliani returned the check.
I have Citibank Visa.....oh no!
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