The US and European financial systems braced for a chain reaction as the world's dominant energy trading firm, Enron, headed towards bankruptcy yesterday after the collapse of a rescue bid by its smaller rival, Dynergy on Wednesday. Ahead of any bankruptcy proceedings in the US, the European arm of Texas-based Enron yesterday filed for creditor protection in London.
Enron had $61.8 billion (€70.1 billion) in assets on September 30th, compared to the $35.9 billion in assets held by Texaco when it filed for bankruptcy in 1987, making it the biggest US company to face liquidation.
Enron accounted for 20 per cent of energy trading in the US and Europe, but yesterday struggled to stay in business. The New York Mercantile Exchange restricted all trades in the company. Its online European energy brokerage was closed and Enron Nordic Energy in Norway excluded Enron from trading and clearing.
Enron Metals said its London-based EnronOnline trading system was up and running after shutting down on Wednesday, and an Enron spokesman said that 65 products were being traded again on EnronOnline in the US.
The straw that broke the camel's back was the downgrade of Enron's credit-rating to junk status on Wednesday, said Dynergy chairman Mr Chuck Watson in a television interview. "We had a lot of confidence we had arrested the business deterioration," he said, "but the problem was the company lost a lot of credibility and that's something it never recovered from."
He claimed that a November 19th filing with regulators showed that Enron faced insurmountable problems both in the long and short term, causing Dynegy to invoke "material adverse change" clauses to pull out of its agreement to acquire Enron.
The fallout from the collapse of Enron, which marketed and delivered electricity, natural gas and other physical commodities, and provided financial and risk management services, impacted on the dollar and hit the share value of banks and power utilities in the US, Europe and Japan.
US banks JP Morgan and Citigroup, which poured millions into the failed merger saw their valuations hit for a second day, and shares fell in other global financial institutions with exposure to Enron. JP Morgan Chase has $500 million of unsecured exposure, and Citigroup almost $800 million, about half unsecured.
Oil futures on the New York Mercantile Exchange moved sharply lower after the exchange imposed restrictions on floor deals with the firm and in London, day-ahead electricity prices dropped more than 40 per cent as traders cut ties with Enron and off-loaded power onto the market.
Enron shares, once valued at $90.56, traded around 40 cents on Wall Street yesterday after closing at 61 cents on Wednesday.
However the Dow Jones, of which it is a component, was buoyed by other factors including higher than expected new home sales and orders for durable goods. The Enron failure could mean the loss of 21,000 jobs in Houston with a knock-on effect in the Texas real estate market.
Analysis: page 2
Irish Operation
Enron's wind energy subsidiary employs two people in the Republic. The company supplies and installs wind turbines. Another subsidiary, Enron Direct Ireland, was granted a licence to supply electricity by the electricity regulator, Mr Tom Reeves, on October 22nd.
