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Fall of a Power Giant: Bailout Is Unlikely if Enron Goes Under, As U.S. Thi=
nks Impact Would Be Limited
The Wall Street Journal, 11/29/01
Enron's Woes May Ripple Out to Others --- If Energy Company Files For Bankr=
uptcy, Results Are Likely to Be Messy
The Wall Street Journal, 11/29/01
Fall of a Power Giant: Bailout Is Unlikely if Enron Goes Under, As U.S. Thi=
nks Impact Would Be Limited
The Wall Street Journal, 11/29/01
Enron's Meltdown May Also Be Felt By Big Mutual Funds
The Wall Street Journal, 11/29/01
Why Credit Agencies Didn't Switch Off Enron --- S&P Cries `Junk,' But the W=
arning Comes Too Late
The Wall Street Journal, 11/29/01
Why Credit Agencies Didn't Switch Off Enron --- Energy Trading Bears the Br=
unt Of Enron Woes
The Wall Street Journal, 11/29/01
Fall of a Power Giant: Chairman's Deep Political Connections Run Silent
The Wall Street Journal, 11/29/01
Dynegy and ChevronTexaco Slide Along With Plunge in Enron Stock
The Wall Street Journal, 11/29/01
Dollar Declines Against Yen and Euro Amid Growing Doubts on U.S. Economy
The Wall Street Journal, 11/29/01
Dynegy's Move to Disconnect Enron Merger Powers Volatility Spike as Investo=
rs Seek Cover
The Wall Street Journal, 11/29/01
Enron Asks Staff to Drop 401(k) Suits for Severance
The Wall Street Journal, 11/29/01
Nvidia to Replace Enron in S&P
The Wall Street Journal, 11/29/01
ENRON COLLAPSES AS SUITOR CANCELS PLANS FOR MERGER
The New York Times, 11/29/01
A Bankruptcy Filing Might Be the Best Remaining Choice
The New York Times, 11/29/01
An Implosion on Wall Street
The New York Times, 11/29/01
Citigroup and J.P. Morgan Are Left With Bruised Egos and Exposure to Loans
The New York Times, 11/29/01

In Turbulent Bond Market, Enron's Woes Exacerbate Turmoil
The New York Times, 11/29/01
A Big Fall Evoking Nasty Old Memories Of a Run on a Bank
The New York Times, 11/29/01
Foundation Gives Way On Chief's Big Dream
The New York Times, 11/29/01
Market That Deals in Risks Faces a Novel One
The New York Times, 11/29/01
Investors Pull Back as Enron Drags Down Key Indexes
The New York Times, 11/29/01
Debt Rankings Finally Fizzle, but the Deal Fizzled First
The New York Times, 11/29/01
GLOBAL INVESTING - Bond mutual funds suffer as Enron's troubles deepen.
Financial Times, 11/29/01
COMPANIES & FINANCE THE AMERICAS - SEC filing triggered merger crisis.
Financial Times, 11/29/01
COMPANIES & FINANCE THE AMERICAS - Financial system braces for a chain reac=
tion.
Financial Times, 11/29/01
COMPANIES & FINANCE THE AMERICAS - Traders avoid exposure to junk status fa=
llout.
Financial Times, 11/29/01
COMPANIES & FINANCE THE AMERICAS - Downgrade is the final straw for Enron.
Financial Times, 11/29/01

Collapse of Merger Pushes Enron to Brink of Ruin Energy: Bankruptcy filing =
is likely as stock value withers and bonds fall to 'junk' status.
Los Angeles Times, 11/29/01
Enron Failure's Ripple Effects Analysis: Observers say consequences could b=
e severe for energy prices as well as banks and other investors. Firm's tra=
ding rivals see opportunities.
Los Angeles Times, 11/29/01
Markets Enron Troubles, Uncertainty Send Stocks Tumbling Wall St.: Sellers =
gain the upper hand, but many analysts say markets were due for a pullback.
Los Angeles Times, 11/29/01
Enron on edge of collapse=20
Houston Chronicle, 11/29/01
Enron trading screens go bland; other firms reasuring investors=20
Houston Chronicle, 11/29/01
Bankruptcy filing by Enron could be largest ever
Houston Chronicle, 11/29/01
Ballpark Place project stopped dead in tracks
Houston Chronicle, 11/29/01

Fall of a Power Giant: Bailout Is Unlikely if Enron Goes Under, As U.S. Thi=
nks Impact Would Be Limited
By Greg Ip and Jathon Sapsford
Staff Reporters of The Wall Street Journal

11/29/2001
The Wall Street Journal
A10
(Copyright (c) 2001, Dow Jones & Company, Inc.)

WASHINGTON -- If Enron Corp. goes under, the government is unlikely to thro=
w it a lifeline.=20
At its peak, Enron was a major participant in the country's financial and e=
nergy markets. But economic and financial policy makers say they aren't wor=
ried about any broader blow to markets or business activity. Despite freque=
nt comparisons to Long-Term Capital Management, the hedge fund whose 1998 n=
ose dive panicked global financial markets and triggered an unusual bailout=
brokered by the Federal Reserve, there has been so far no public sign of a=
ny attempt by the Fed, the Treasury or energy regulators to take similar ac=
tion on behalf of Enron or its creditors.
Officials from a range of economic and regulatory agencies have insisted in=
recent days that while they have been closely monitoring Enron's situation=
, they haven't seen any reason to be concerned about possible ripple effect=
s. Enron "is just one piece of a very big market," said John Mielke, chief =
of market surveillance at the Commodity Futures Trading Commission. Mr. Mie=
lke said he saw no evidence that Enron's problems have disrupted trading on=
the futures exchanges monitored by the CFTC.=20
"These are deep and pretty big markets that Enron is in," echoed William Gi=
lmer, an economist at the Federal Reserve Bank of Dallas.=20
It is too soon to say exactly what the total damage from Enron's potential =
demise will be. One danger is that a blowup in the company's complex, large=
ly unregulated portfolio of derivatives could infect financial markets in w=
ide and unpredictable ways, just as LTCM's did. Another worry: that the col=
lapse of a major middleman in natural-gas and power markets could disrupt s=
upplies.=20
Enron does share some characteristics with LTCM, including widespread activ=
ities in complicated financial instruments in numerous markets, with little=
detailed public explanation of those activities, and little regulatory ove=
rsight of those trades.=20
Its public disclosures suggest Enron's exposures are substantial. A quarter=
ly filing listed $18.7 billion in assets and an equal amount of liabilities=
related to "price risk management activities" as of Sept. 30. The filing g=
ives no description or breakdown of those amounts and little detail about t=
he derivatives in which Enron transacts as a normal part of business. (A de=
rivative is a financial contract whose value is designed to track the retur=
n on stocks, bonds, currencies or other benchmark.) An Enron spokeswoman di=
dn't return a call seeking comment.=20
As Enron's woes deepened, the government's hands were tied in even assessin=
g the situation, in part because the company was part of a coalition of ene=
rgy companies and banks that lobbied successfully three years ago against C=
FTC efforts to expand regulation of the over-the-counter energy market. Enr=
on also worked behind the scene to head off CFTC's direct regulation of the=
energy concern's EnronOnline trading operation.=20
There have been some signs in markets of concerns about Enron fallout. Inte=
rest rates on bonds of utilities and energy companies rose by one- to two-t=
enths of a percentage point relative to Treasurys yesterday. By day's end, =
the Dow Jones Industrial Average was off 160.74 points, a decline blamed in=
part on the Enron news.=20
Those are relatively small hiccups. The betting is the impact of Enron's tr=
oubles on the financial system will be widespread but thin. Enron was a fav=
orite borrower among lenders, and its loans were among the most widely synd=
icated among the banking system, both at home and abroad. For example, a $2=
.25 billion credit facility arranged for Enron in May by Citigroup Inc. and=
J.P. Morgan Chase & Co. was distributed to 50 different institutions, acco=
rding to Loan Pricing Corp., a credit-market research company. Those syndic=
ation members sold off chunks of that debt to other investors, according to=
a banker at one of the underwriters.=20
J.P. Morgan Chase said in a statement that it has $500 million of unsecured=
exposure to Enron entities, including loans, letters of credit and derivat=
ives. It said it also has secured exposures, including $400 million in loan=
s secured by Enron pipelines. While this exposure is expected to smart, it =
represents a small fraction of J.P. Morgan Chase's total assets of $715 bil=
lion. Citigroup declined to comment on its exposure to Enron, but officials=
familiar with the matter said the bank's exposure is similar to that of J.=
P. Morgan Chase.=20
Beyond financial fallout, a concern is the potential impact on energy marke=
ts and what that could do to the economy. Enron's troubles could hamper eff=
orts to end the recession if the company's difficulties make it impossible =
for it to deliver natural gas or electricity to its customers.=20
Natural-gas prices rose sharply yesterday in the minutes after three major =
credit-rating agencies downgraded Enron's rating and Dynegy Inc. said it wa=
s calling off its purchase. But the move quickly reversed when traders dige=
sted gas-inventory numbers released in the afternoon that showed utilities =
have stored enough gas to meet demand ahead of the winter heating season.=
=20
"We've seen no interruptions in physical deliveries and no pricing reaction=
in the futures markets that you could attribute to Enron," said Scott Mill=
er, director of market development for the Federal Energy Regulatory Commis=
sion. "Revenues and transactions are occurring normally as far as we can te=
ll."=20
---=20
Michael Schroeder, Chip Cummins and John Fialka contributed to this article=
.

Enron's Woes May Ripple Out to Others --- If Energy Company Files For Bankr=
uptcy, Results Are Likely to Be Messy
By Henny Sender and Richard B. Schmitt
Staff Reporters of The Wall Street Journal

11/29/2001
The Wall Street Journal
A3
(Copyright (c) 2001, Dow Jones & Company, Inc.)

The sudden, deep financial troubles of Enron Corp., the once aggressive, ma=
ny-tentacled energy conglomerate, could have widespread consequences for sc=
ores of companies across the economy.=20
If Enron files for protection under Chapter 11 of the federal Bankruptcy Co=
de, as many investors and financial experts now expect, it is likely to be =
one of the messiest, most complex bankruptcy cases ever, lawyers say.
That is because of the multifaceted nature of Enron's once highflying opera=
tions, which combined a global energy business with a massive financial-tra=
ding operation involving tens of billions of dollars in complex contracts. =
Yesterday, amid the unraveling of a last-ditch merger with Dynegy Inc., the=
company's credit was downgraded to "junk" status by rating agency Standard=
& Poor's Corp. Enron has about 800 trading partners or creditors.=20
The stock market, signaling that a bankruptcy filing is expected, hammered =
Enron stock, which was halted for a time yesterday, and knocked lower some =
of its financial backers' shares. Enron shares closed at 4 p.m. in New York=
Stock Exchange composite trading at 61 cents, down $3.50, or 85%. Enron bo=
nds also fell sharply, dropping to 50 cents on the dollar from around 55 ce=
nts, reflecting concerns over how much creditors might receive if the compa=
ny does seek bankruptcy-court protection. J.P. Morgan Chase and Citigroup, =
which have invested hundreds of millions of dollars in hopes of keeping the=
Enron-Dynegy deal alive, also saw their stocks fall. At 4 p.m. in NYSE com=
posite trading, J.P. Morgan shares were down $2.30 to $37.50, while Citigro=
up shares were down $2.75 to $47.80.=20
J.P. Morgan Chase said in a statement it has about $500 million of unsecure=
d exposure to Enron entities, including loans, letters of credit, and deriv=
atives. It said it also has secured exposures, including $400 million in lo=
ans secured by Enron pipelines.=20
Other companies also disclosed their exposures to Enron. Exelon Corp., an e=
nergy concern in Chicago, said its power-trading arm has a direct net expos=
ure to Enron of less than $10 million, based on its current book of busines=
s and existing market prices. Exelon said its direct gross exposure based o=
n sales to Enron is less than $20 million. Exelon said this is partly offse=
t by $10 million that it owes to Enron.=20
Still, while the fallout from a potential bankruptcy filing would be widesp=
read, federal regulators appear little concerned that it could inflict sign=
ificant damage to the U.S. economy. (See related article on page A10.)=20
The scale of the Enron collapse is huge, experts say. "There is nothing to =
compare it to," said Edward Tillinghast, a bankruptcy specialist with Coude=
rt Brothers in New York. "The business was so large. There were so many dif=
ferent kinds of operating entities under the Enron umbrella."=20
In a way, he added, a filing would represent all the challenges of two of t=
he biggest bankruptcies in recent years -- this past spring's Chapter 11 fi=
ling by PG&E Corp.'s Pacific Gas & Electric utility unit, and the demise of=
Drexel Burnham Lambert, the Wall Street securities firm that failed more t=
han a decade ago. A filing by Enron, with about $13 billion in debt, would =
rank among the largest bankruptcy filings ever.=20
Bankruptcy lawyers and creditors' rights specialists, already swamped with =
a wealth of work from a boom in Chapter 11 filings during the last 18 month=
s, said they had been contacted by worried banks and other lenders to Enron=
, seeking to retain them in the event of a Chapter 11 filing. Enron spokesw=
oman Karen Denne said the company is exploring its options and wouldn't com=
ment on whether it has retained bankruptcy counsel.=20
But lawyers said the company was already in discussions about retaining its=
own counsel. Among the likely advisers is New York law firm Weil Gotshal &=
Manges, which has been doing mergers work for Enron but also specializes i=
n representing debtors in Chapter 11 proceedings. Lawyers at Weil Gotshal d=
idn't return phone calls yesterday.=20
Ironically, Enron's trading arm, which fueled huge profits over the years, =
could end up creating some unusual problems in any Chapter 11 case. One of =
the messiest aspects of any potential filing would be unwinding the myriad =
swaps, repurchase agreements and forward agreements that Enron entered into=
with bankers, Wall Street and numerous municipalities and utilities. Such =
transactions aren't subject to the automatic freeze that governs most contr=
acts when a company files for Chapter 11; the idea is to protect all partie=
s from market risk as the value of those contracts can fluctuate from day t=
o day, and to avoid a larger financial meltdown.=20
That means Enron's counterparties are free to close out such transactions, =
rather than file claims in a bankruptcy proceeding reflecting the total not=
ional amount of any trades. In other words, a securities firm that is a cou=
nterparty to Enron in many financial contracts would tally up how much it o=
wes Enron under such contracts and how much Enron owes it, offsetting the a=
mounts against each other. But this process is ripe for conflicts, as dispu=
tes easily could arise over the value of the contracts.=20
"It is an incredibly complex piece of financial engineering," Andrew Rahl, =
a bankruptcy lawyer at Anderson Kill & Olick in New York, said of the proce=
ss.=20
How much collateral those counterparties could seize isn't at all clear, ei=
ther. Enron was considered very aggressive in negotiating agreements such a=
s swaps, where a party trades an obligation to pay a floating interest rate=
for a fixed interest rate on given securities. The speed with which the co=
mpany's finances have deteriorated further reduces the odds that its tradin=
g partners will be able to get paid anytime soon. Without any security, cou=
nterparty claims would go into the probably massive general pool of claims =
from unsecured creditors.=20
Besides banks and bondholders, dozens of companies, municipalities and util=
ities that had signed multiyear power contracts with Enron may be left in t=
he lurch. Over the years, the likes of retailer J.C. Penney Co., and shoppi=
ng-mall company Simon Property Group, of Indianapolis, signed on with Enron=
, as it undercut local utilities in newly deregulated markets.=20
Any bankruptcy also is likely to trigger collateral lawsuits, as aggrieved =
parties look for alternative deep pockets. One possible target, analysts sa=
id, could be advisers that helped Enron establish off-balance-sheet vehicle=
s and other debt related to troubled investment partnerships, which have tr=
iggered massive losses in recent weeks. Moreover, Enron directors themselve=
s could be vulnerable, too.=20
Yesterday, Enron named Raymond S. Troubh, a New York financial consultant, =
to its board as chairman of a newly formed Special Litigation Committee to =
evaluate claims in shareholder and other derivative lawsuits.=20
At the same time, any filing would give Enron some advantages, most notably=
greater ease in securing financing. This is because once companies file fo=
r protection, any new cash infusion from the banks has an overriding claim =
on any of the company's assets, at the expense of previous lenders.=20
In addition, potential buyers for Enron businesses may be more likely to em=
erge once the company is operating with court protection and the depth of i=
ts problems are known.=20
"There is a certain comfort level that buyers have when buying a business i=
n a Chapter 11 case that doesn't exist when a company is struggling outside=
of bankruptcy," said Keith Shapiro, a bankruptcy lawyer at Greenberg Traur=
ig in Chicago.

Fall of a Power Giant: Bailout Is Unlikely if Enron Goes Under, As U.S. Thi=
nks Impact Would Be Limited
By Greg Ip and Jathon Sapsford
Staff Reporters of The Wall Street Journal

11/29/2001
The Wall Street Journal
A10
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Enron's Meltdown May Also Be Felt By Big Mutual Funds

11/29/2001
The Wall Street Journal
C13
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -- Some of the largest mutual funds in the country that jumped on =
Enron Corp. shares when they were soaring now may be feeling the pain of th=
e stock's meltdown.=20
The energy-trading company's stock was held in funds managed by Fidelity In=
vestments, Stilwell Financial Inc.'s Janus Capital Corp., Alliance Capital =
Management and Putnam Investments, according to the funds' most recent Secu=
rities and Exchange Commission filings. Vanguard Group held the stock in va=
rious portfolios, including its giant passively managed index funds, accord=
ing to its filings.
One of the biggest supporters of the stock has been Alliance Premier Growth=
Fund, an $11 billion portfolio that had about 4% of its assets in Enron sh=
ares as of Sept. 30, according to fund tracker Morningstar Inc. Based on th=
e Sept. 30 filing, the fund's stake had dropped in value by about $445 mill=
ion through yesterday.=20
Of course, Alliance Premier and other funds may have sold or bought Enron s=
hares since they made their latest government filings. An Alliance spokesma=
n declined to comment.=20
Other funds reporting big stakes in Enron recently included Janus Mercury F=
und, which had 3.6% of its assets invested in Enron stock on April 30. A Ja=
nus spokeswoman said its funds had sold all of their Enron shares by mid-No=
vember.

Credit Markets
Why Credit Agencies Didn't Switch Off Enron --- S&P Cries `Junk,' But the W=
arning Comes Too Late
By Gregory Zuckerman and Jathon Sapsford
Staff Reporters of The Wall Street Journal

11/29/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

At 10:57 a.m. EST yesterday, an announcement came out that effectively scut=
tled Dynegy Inc.'s proposed takeover of Enron Corp. It was issued not by th=
e two companies or their bankers, but by a behind-the-scenes player that wa=
s pivotal in the deal from the start.=20
The news came from Standard & Poor's, which lowered Enron's credit rating t=
o "junk" status, because of concern about the energy trading company's fina=
ncial condition. The move, followed by similar downgrades by Moody's Invest=
ors Service Inc. and Fitch Inc. several hours later, prompted Dynegy to ann=
ounce that it was walking away from the multibillion dollar deal.
The downgrades highlight the key role that credit-rating agencies -- which =
are sometimes only bit players -- are having in one of the biggest Wall Str=
eet dramas in years. Before they became deal breakers, the ratings agencies=
had emerged as unlikely deal makers just a few weeks ago, by leaving Enron=
little choice but to seek a merger partner or face a downgrade that would =
have made it difficult to keep running its business.=20
Throughout the Enron saga, the rating agencies found themselves the target =
of repeated and intense lobbying by Enron, Dynegy and their bankers at J.P.=
Morgan Chase & Co. and Citigroup Inc. All tried -- and ultimately failed -=
- to come up with assurances that the merger would bolster Enron and thus p=
rotect bondholders and lenders from suffering losses.=20
The dramatic downgrades are sure to increase scrutiny over the role of the =
rating agencies in the Enron situation. Critics say that, in waiting until =
Enron's bonds already had plummeted in value, the ratings agencies failed i=
n their job of anticipating a company's financial problems and giving inves=
tors an early warning.=20
It now seems clear that the rating agencies, like most securities analysts,=
seem to have too easily accepted Enron's murky financial reporting, which =
gave the impression that the company's balance sheet was stronger than it w=
as. As recently as late October, both Moody's Corp.'s Moody's and McGraw-Hi=
ll Cos.' S&P had a solid investment-grade rating on Enron's debt.=20
But since credit-rating agencies often have access to company information t=
hat securities analysts often don't have, the rating agencies could take so=
me heat for not anticipating the financial difficulties. Bond investors, fo=
r instance, say S&P was prematurely upbeat about Enron's outlook earlier th=
is month, and long ago should have demanded more information from the compa=
ny. "If the rating agencies were privy all along to information that, as ne=
ar as I can tell, was nonpublic regarding these off-balance-sheet liabiliti=
es, then their judgment looks even more faulty," says Carol Levenson of Gim=
me Credit, a Chicago-based analyst.=20
Others wonder whether the ratings executives should have lowered the rating=
to junk days ago, when Enron's problems became obvious. While such a move =
would have crippled the company's ability to find a suitor, holding off on =
the ratings move hurt stock and bond investors left holding the securities.=
=20
"I don't think the consequences of a rating action should have anything to =
do with whether one takes that rating action or not, if one feels it's warr=
anted," Ms. Levenson says. "I don't think there was any doubt Enron was a j=
unk credit."=20
The ratings agencies counter that Enron's financial condition, while weaken=
ed, became precarious only in the past few days, and given the consequences=
of a downgrade they needed to be prudent.=20
Indeed, every party to the deal -- until yesterday -- kept working to provi=
de financial infusions to Enron to keep the deal alive. Enron executives we=
re particularly desperate to hold off a ratings downgrade. Once the debt wa=
s lowered to junk status from investment grade, a whopping $3.9 billion of =
debt immediately became due, jeopardizing Enron's ability to stay afloat.=
=20
Worries about such a debt downgrade weeks ago pushed Enron into the merger =
with Dynegy, despite reservations from some Enron executives about whether =
the deal was right. Enron pledged some of its best assets to secure a $500 =
million investment from J.P. Morgan Chase and Citigroup's Citibank, and agr=
eed to strict terms demanded by banks to get an emergency $1 billion credit=
line from various banks. In recent days, the two companies worked to restr=
ucture their merger and to raise still more liquidity for Enron.=20
By 4 p.m. Tuesday, the credit agencies agreed to hold off on a downgrade, c=
onvinced the two sides were making progress in restructuring the deal and d=
rumming up new money for Enron. In a conference call, Ron Barone, a managin=
g director at S&P, told Enron executives he was willing to wait on a decisi=
on, aware of the serious consequences of a downgrade.=20
"We'll be very patient and diligent" because of the progress being made, he=
told them, according to someone familiar with the conversation.=20
As late as 10:30 p.m. Tuesday, a new deal still seemed in sight. But at abo=
ut 2 a.m. yesterday, the talks broke down. Instead of being briefed about t=
erms of a new merger agreement, the credit-agency executives became doubtfu=
l a resolution would ever be reached.=20
In a late morning phone call to Jeff McMahon, Enron's chief financial offic=
er, Mr. Barone broke the news that the company's credit would be downgraded=
. "We lost confidence the deal would be consummated in a way that would kee=
p the rating intact," Mr. Barone says in an interview. "Enron's credibility=
and viability continued to diminish. They were aware of our concerns."=20
S&P downgraded Enron's corporate-credit rating two full grades to single-B-=
minus, near the lower end of the junk-bond world, from triple-B-minus, the =
lowest investment-grade level. Moody's lowered the debt to B2 from Baa3.=20
In a late-afternoon conference call with investors, S&P executives said the=
rating could still be lowered further, on the heels of the official announ=
cement that the merger with Dynegy was off.=20
Responding to criticism that the credit agencies should have downgraded Enr=
on's debt sooner, Mr. Barone of S&P notes that the rating agency wasn't "pr=
ivy to everything." Still, he adds, until yesterday "we were confident it w=
as an investment-grade company, and that the merger would give it the secur=
ity to enable Enron to function at an investment-grade level."=20
On the flip side, of course, if Enron is forced into bankruptcy, the rating=
agencies may well catch heat that their impact was too drastic, effectivel=
y killing the deal.=20
Treasurys=20
Treasurys ended slightly higher. At 4 p.m., the benchmark 10-year Treasury =
note was up 1/32 point, or 31 cents per $1,000 face value, at 100 15/32 to =
yield 4.938%. The 30-year Treasury bond's price also was up 1/32 point, at =
100 9/32 to yield 5.355%.=20
The Dow Jones Industrial Average ended with a loss of 160.74 points. Invest=
ors often shift funds to the relative safety of the government securities m=
arket at times when stocks are weak. A Treasury sale of $21 billion of two-=
year notes drew less demand than expected. The bid-to-cover ratio, a gauge =
of demand comparing the dollar value of bids received with those awarded, w=
as 1.51, well below the 2.53 average of the past 12 auctions.=20
Also somewhat bearish for the bond market was release of the Fed's beige bo=
ok report, an assessment of economic conditions around the country in advan=
ce of policy meetings. Policy makers are to meet again Dec. 11.=20
Although the report cited weakness in the economy, it didn't encourage peop=
le in the bond market to expect further rate cuts by the Fed, analysts said=
. "Not everybody is in the camp that the Fed's going to ease again," said K=
evin Flanagan, market strategist at Morgan Stanley.=20
TWO-YEAR NOTES

Here are results of yesterday's Treasury auction of two-year notes.
All bids are awarded at a single price at the market-clearing yield.
Rates are determined by the difference between that price and the face=20
value.

Applications ........................ $31,761,220,000
Accepted bids ....................... $21,000,020,000
Bids at market-clearing yld accepted 14.96%
Accepted noncompetitively ........... $774,120,000
Accepted frgn noncomp ............... $0
Auction price (Rate) ................ 99.985 (3.008%)
Interest rate ....................... 3%
CUSIP number ........................ 9128277G1

The notes are dated Nov. 30, 2001, and mature Nov. 30, 2003.=20

(See related article: "Commodities: Energy Trading Bears the Brunt Of Enron=
Woes" -- WSJ Nov. 29, 2001)

Commodities
Why Credit Agencies Didn't Switch Off Enron --- Energy Trading Bears the Br=
unt Of Enron Woes
By Peter A. McKay
Staff Reporter of The Wall Street Journal

11/29/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Less than a month ago, Enron Corp.'s electronic trading system was the larg=
est of its kind in the world, accounting for a quarter of all the natural g=
as and electricity delivered in the U.S.=20
Yesterday, the system was shut down, a victim of Enron's failed deal with D=
ynegy Inc.
While the rise and sudden fall of Enron rippled throughout financial market=
s yesterday, nowhere was it more immediately evident than in energy trading=
, an arena utterly transformed by Enron in recent years.=20
Since the late 1990s, EnronOnline had established itself as the dominant el=
ectronic energy marketplace -- and major competitor of the traditional futu=
res exchanges -- as it grew to handle an average of 5,400 trades a day, wit=
h a value of about $2.8 billion.=20
But a flight away from Enron began weeks ago, as initial news of the compan=
y's woes began to spread. Because Enron itself guaranteed trades on its pla=
tform, fears grew that the company might not be able to complete many of th=
e transactions.=20
The exodus of trading activity from EnronOnline accelerated throughout the =
day yesterday, culminating in the system's shutdown around midday, when quo=
tes on the system's Internet trading screens simply went blank.=20
By 3:30 p.m. EST, some trading had resumed in natural gas, though spokesman=
Eric Thode declined to say whether Enron's markets would be open today. "T=
hat's part of an evaluation that's ongoing," he said.=20
On the floor of the New York Mercantile Exchange, a traditional floor-based=
futures market, natural-gas trading volume almost doubled yesterday to 116=
,000 contracts. While Enron's woes were the main driver behind the surge, t=
he market also reacted to important storage data from the American Gas Asso=
ciation.=20
Natural-gas prices jumped about 25 cents yesterday morning on an initial re=
action to the Enron news, near $3 per million British thermal units, then s=
lipped back as the AGA announced that gas storage had grown by 16 billion c=
ubic feet to an all-time high. The nearby December contract fell 29 cents t=
o $2.315 per million BTUs.=20
"Anyone who jumped into the gas market on the Enron news is praying right n=
ow [that prices recover]," Guy Gleichmann, senior energy trader at Barkely =
Financial. "It should only be a short-term factor in the market."=20
He said Enron's collapse has helped gas prices because it is mainly seen as=
a threat to the overall gas supply. Traders assume EnronOnline's problems =
won't affect actual energy deliveries, because whoever takes over Enron's a=
ssets is expected to honor those commitments.=20
Meantime, anticipating potential fallout from the Enron problems, energy fi=
rms also have been reducing their financial risk in the energy markets by u=
nwinding complex derivatives bets, either by hedging against them or taking=
delivery of the physical commodity.=20
In the future, those firms are likely to favor straightforward cash transac=
tions for energy as a result of the Enron meltdown. "If anything, the Enron=
situation has really simplified this market," Mr. Gleichmann said.=20
Yesterday on the IntercontinentalExchange, Enron's primary electronic rival=
, traders waited up to five minutes to log in, said Jeff Sprecher, the onli=
ne market's chief executive.=20
He said it seemed most traders were just jockeying for position at first, a=
ssessing the newfound risk before actually making any trades. Within the fi=
rst 15 minutes after Standard & Poor's initial downgrade of Enron, Mr. Spre=
cher said, the number of bids and offers on IntercontinentalExchange droppe=
d by almost a third, to 2,200.=20
"By the end of the day, though, we expect this will probably be a record da=
y for us," said Mr. Sprecher, who estimated the system's overall volume is =
up 45% this month.=20
He expects much of that gain to be permanent on ICE, although he cautioned =
that a loss of EnronOnline from the marketplace would have a downside, sinc=
e its presence created opportunities to trade spreads between the two platf=
orms.=20
Nymex President J. Robert Collins warned it is still too early to declare E=
nronOnline dead. But he said its difficulties bode well for his exchange's =
Internet-based system, dubbed eNymex, now in development.=20
"Because of credit issues involving Enron, companies might be more hesitant=
to trade there," he said. "So we have a better shot with eNymex than we di=
d three or four months ago."=20
Ronald J. Barone, managing director for energy research at UBS Warburg, sai=
d EnronOnline's value to prospective acquirers will drop quickly in coming =
days, if the business continues to decline.=20
"Dynegy really liked EnronOnline, but look at how much business the platfor=
m's been losing," said Mr. Barone, who downgraded Enron's stock yesterday t=
o a hold. "There's also a question of how many more skeletons there are in =
the closet."=20
In commodity trading yesterday:=20
GRAINS: Futures prices on corn, wheat and soybeans all fell again at the Ch=
icago Board of Trade as what was described as a technical-based selloff acc=
elerated. December-delivery corn futures sank to $1.9850 a bushel late in t=
he session, which wiped out the old contract low. The contract ended up set=
tling down five cents at $1.9875 a bushel.=20
CRUDE OIL: Crude-oil futures slipped 26 cents to $19.22 a barrel after week=
ly inventory data showed a larger-than-expected five-million-barrel build i=
n distillates supplies, which include heating oil. High refinery runs and i=
mports were behind the build, analysts said. The contract might have fallen=
even more, except for a modest drop reported for crude-oil stocks.=20
---=20
Dyanna DeCola contributed to this article.=20
(See related article: "Credit Markets: S&P Cries `Junk,' But the Warning Co=
mes Too Late" -- WSJ Nov. 29, 2001)

Fall of a Power Giant: Chairman's Deep Political Connections Run Silent
By Bob Davis
Staff Reporter of The Wall Street Journal

11/29/2001
The Wall Street Journal
A10
(Copyright (c) 2001, Dow Jones & Company, Inc.)

For years, Enron Corp. Chairman Kenneth Lay has been George W. Bush's best =
friend in the board rooms of America's top corporations.=20
Since 1993, Mr. Lay and Enron have donated nearly $2 million to Mr. Bush's =
political career, making them Mr. Bush's biggest backers. When Mr. Bush was=
Texas governor, Mr. Lay, a Houston resident, helped him win passage of a s=
tate education-reform plan that brought Mr. Bush national acclaim. During t=
hat fight, Mr. Lay got to know aides who became power players in the Bush W=
hite House.
Mr. Lay was confident enough of his friendship with Mr. Bush that he even n=
eedled him for needing arthroscopic surgery to repair a jogging injury. "I =
want you to know that at least one jogger [me] got past 50 without that sur=
gery," Mr. Lay scribbled in a note to then governor in 1997.=20
Still, as Enron faces its greatest crisis, Mr. Lay's influence and personal=
relationships with the administration have amounted to little. There appea=
rs to be no effort by the White House or Congress to bail Enron out of its =
difficulties, which are widely seen as self-inflicted. The White House had =
no comment on Mr. Lay's predicament, a spokeswoman said. Indeed, short of a=
n actual bailout to help Enron meet its obligations -- such as an aid packa=
ge approved by Congress or organized by government officials from private s=
ources, similar to the rescue of the Long Term Capital Management hedge fun=
d -- there is little Washington can do at this stage to help the company. N=
or is there likely to be a bailout, since Enron has burned many bridges on =
Capitol Hill with its history of strong-arm lobbying tactics, some congress=
ional aides say.=20
That may reassure a cynical public, says Robert Mosbacher, Commerce Secreta=
ry in the first Bush administration and a longtime friend of the current pr=
esident as well as Mr. Lay. "I don't see anybody being let off the hook," h=
e said.=20
Mr. Mosbacher says he introduced Mr. Lay to the Bush family around 1987, wh=
en he persuaded Mr. Lay to help raise money for George H.W. Bush's successf=
ul presidential bid in 1988. Mr. Lay contributed $461,000 to the younger Mr=
. Bush's two successful gubernatorial campaigns. He also made Enron's fleet=
of corporate jets available to Mr. Bush and won his help in lobbying offic=
ials in other states considering Enron projects.=20
His influence with then-Gov. Bush was based on more than money. Mr. Lay was=
one of the state's leading business executives and deeply involved in Texa=
s politics. Under Mr. Bush's predecessor, Democrat Ann Richards, Mr. Lay he=
aded the Governor's Business Council, a state advisory board. Mr. Bush aske=
d him to stay on the job to help develop an educational reform plan and sel=
l it to the Texas Legislature.=20
In that capacity, Mr. Lay became close to several Bush aides, including pol=
itical guru Karl Rove and communications adviser Karen Hughes, who have tak=
en positions at the White House. He also got to know another leading Texas =
businessman: Dick Cheney, then CEO of Dallas oil concern Halliburton Co., w=
ho would become Mr. Bush's pick for vice president.=20
Against this backdrop, Mr. Lay was widely considered a top candidate for Tr=
easury Secretary in the younger Bush's administration. Ultimately though, h=
e was disqualified, Bush insiders say, as too closely identified with Mr. B=
ush, Mr. Cheney and others who worked in the Texas energy business for an a=
dministration that wanted to show it wasn't in the pocket of big oil compan=
ies.=20
Early on, Mr. Lay had unrivaled access to the administration. When the pres=
ident's advisers debated a new energy policy in the spring, Mr. Lay was the=
only energy executive to be invited for a one-on-one session with Mr. Chen=
ey, who led the effort. Mr. Lay also worked with Mr. Rove and others to suc=
cessfully push for appointments to the Federal Energy Regulatory Commission=
, which oversees much of Enron's business.=20
As Enron's problems multiplied and its fortunes plummeted, however, the Whi=
te House was silent. During a several-hour long interview in the spring, Mr=
. Lay mused that his Bush connections could boomerang someday. "It could hu=
rt, from the standpoint that, at some point, they lean in the other directi=
on to make sure they don't face criticism," he said.

Fall of a Power Giant: Chairman's Deep Political Connections Run Silent
By Bob Davis
Staff Reporter of The Wall Street Journal

11/29/2001
The Wall Street Journal
A10
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Abreast of the Market
Dynegy and ChevronTexaco Slide Along With Plunge in Enron Stock
By Robert O'Brien
Dow Jones Newswires

11/29/2001
The Wall Street Journal
C2
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -- The collapse of Enron dominated stock trading yesterday, as a h=
ost of the power generators and energy merchants exposed to the firm tumble=
d.=20
Shares of Dynegy, the suitor for Enron that pulled out of a deal after debt=
-rating agencies lowered their ratings on Enron's bonds, fell 4.92, or 12%,=
to 35.97. ChevronTexaco, which owns 26% of Dynegy, slid 1.07, or 1.2%, to =
84.55.
Shares of Enron itself were ground down more than 85%. The loss of $3.50 br=
ought the closing price of each Enron share down to 61 cents. This from a s=
tock that, as recently as August 2000, commanded more than $90 a share.=20
A host of other energy merchants, such as El Paso, which lost 3.59, or 7.4%=
, to 44.91, Williams, which shed 1.80, or 6.2%, to 27.05, and American Elec=
tric Power, which fell 2.03, or 4.8%, to 40.44, all got caught in the backl=
ash against the energy market.=20
The Dow Jones Utility Average finished the session down 8.48 points, a drop=
of 2.94%, to 279.95, which brought it down to a 52-week low.=20
Shares of two giant financial-services providers also got caught by their e=
xposure to Enron, and paid the price. Shares of Citigroup fell 2.75, or 5.4=
%, to 47.80, while J.P. Morgan Chase slid 2.30, or 5.8%, to 37.50.=20
With those two components in decline, the Dow Jones Industrial Average fini=
shed the session 160.74 points lower, a loss of 1.63%, to 9711.86. The Nasd=
aq composite slid 2.48%, or 48 points, to 1887.97.=20
The Dow industrial average's finish at 9711.86 represented the lowest close=
the average has posted in more than two weeks, since ending at 9554.37. Tr=
aders insisted that the speed and apparent ease with which market averages =
have managed to lard on gains over the past several weeks has stretched val=
uations, and left equities vulnerable to events, like the Enron sell-off, t=
hat a sturdier market might have more handily absorbed.=20
"One of the most important overriding factors has been the performance of t=
he market itself," Arthur Hogan, chief market analyst at Jefferies, said. "=
The market has moved straight up seven weeks in a row, and when it moves up=
in a straight line like that, it doesn't take much in the way of a catalys=
t to tip it over."=20
Whether it was excuse-making or profit-taking, the market did have to absor=
b some fundamental challenges in the session, including an especially pessi=
mistic assessment of economic conditions from the Federal Reserve. The cent=
ral bank released its Beige Book report on economic conditions, which showe=
d, overall, the economy tilted more toward further slowing than it did towa=
rd recovery.=20
That helped further puncture shares of some of the retailers that got wayla=
id in Tuesday's trading by a bearish consumer sentiment reading. Shares of =
Gap, stung by a reduction in its investment rating by Prudential Securities=
, lost 79 cents, or 5.5%, to 13.61. Shares of another apparel retailer, Ame=
rican Eagle Outfitters, lost 1.3, or 5.9%, to 24.40, while Talbots dropped =
1.25, or 3.6%, to 33, and discounter Kohl's fell 84 cents, or 1.2%, to 67.8=
6.=20
Meanwhile, some of the classic cyclical stocks that have had good runs over=
the past several weeks as investors bet on an eventual economic recovery g=
ave ground. Shares of Boeing fell 1.33, or 3.7%, to 34.17, after J.P. Morga=
n reduced its earnings forecasts for 2002 and 2003. Whirlpool lost 1.12, or=
1.7%, to 64.98. Auto-parts maker Eaton declined 1, or 1.4%, to 69.60. Gene=
ral Electric, also subject to some downbeat comments from J.P. Morgan, fell=
1.72, or 39.35.=20
Continental Airlines lost 2.40, or 10%, to 21.70. The air carrier completed=
a public offering of 6.74 million shares of stock priced at $22.50, a disc=
ount to Tuesday's closing price of 24.10.=20
Coca-Cola declined 1.06, or 2.2%, to 46.75. J.P. Morgan said it expects slo=
wer volume growth ahead for the beverage maker's bottlers. Shares of Coca-C=
ola Enterprises, Coke's biggest bottler, eased 40 cents, or 2.3%, to 17.=20
Magna International rose 1.54, or 2.6%, to 61.51. Salomon Smith Barney star=
ted coverage of the Canadian auto-components maker with a buy rating.=20
Medtronic gained 1.74, or 4%, to 45.78. The Minneapolis medical-device make=
r reported fiscal second-quarter results that matched Wall Street's project=
ions, and said it expected to live up to third-quarter forecasts.=20
Foot Locker eased 19 cents, or 1.2%, to 15.70, after mixed views from rival=
brokers. RBC Capital Markets started coverage of the stock with a strong b=
uy rating, but Jefferies reduced its coverage of the stock to accumulate fr=
om buy.

Foreign Exchange
Dollar Declines Against Yen and Euro Amid Growing Doubts on U.S. Economy
By Grainne McCarthy
Dow Jones Newswires

11/29/2001
The Wall Street Journal
C14
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -- Growing doubts about the U.S. economy's ability to rebound quic=
kly from recession weighed heavily on the dollar, pushing the currency down=
almost a full yen and helping the euro regain some lost ground.=20
Weakness in U.S. stocks -- due partly to news that Dynegy Inc. decided to w=
alk away from its deal to buy Enron Corp. -- also put pressure on the dolla=
r, while Enron's debt woes added to general skittishness about the ability =
of U.S. business to bounce back quickly.
"We know there are companies out there in trouble," said Lara Rhame, econom=
ist at Brown Brothers Harriman in New York, who said that while the Enron d=
evelopments weren't having a direct impact on foreign-exchange markets, suc=
h reports do "limit the kind of superdollar that we saw back in 1999."=20
The dollar selloff kicked off in Asian trading, when dealers used a Standar=
d & Poor's downgrade of Japan's sovereign rating as an excuse to buy the ye=
n. The downgrade to double-A from double-A-plus was better than the market'=
s expectations of a two-notch downgrade, rendering it good news of sorts.=
=20
The selling continued in New York trading, as traders continued to price in=
the possibility that they may have been far too optimistic about the dolla=
r.=20
The two-pronged catalyst for this change of heart was the weak November con=
sumer confidence index released Tuesday, and subsequent gloomy comments fro=
m Federal Reserve Governor Laurence Meyer pointing to more downside risks t=
o the economy. The release of the Federal Reserve's beige book report yeste=
rday served only to flame this pessimism.=20
The Fed said that further slowing outweighed signs of recovery for the U.S.=
economy this autumn, noting that economic activity generally remained soft=
in October and the first half of November.=20
"People wanted greater signs of recovery than they got from the Fed," said =
Alan Ruskin, research director at the 4Cast financial consultancy in New Yo=
rk.=20
The beige book, a summary of economic activity prepared for use at the cent=
ral bank's next Federal Open Market Committee meeting Dec. 11, is widely vi=
ewed as an indicator of future monetary policy decisions and the report hel=
ped to solidify expectations of a rate cut of at least a quarter percentage=
point.=20
Late yesterday in New York, the euro was at 88.84 U.S. cents, its high for =
the session and up from 88.34 cents late Tuesday in New York. The dollar wa=
s at 123.11 yen -- around its intraday low -- and almost a full yen down fr=
om 123.96 yen late Tuesday in New York. The dollar was also at 1.6460 Swiss=
francs, down from 1.6484 francs in London and 1.6560 francs Tuesday. Sterl=
ing was at $1.4261, up from $1.4185 earlier in London and $1.4153 late Tues=
day.=20
Elsewhere, the Canadian dollar climbed to its highest levels in almost a mo=
nth, confounding the view that bad news for the U.S. is bad news for Canada=
.=20
The Canadian currency has tended to suffer from an association with the U.S=
., given that 85% of Canada's exports head south of the border. However, a =
0.50-percentage-point rate cut by the Bank of Canada on Tuesday was quickly=
followed by the gloomy consumer confidence report in the U.S., which under=
cut faith in the dollar and appeared to give the Canadian unit just the opp=
ortunity it was seeking.=20
Late in the New York day, the U.S. dollar was at C$1.5842, down from C$1.59=
39 late Tuesday.

Options Report
Dynegy's Move to Disconnect Enron Merger Powers Volatility Spike as Investo=
rs Seek Cover
By Kopin Tan
Dow Jones Newswires

11/29/2001
The Wall Street Journal
C14
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -- Anxiety crept back into the options market, as investors watche=
d the major stock indexes slip and Enron's already-decimated stock slide be=
low $1 in record trading volume.=20
The Chicago Board Options Exchange's market-volatility index, or VIX, rose =
2.54 to 27.75. The 10.1% increase marks the largest one-day percentage jump=
for the options fear gauge's since Oct. 12, a long spell during which vola=
tility had subsided while stocks rallied.
Strike prices on Enron options had tumbled to once-unimaginable levels as t=
he energy company's woes mounted and its stock skidded. Yesterday, as Dyneg=
y called off its proposed acquisition, volatility of Enron options spiked t=
o well over 300%, mirroring the instability of the underlying stock. Many i=
nvestors scrambled to sell calls -- either to unwind prior positions or to =
pocket any income they could -- while others bought puts for downside prote=
ction. Calls and puts are options to buy or sell a security at a specific p=
rice, usually within a limited period.=20
Dynegy's implied volatility also jumped, as its stock fell $4.92, or 12%, t=
o $35.97. The near-month calls traded more heavily than the puts, likely be=
cause the high premiums made it costly for investors looking to buy puts. S=
ome investors sold out-of-the-money calls to take advantage of the volatili=
ty level. At the CBOE, Dynegy's out-of-the-money December 40 calls fell $2.=
25 to $1.35 on volume of 6,581 contracts, while 3,241 contracts traded at t=
he American Stock Exchange.=20
As investors sought downside protection, the ratio of equity puts traded to=
calls at the CBOE continued to rise, from 0.53 Monday to 0.66 Tuesday to 0=
.7 yesterday, the highest reading this month.=20
In recent months, investors have treated market pullbacks as opportunities =
to hunt for bargains; in fact, such "buying on the dip" has helped propel s=
tock prices. With stocks up substantially from their September lows, invest=
ors still are browsing but are seeking added insurance, with many buying de=
fensive puts to lock in a minimum selling price for the stock.=20
Sprint's January 25 puts traded more than 13,000 contracts at the Amex as a=
n investor bought stock along with those puts. Specifically, the investor b=
ought about 5,000 contracts of the puts, then bought a put spread by buying=
8,000 contracts of January 25 puts that expire 2002 and selling the same n=
umber of January 25 puts that expire 2003.=20
Shares of Sprint's PCS unit fell $1.14 to $25.90. At the Amex, the January =
25 puts were at $1.15 on volume of 13,005 contracts, compared with open int=
erest of 2,799. The January 25 puts that expire in 2003 were at $4.40 on vo=
lume of 8,005 contracts, compared with open interest of 8,826.

Enron Asks Staff to Drop 401(k) Suits for Severance

11/29/2001
The Wall Street Journal
C13
(Copyright (c) 2001, Dow Jones & Company, Inc.)

HOUSTON -- Enron Corp., the subject of four lawsuits filed over losses in i=
ts employees' 401(k) retirement plan, is asking laid-off workers to waive l=
egal claims against it in exchange for some of their severance payments.=20
Attorneys for some of the employees sought to block that requirement. Plain=
tiffs are seeking an "immediate preliminary injunction prohibiting Enron fr=
om soliciting any releases which would affect the participants' rights vis =
a vis the plan," according to an amended complaint filed by Seattle firm Ca=
mpbell Harrison & Wright.
The complaint, filed in federal district court in Houston, asks the court "=
to appoint a neutral fiduciary to manage the plan." The suit claims Enron i=
s laying off as much as 60% of its staff in some departments.=20
An Enron attorney, in a statement, said laid-off employees aren't required =
to sign the waiver to get severance pay, but will get "additional severance=
in exchange" for signing. She said Enron hadn't modified the waiver "in re=
sponse to the current economic circumstances of the company," but added tha=
t Enron "continues to evaluate its options regarding the severance-pay plan=
."

Nvidia to Replace Enron in S&P

11/29/2001
The Wall Street Journal
C13
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -- Standard & Poor's said Nvidia Corp., a Santa Clara, Calif., gra=
phic-chip maker, will replace Enron Corp. in the S&P 500-Stock Index after =
today's regular trading. S&P said Enron, the Houston energy concern whose m=
erger with Dynegy Inc. unraveled yesterday, is being removed for lack of re=
presentation.

Business/Financial Desk; Section A
ENRON'S COLLAPSE: THE OVERVIEW
ENRON COLLAPSES AS SUITOR CANCELS PLANS FOR MERGER
By RICHARD A. OPPEL Jr. and ANDREW ROSS SORKIN

11/29/2001
The New York Times
Page 1, Column 1
c. 2001 New York Times Company

Enron, the champion of energy deregulation that grew into one of the nation=
's 10 largest companies, collapsed yesterday, after a rival backed out of a=
deal to buy it and many big trading partners stopped doing business with i=
t.=20
Enron, based in Houston, was widely expected to seek bankruptcy protection.=
With $62 billion in assets as of Sept. 30, it would be the biggest America=
n company ever to go bankrupt, dwarfing the filing by Texaco in 1987. Late =
in the day, though, Enron's chief financial officer, Jeff McMahon, said tha=
t the company was still talking to banks about a restructuring and consider=
ing other options.
Talks with its would-be rescuer Dynegy, also of Houston, about salvaging th=
e deal ended in acrimony.=20
Dynegy, which had agreed on Nov. 9 to buy Enron but had second thoughts as =
Enron disclosed more financial problems and investors pummeled its stock, a=
ccused Enron of misrepresenting the health of its business. Enron, meanwhil=
e, was weighing whether to sue Dynegy for breaching the terms of the deal, =
a person close to Enron said.=20
Enron's swift collapse left the prospects of 21,000 employees in doubt and =
wiped out what was left of the holdings of stock investors, including some =
big mutual funds, as shares that sold for $90 in August 2000 crashed to clo=
se yesterday at 61 cents. It roiled the Treasury market and tarnished the s=
tanding of the big New York banks that both advised on the deal and poured =
their own cash into the company. And it left in tatters the reputation of E=
nron's chief executive, Kenneth L. Lay, a confidant and campaign backer of =
President George W. Bush. [Page C1.]=20
The Treasury Department, the Federal Reserve and the Federal Energy Regulat=
ory Commission said they had monitored Enron's impact on the financial and =
energy markets yesterday; officials who would comment said they saw no dang=
erous ripple effect.=20
''The markets are functioning normally,'' said Peter Bakstansky, a spokesma=
n for the Federal Reserve Bank of New York.=20
From a pipeline company in the 1980's, Enron grew into the world's largest =
energy trader, using the Internet to buy and sell natural gas and electric =
power supplies for utilities and industrial power users and helping them he=
dge against fluctuations in power prices.=20
But Enron was undone by shaky accounting, too much borrowed money and an un=
willingness to provide information to investors who grew to doubt its finan=
cial reports.=20
Five weeks ago, the company disclosed that, to fuel its growth, it had shif=
ted billions of dollars in debt off its balance sheet and into an array of =
complex partnerships. The Securities and Exchange Commission began an inves=
tigation, and Enron restated five years of earnings, wiping out nearly $600=
million in profit.=20
Enron was teetering close to insolvency before Dynegy, a smaller cross-town=
rival, agreed to acquire it for $9 billion plus the assumption of $13 bill=
ion in debt, with additional financing from ChevronTexaco, a major Dynegy s=
hareholder.=20
But Enron subsequently disclosed even more debts, and its financial plight =
continued to worsen. Energy-trading companies reduced dealings with the fir=
m; doubting its creditworthiness, some forced Enron to pay higher prices fo=
r natural gas and other products or required it to post large cash deposits=
to back trades.=20
For four days, Enron and Dynegy worked to salvage the deal. But yesterday m=
orning, Dynegy pulled out. ''We knew when to say no, and this morning, we s=
aid no,'' said Chuck Watson, Dynegy's chairman.=20
In an interview, Mr. Watson said Enron's energy-trading business had deteri=
orated. He also cited ''surprises'' in the quarterly report to the S.E.C. t=
hat Enron filed on Nov. 19, including the disclosures that a credit downgra=
de meant Enron had to pay or refinance a $690 million obligation and that E=
nron had less cash on hand than Dynegy had expected. ''Confidence and credi=
bility, which is what this business is all about, deteriorated after that,'=
' he said.=20
Mr. Watson said he called Mr. Lay yesterday after a meeting of Dynegy's boa=
rd to call off the deal. By then, S.& P. had downgraded Enron's debt to jun=
k status, accelerating up to $3.9 billion in debt payments.=20
But last night, Mr. McMahon, Enron's chief financial officer, took strong i=
ssue with the notion that Dynegy could have been surprised by Enron's finan=
cial report.=20
''I believe Dynegy was aware of everything that was encapsulated in that,''=
Mr. McMahon said, explaining that Dynegy had been given advance copies of =
the filing.=20
The companies even disagreed about whether they had reached agreement on a =
renegotiated deal that would have cut Dynegy's purchase price and pumped hu=
ndreds of millions dollars more into Enron.=20
''There was never a global settlement that all parties agreed to,'' Mr. Wat=
son said.=20
Mr. McMahon had a very different view. ''It's fair to say that we thought w=
e had a deal several times,'' he said, ''and the goal posts definitely kept=
moving on us.''=20
As for Enron's future, Mr. McMahon said: ''We are looking at every option u=
nder the sun, as you can imagine.'' Those options include the Chapter 11 fi=
ling for bankruptcy reorganization that analysts and competitors widely exp=
ected. He said that a Chapter 7 filing -- in short, the liquidation of the =
company -- ''is not an option we are pursuing.''=20
An executive close to Enron said it had not yet done the advance work neede=
d to seek protection in bankruptcy court. ''It's a last resort, but not a l=
ast-minute kind of thing,'' this executive said. ''If you go in and file fo=
r Chapter 11 like this without having everything done, it's like walking in=
a bank lobby and throwing a dozen eggs on the floor.''=20
A bankruptcy filing would give the company some breathing room to deal with=
creditors' claims, but it would be complicated, and many creditors -- incl=
uding stockholders -- would be likely to come away empty handed. Enron has =
relatively few hard assets, and those it has -- including an extensive netw=
ork of natural gas pipelines -- are already pledged to lenders.=20
In any case, by the end of the day Enron was a shadow of the colossus that =
politicians blamed for California's energy crisis and analysts promoted as =
an innovator that epitomized the free-market swashbuckling that the Interne=
t could unleash.=20
Yesterday morning, Enron shut down its Internet-based trading platform, Enr=
onOnline, its screens going blank. Other major energy traders announced tha=
t they would trade with Enron only in cash -- effectively meaning that virt=
ually all trading with the company had stopped, they said.=20
Late yesterday, Mr. McMahon said that Enron was doing some trading by phone=
, but he declined to say how much or whether EnronOnline would be reopened =
today.=20
Yesterday, shares of Enron, which peaked last summer at $90, fell to 61 cen=
ts, down 85 percent for the day; Dynegy shares fell $4.08, or 10 percent, t=
o close at $36.81.=20
Other big energy traders, like the El Paso Corporation, Reliant Energy, Mir=
ant and Aquila, also fell. But Enron's gradual decline over the last month =
gave many energy companies time to reduce their exposure to Enron, and many=
operate rival trading operations that would benefit from its collapse.=20
Yesterday morning, as news leaked out of Dynegy's plans to cancel the deal =
and S.& P. announced its downgrade of Enron's credit, prices for natural ga=
s futures traded on the New York Mercantile Exchange soared more than 10 pe=
rcent. But they quickly reversed, plunging about 15 percent from the highs =
reached before noon. Traders said volume fell off sharply as word of Enron'=
s problems spread.=20
Mr. McMahon said Enron was working with J. P. Morgan Chase and Citigroup, i=
ts lead banks, to restructure the company's debts. ''We are optimistic we c=
an get a restructuring,'' he said. Earlier in the day, Enron said that it h=
ad begun a ''temporary suspension of all payments other than those necessar=
y to maintain core operations,'' but Mr. McMahon declined to comment on wha=
t bills Enron was paying.=20
The two banks had hoped that by helping arrange Enron's rescue they could p=
rove the merits of their strategy of providing both loans and advice in the=
merger business. Now, not only have the banks lost bragging rights for pul=
ling off a difficult deal, as well as millions in fees, they are also left =
holding hundreds of millions in loans to Enron, analysts said.=20
Dynegy may come out better. Under terms of the initial merger deal, the $1.=
5 billion it injected into Enron earlier in the month gave it preferred sto=
ck in Enron's Northern Natural Gas pipeline that can be converted into owne=
rship of the pipeline. Dynegy said yesterday that it would exercise its opt=
ion to acquire the pipeline. Enron said it was reviewing the ''assertion'' =
by Dynegy that it could claim the pipeline.=20
The person close to Enron said that Dynegy might have been seeking control =
of the pipeline all along. ''You've got to wonder if they ever wanted to go=
through with this agreement from the get-go,'' he said of Dynegy. ''Certai=
nly, this was a way to take probably the world's largest energy player out =
of the market.''=20
Mr. Watson said that Enron had never leveled that charge at Dynegy in the c=
ourse of their talks.=20
Enron executives believed they had successfully revised the deal with Dyneg=
y on Monday afternoon.=20
Mr. Lay was in a private plane preparing to fly out of Teterboro Airport in=
suburban New Jersey. He had just signed new merger documents and was hopin=
g to announce a deal on Tuesday in Houston, executives close to the talks s=
aid.=20
But Mr. Watson, who had just returned from a trip, had become deeply involv=
ed in the talks earlier that day and kept raising the ante, one executive c=
lose to Enron said. ''All the parties were flipping out because Chuck was c=
hanging the terms by the hour,'' this executive said.=20
As Mr. Lay's plane was taxiing for takeoff, the executives said, a call cam=
e in from Mr. Watson asking to change the terms once again. That, they said=
, was when it became clear that the deal might unravel.=20
In the end, Enron's uncertain finances and evidence that its customers were=
fleeing sealed Dynegy's decision. ''Sometimes,'' Mr. Watson said, ''a comp=
any's best deals are the very ones they did not do.''

Photo: The rise of Enron was almost as swift as its downfall. From a pipeli=
ne company based in Houston in the 1980's, it grew into the world's largest=
energy trader. Business is monitored at the Enron trading room. (Frontline=
/WGBH)(pg. C6) Chart: ''The Rise and Fall of Enron'' Taking advantage of de=
regulation of the power industry, Enron quickly built itself into the leadi=
ng energy trading company in the country. But it turned out that some of it=
s growth was not real, and things quickly unraveled over the last two month=
s. JUNE 24, 1997: Enron agrees to buy Portland General Electric, the utilit=
y serving Portland, Ore. AUGUST 1997: Enron does its first commodity trade =
using weather derivatives. APRIL 1998: California deregulates its power mar=
ket. JULY 24, 1998: Enron buys Wessex Water of Britain. It becomes the buil=
ding block of a water subsidiary called Azurix. JUNE 10, 1999: Enron sells =
one-third of Azurix to the public. NOVEMBER 1999: Enron starts EnronOnline,=
its Web-based commodity trading site. AUGUST 2000: California energy short=
age causes sporadic blackouts; prices soar. DEC. 15 2000: Four months after=
the chief executive of Azurix resigns, Enron takes the company private aga=
in. AUG. 14, 2001: Only six months after becoming chief executive, Jeffrey =
K. Skilling resigns. He is succeeded by Kenneth L. Lay. OCT. 8: Four years =
after buying Portland General Electric, Enron agrees to sell it to Northwes=
t Natural Gas OCT. 16: Enron reports a third-quarter loss of $618 million. =
OCT. 24: Two days after Enron discloses that the Securities and Exchange Co=
mmission is looking into complicated transactions involving Enron and partn=
erships set up by Andrew S. Fastow, the company's chief financial officer, =
Mr. Fastow is forced out. OCT. 31: The S.E.C. upgrades its inquiry to a for=
mal investigation. NOV. 8: Enron discloses that it overstated profits for t=
he previous five years by $586 million. NOV. 9: Dynegy agrees to buy Enron =
for about $9 billion. YESTERDAY: The merger collapses. Enron's stock falls =
$3.50 to 61 cents. (Source: Bloomberg Financial Markets)(pg. C6)=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE LAST RESORT
A Bankruptcy Filing Might Be the Best Remaining Choice
By JONATHAN D. GLATER

11/29/2001
The New York Times
Page 6, Column 1
c. 2001 New York Times Company

Enron, facing the collapse of a deal with Dynegy that might have rescued it=
from disaster and a tidal wave of debts suddenly coming due, may now have =
little choice but to enter bankruptcy, lawyers and analysts said yesterday.=
=20
Filing for protection under Chapter 11 of the Federal Bankruptcy Code would=
give the company some much-needed breathing room to deal with creditors' c=
laims, as well as afford any eventual buyer the advantage of a court's appr=
oval.
But bankruptcy would also be complicated by the fact that some of Enron's m=
ost valuable assets, including its Transwestern Pipeline linking Texas natu=
ral gas fields with California energy markets, are already pledged to lende=
rs. The value of other assets available to satisfy unsecured creditors is u=
nclear.=20
Still, Enron's creditors will not necessarily lose everything, said Robert =
J. Rosenberg, a lawyer at Latham & Watkins, which is expected to represent =
some of the creditors in any Enron bankruptcy. ''It depends on whether ther=
e is a good ongoing business'' that could make payments in the future, he s=
aid.=20
Once they decide bankruptcy is unavoidable, lawyers said, one of the first =
critical issues Enron executives face will be where to file for Chapter 11 =
protection. Enron has its headquarters in Houston and receives significant =
attention from news media in Texas, but it is incorporated in Oregon and fi=
ling there might lead some creditors to decide that participating in bankru=
ptcy proceedings there would be too costly.=20
Delaware might be a preferred location. The courts there are very experienc=
ed in handling large bankruptcies and are known to be relatively friendly t=
o debtors, said Jay Westbrook, a professor at the University of Texas Schoo=
l of Law in Austin. ''On the other hand,'' he said, ''I am told that recent=
ly Delaware has gotten so busy that they have been sending cases back where=
they should be.''=20
Enron could file in Delaware if a subsidiary were incorporated there, he sa=
id.=20
Secured creditors would be paid first. If the assets backing the loan have =
been valued accurately, those creditors would be paid in full. Unsecured cr=
editors are likely to receive only a fraction of the value of their outstan=
ding loans. If anything is left, it would go to stockholders, lawyers said.=
=20
Enron would have to line up lenders fairly quickly to pay for its continuin=
g operations, several lawyers said. One lawyer who has worked with the comp=
any in the past estimates that it would need a $1 billion credit line to co=
ntinue to operate its energy-trading business.=20
Continuing to operate would be important if the goal is to sell the busines=
s as a whole -- perhaps to Dynegy -- in a court-supervised auction. The alt=
ernative would be to sell the company's various assets and operations in pi=
eces, Professor Westbrook said.=20
Entering bankruptcy would be bad news for shareholders who have filed lawsu=
its accusing Enron of violating securities laws; any awards would not be pa=
id until after creditors were satisfied. And like Enron's other shareholder=
s, they might end up with nothing, said Robert D. Albergotti, a partner at =
Haynes & Boone, a Dallas law firm.=20
If Enron files for bankruptcy, this is not likely to prevent litigation aga=
inst Arthur Andersen, the company's outside auditor, said Jeffrey N. Gordon=
of Columbia University Law School. Indeed, bankruptcy proceedings could gi=
ve both the company and investors an opportunity to figure out exactly how =
its profits came to be overstated and to look for potential fraud.=20
A special committee of Enron's board has already retained Deloitte & Touche=
, another big accounting firm, to help.=20
''It's going to be a while before they figure it all out,'' Professor Gordo=
n said.

Chart: ''Big Losers'' As of Sept. 30, Enron's top 10 shareholders were all =
big money managers. Alliance Capital SHARES HELD (IN MILLIONS): 43.0 PERCEN=
TAGE OF OUTSTANDING SHARES: 5.78% Janus Capital SHARES HELD (IN MILLIONS): =
41.4 PERCENTAGE OF OUTSTANDING SHARES: 5.56 Putnam Investment SHARES HELD (=
IN MILLIONS): 23.1 PERCENTAGE OF OUTSTANDING SHARES: 3.11 Barclays Bank SHA=
RES HELD (IN MILLIONS): 23.0 PERCENTAGE OF OUTSTANDING SHARES: 3.10 Fidelit=
y Investments SHARES HELD (IN MILLIONS): 20.8 PERCENTAGE OF OUTSTANDING SHA=
RES: 2.80 Citigroup SHARES HELD (IN MILLIONS): 20.8 PERCENTAGE OF OUTSTANDI=
NG SHARES: 2.79 State Street SHARES HELD (IN MILLIONS): 16.1 PERCENTAGE OF =
OUTSTANDING SHARES: 2.17 AIM Management SHARES HELD (IN MILLIONS): 14.0 PER=
CENTAGE OF OUTSTANDING SHARES: 1.88 Taunus SHARES HELD (IN MILLIONS): 12.5 =
PERCENTAGE OF OUTSTANDING SHARES: 1.68 Vanguard SHARES HELD (IN MILLIONS): =
11.4 PERCENTAGE OF OUTSTANDING SHARES: 1.54 (Source: Bloomberg Financial Ma=
rkets)=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Editorial Desk; Section A
An Implosion on Wall Street

11/29/2001
The New York Times
Page 34, Column 1
c. 2001 New York Times Company

Enron, the energy-trading company, may be on the verge of extinction with t=
he collapse yesterday of its proposed acquisition by Dynegy, a smaller comp=
etitor, and the downgrading of its debt to junk status. But its name has at=
tained immortality on Wall Street.=20
Enron is now shorthand for the perfect financial storm. Take a high-flying =
company terribly impressed with its sense of unique mission and ingenuity, =
and correspondingly contemptuous of its obligations to fully comply with th=
e spirit of accounting rules. Then add fawning investors, Wall Street analy=
sts, journalists and accountants unwilling to allow a company's lack of tra=
nsparency about its business to get in the way of a dizzying ride, until th=
ey realize the destination is the top of a steep cliff. What you have then =
is an Enron.
There have been plenty of other once-unfathomable implosions on Wall Street=
, but perhaps none so sudden or of such magnitude. Jittery financial market=
s now have to contend with the possibility that an Enron bankruptcy could u=
ndermine the financial health of banks and other energy companies. Enron ra=
nked seventh on the list of Fortune 500 companies last year, and remained o=
ne of the most hyped stories on Wall Street well into this year. A pioneer =
in creating private marketplaces for newly deregulated commodities, Enron w=
as touted as a revolutionary force, bridging the dot-com world and stodgy e=
nergy markets.=20
Now Enron may become one of the largest bankruptcy cases in history. Its st=
ock closed yesterday at 61 cents, as investors rushed for the exits in reac=
tion to the fatal news that, without a bailout from Dynegy, Enron is unlike=
ly to be able to meet its crushing debt obligations.=20
The company's autopsy will be a complicated affair, entailing numerous laws=
uits. What is already clear, and will come as a shock to millions of trusti=
ng individual investors across America, is that the financials of a Fortune=
500 company were essentially a mystery. Enron's death watch began last mon=
th when it grudgingly disclosed that $1.2 billion of its market value had v=
anished as a result of ''related-party'' transactions with private partners=
hips that enriched company insiders. Then Enron admitted that it had overst=
ated its profits over the last five years by $600 million. Dynegy cited Enr=
on's lack of forthrightness as a reason to walk away from the merger agreem=
ent.=20
Not very long ago, competitors and Democrats in Washington were worrying wh=
ether the close ties between Enron's chairman, Kenneth Lay, and George W. B=
ush would give the company too much influence. Enron has aggressively lobbi=
ed, with some success in recent years, to limit regulation and disclosure o=
f its trading operations.=20
Now Enron is the best argument for the need for stronger supervision of pub=
lic companies' financial data. The Securities and Exchange Commission shoul=
d make sure that the energy trader's saga puts an end to any talk of lessen=
ing disclosure requirements faced by public companies. Moreover, Arthur And=
ersen's failure to uncover flawed accounting by Enron, or to forcefully que=
stion some of the company's shadier transactions, raises serious concerns a=
bout auditors' commitment to be sufficiently diligent in reviewing the acti=
ons of major companies.=20
There is a certain irony that Enron, a champion of deregulation, now become=
s a poster child for the need for strong regulation on Wall Street.

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE LENDERS
Citigroup and J.P. Morgan Are Left With Bruised Egos and Exposure to Loans
By RIVA D. ATLAS

11/29/2001
The New York Times
Page 6, Column 2
c. 2001 New York Times Company

Dynegy's decision to walk away from Enron leaves Citigroup and J. P. Morgan=
Chase licking their wounds after an effort to burnish their reputations as=
deal makers.=20
As lead advisers and lead bankers for Enron, the banks had the chance to bu=
ild influence in the merger business. Unlike other Wall Street firms, Citig=
roup and J. P. Morgan have large balance sheets and have boasted of their a=
bility to provide both loans and advice. J. P. Morgan, in particular, ''has=
been saying that providing financing is an advantage they have in terms of=
building their investment banking franchise,'' said Richard Strauss, a Gol=
dman, Sachs analyst following brokerage firms.
Now, not only have the banks lost bragging rights for pulling off a difficu=
lt deal, as well as millions in fees, they are also left holding hundreds o=
f millions in loans to Enron, which is trying to stave off bankruptcy. Enro=
n owes the two banks anywhere from $800 million to $900 million each, altho=
ugh some of it may be hedged through derivatives contracts, analysts estima=
ted.=20
In bankruptcy, of course, creditors come well ahead of shareholders, who ha=
ve now been virtually wiped out. Janus Capital was the biggest shareholder =
for most of the year, but Alliance Capital surpassed it as of Sept. 30, acc=
ording to the latest regulatory filing available. Enron's stock plunged to =
61 cents yesterday.=20
Worries about the money Enron owes the banks punished their stocks yesterda=
y. Citigroup's shares closed at $47.80 each, down $2.75, while J. P. Morgan=
fell $2.30, to $37.50.=20
Even if Enron files for bankruptcy, neither J. P. Morgan nor Citigroup is t=
hought to have enough exposure to be at serious risk. Executives of the ban=
ks declined to comment on the estimates of their exposure. While the banks =
had each promised to make equity investments in the companies of $250 milli=
on each, those investments have been canceled along with the Dynegy deal.=
=20
About half of the money owed to J. P. Morgan and Citigroup consists of a $1=
billion loan the banks made earlier this month that is secured by one of E=
nron's pipelines. Citigroup lent $600 million, and J. P. Morgan provided th=
e rest, according to an executive close to the Enron negotiations. The rema=
inder owed to the banks is in various loans, trading positions and other in=
vestments not secured by Enron assets.=20
Given that there are assets backing much of the banks' loans, some analysts=
said the stock market had overreacted. ''The net exposure could be very sm=
all,'' said Andrew Collins, who covers bank stocks at U.S. Bancorp Piper Ja=
ffray and is recommending Citigroup and J. P. Morgan.=20
Jeffrey McMahon, Enron's chief financial officer, said the company was stil=
l working with J. P. Morgan Chase and Citigroup to restructure Enron's debt=
s.=20
Several other banks may own large amounts of Enron debt. Bank of America ha=
s $200 million to $300 million, according to estimates by Lori Appelbaum, w=
ho follows bank stocks for Goldman, Sachs, and Ruchi Madan, a stock analyst=
at Salomon Smith Barney. Other banks identified by the analysts as owed mo=
ney are the Bank of New York, Bank One, FleetBoston Financial, SunTrust and=
the Wachovia Corporation. A spokesman for SunTrust did not return calls; e=
xecutives at the other banks declined to comment.=20
In what appears to have been bad timing, Alliance Capital Management, a sub=
sidiary of AXA, increased its stake in Enron late this summer. Janus, a uni=
t of Stilwell Financial, had been the biggest shareholder, but was pruning =
its stake. Alliance's position grew 71 percent in the report filed in Septe=
mber, to 5.8 percent of Enron's outstanding. Jane Ingalls, a spokeswoman fo=
r Janus, said last night that Janus had since sold all its shares, but did =
not say when or at what price. A spokesman for Alliance would not comment a=
bout its stake in Enron.

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE MARKET
In Turbulent Bond Market, Enron's Woes Exacerbate Turmoil
By GRETCHEN MORGENSON

11/29/2001
The New York Times
Page 1, Column 2
c. 2001 New York Times Company

The swift downfall of Enron has contributed to extreme turbulence in the Un=
ited States Treasury market in recent weeks, causing violent swings in inte=
rest rates not seen since Russia defaulted on its debt and the Long-Term Ca=
pital Management hedge fund nearly collapsed in late 1998.=20
Even though the exact makeup of Enron's large trading portfolio remains a m=
ystery, traders said that the energy company had bet that interest rates wo=
uld continue to decline because of continuing weakness in the economy.
Then two weeks ago, the economy began to show signs of revival. As investor=
s decided that the days of Federal Reserve rate cuts were over, rates began=
to rise and prices on Treasury securities fell. The move out of Treasuries=
crushed traders who still expected the weak economy to push interest rates=
lower. Scrambling to cut their losses, those traders sold even more, depre=
ssing prices and pushing up rates further.=20
The sense among many market participants is that Enron's woes made a bad ma=
rket excruciating. ''I think the Street in general lost half of its year or=
more in the last week or two,'' said Stan Jonas, managing director at Fima=
t USA, a broker dealer. ''Everyone was long the bond market, thinking the e=
conomy was going to be bad. Then everything shifted, and Enron drove it to =
extremes.''=20
How extreme? In the two weeks beginning Nov. 12, two-year Treasury notes pl=
ummeted in price, pushing their yields up to 3.18 percent, from 2.41 percen=
t. In the same period, yields on Treasuries with five-year maturities went =
to 4.4 percent, from 3.62 percent.=20
The trade that appears to have gone awry for Enron, market participants say=
, involved the sale of hundreds of thousands of Eurodollar futures, some of=
which matured in two or three years. Such contracts are frequently used to=
bet on the direction of interest rates. Enron could also have used the Eur=
odollar contracts to hedge against fluctuations in oil prices. In a weak ec=
onomy, oil prices usually fall. But so do interest rates, so a bet on lower=
rates would produce gains to help offset the decline in oil prices. When d=
ata showed signs of life in the economy, traders surmised that Enron began =
to sell its Eurodollars and started an avalanche of selling among other tra=
ders.=20
There were huge Eurodollar positions being liquidated, said Gemma Wright, d=
irector of market strategy at Barclays Capital. ''We don't know for certain=
who it was, but the amount of the loss was high.''=20
One reason that traders suspect Enron may have been forced out of such a po=
sition was that the company had neither the cash flow nor the bank credit t=
o meet calls for additional cash from traders at other firms. Typically, co=
mpanies have cash reserves to meet such calls or have access to temporary l=
ines of credit to cover shortfalls. Enron appears to have neither. Yesterda=
y, the company said it was suspending all payments except for those ''neces=
sary to maintain core operations.''=20
In addition to the recent interest rate spike, Enron has had to contend wit=
h falling oil prices. The price of crude oil has dropped 28 percent since t=
he end of October.=20
Caught in a vise, Enron has almost certainly been selling securities to rai=
se cash. Treasury securities and Eurodollar contracts, because their market=
s are large, are among the easiest to sell. In both cases, Enron was probab=
ly selling into a falling market.=20
Adding to the turmoil in the bond market, traders said, was less participat=
ion by Wall Street firms, which were unwilling to take on big new trading p=
ositions near the end of their fiscal year. Several firms end their years o=
n Nov. 30.=20
Some traders say Enron's problems started with comments on Tuesday by Laure=
nce H. Meyer, a governor of the Federal Reserve. Mr. Meyer suggested that a=
dditional rate cuts might be coming, and that remark helped stabilize price=
s of Treasury securities. ''It's my view that there are no coincidences,'' =
Mr. Jonas said. ''Laurence Meyer is a big hawk on interest rates, and he ba=
sically talked a 180. That was their big gun. The only bigger gun would hav=
e been Greenspan.''

Graph: ''Market Catalyst'' The swift demise of Enron and the company's inve=
stment strategies in the bond market may have contributed to the sharp rise=
in the yields on Treasury notes in the last few weeks. Graph tracks daily =
yields on 2 year Treasury notes in November. (Source: Bloomberg Financial M=
arkets)(pg. C7)=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Business/Financial Desk; Section A
ENRON'S COLLAPSE: MARKET PLACE
A Big Fall Evoking Nasty Old Memories Of a Run on a Bank
By FLOYD NORRIS

11/29/2001
The New York Times
Page 1, Column 1
c. 2001 New York Times Company

The final collapse of Enron amounted to something that few living Americans=
have ever seen: a bank run like those in the days before deposit insurance=
.=20
Enron appeared to become a wildly successful company by creating a new, lar=
gely unregulated financial business, that of energy trading. That business =
ran on credit, and required suppliers and users of energy to sign contracts=
that called on Enron to meet obligations months or years later.
Enron became something like a bank, which takes depositors' money and promi=
ses to pay it back later. But unlike banks in the current era, this institu=
tion had no federal deposit insurance to reassure customers when rumors beg=
an to spread that it was in trouble. That proved to be its Achilles' heel. =
Enron's collapse is a reminder for big players in unregulated markets that =
their financial health must be beyond doubt.=20
Before the advent of deposit insurance, bankers knew what was needed to hea=
d off a bank run. It was cash, so much cash that it would be clear that pan=
ic was unwarranted. Nearly a century ago, J. P. Morgan took the lead as he =
and fellow banking tycoons put up the millions needed to keep the Trust Com=
pany of America open. Thus was halted the Panic of 1907.=20
As it happened, corporate descendants of two major institutions involved in=
that rescue -- J. P. Morgan Chase and Citigroup -- were major players in t=
he Enron debacle. But they did not try the strategy this time.=20
Instead, Enron kept arranging an additional billion or two in loans, clearl=
y struggling to find the money. Morgan and Citigroup allowed the word to sp=
read that they were ready to put in more money on their own, but the amount=
s were relatively small, and somehow the money was never invested.=20
When Dynegy agreed to buy Enron, it put up $1.5 billion in cash only after =
it was assured that it would get control of the company's crown jewel, the =
Northern Natural Gas pipeline system, or its money back, if the deal collap=
sed.=20
The final straw came on Tuesday, when negotiations on a revised Dynegy take=
over deal came down to efforts to find $250 million or $500 million of Enro=
n assets that could serve as collateral for a new Dynegy cash advance. The =
message to companies that traded with Enron was clear: even its rescuer is =
demanding collateral, and is having trouble finding it.=20
Given that, Enron's financial business could not continue. Public haggling =
over the terms of the rescue assured that no rescue was possible, something=
that would have been obvious to the original J. P. Morgan but that seemed =
to escape his corporate heirs. As Walter Bagehot, the British financial jou=
rnalist and historian, wrote in 1873, ''Every banker knows that if he has t=
o prove that he is worthy of credit, however good may be his arguments, in =
fact his credit is gone.''=20
The markets Enron helped to create will endure, but probably without Enron.=
It will be interesting to see whether participants in them continue to res=
ist regulation as much as they have in the past. Unregulated markets, espec=
ially when they are relatively new, can be very profitable for those with s=
uperior market knowledge, as Enron seemed to have. But when prices are visi=
ble to all, the value of that knowledge plummets. Regulation could bring mo=
re openness, but it could also bring structures, like clearing systems, tha=
t reassure traders they need not worry about the credit of those with whom =
they trade.=20
If the markets continue to be unregulated, Enron's collapse makes it more l=
ikely that the big players in those markets will be companies that are alre=
ady regulated enough to assure customers that they are secure -- companies =
like major banks and brokerage houses. That would be bad news for Dynegy, w=
hich was Enron's major competitor before it tried to become its acquirer.=
=20
The crisis at Enron may have exposed a ''flaw in the business model'' of en=
ergy trading companies, said John Diaz, a managing director at Moody's, in =
an interview yesterday. ''Companies in this industry need to think carefull=
y about their liquidity management,'' he said. ''We're going to be looking =
very hard at this.''=20
The litigation over Enron seems likely to be prolonged and expensive, but i=
t may boil down to Senator Howard H. Baker Jr.'s famous Watergate-era quest=
ion about President Richard M. Nixon: What did he know and when did he know=
it?=20
That question will be asked about Arthur Andersen, Enron's auditor, and abo=
ut its corporate officials, past and present. But it will be asked most par=
ticularly about the banks and investment banks that served Enron and its af=
filiated off-balance- sheet entities in recent years.=20
Enron's disclosures last week showed it needed to pay far more in debts ove=
r the next year than most people had understood to be the case. But the new=
ly discovered loans did not materialize out of thin air. The money was lent=
by banks and bond buyers to the off-balance-sheet entities. Those who were=
stuck with losses on the known Enron debt may claim the financiers who syn=
dicated the loans should have told them of all the other debt.=20
Among those who do not come out of this looking very good are the bond rati=
ng agencies. Just six weeks ago, after Enron put out an earnings release sh=
owing strong pro-forma profits, as it defined them, two of the agencies, Fi=
tch and Standard & Poor's, reaffirmed Enron's rating of triple-B plus. Mood=
y's, the agency that was the most skeptical about Enron, put the rating und=
er review and hinted it would, at worst, cut it one notch.=20
None of the rating agencies seemed overly concerned about a detail disclose=
d by Enron at the time: a $1.2 billion reduction in shareholder equity rela=
ted to what it later said were accounting mistakes involving a partnership =
run by Enron's chief financial officer. But that disclosure set off a casca=
de of questions that Enron could not answer in a reassuring way. It ran thr=
ough billions as companies demanded more protection to keep trading with it=
.=20
Enron could have been saved, if an institution that was trusted -- whether =
that was Chevron Texaco, which put up the $1.5 billion cash that Dynegy inv=
ested, or J. P. Morgan Chase or Citigroup -- had made it clear that it was =
willing to stand behind Enron. A credible backer would have ended the run.=
=20
But no one was willing to do that, and their hesitance as they learned more=
only accelerated the run. Whether they were wise to avoid that exposure ma=
y become clear as it emerges how much creditors will eventually get.=20
Finally, the rating agencies yesterday downgraded Enron to relatively low l=
evels of junk. They knew that was likely to force Enron into bankruptcy in =
the near future, but they also knew that no one was willing to rescue a com=
pany that the agencies had viewed as solid only weeks before.=20
Yesterday, as Dynegy walked away from the merger, it said that it was no lo=
nger willing to trade with Enron -- unless Enron put up ''sufficient credit=
support.'' It knew that support was nowhere to be found.

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE CHIEF EXECUTIVE
Foundation Gives Way On Chief's Big Dream
By JOHN SCHWARTZ and RICHARD A. OPPEL Jr.

11/29/2001
The New York Times
Page 1, Column 5
c. 2001 New York Times Company

Well before anyone could imagine that Enron might collapse, Kenneth L. Lay =
was stumped. In an interview in August, he dismissed questions about a vagu=
e clause in the energy company's annual report that hinted at bigger proble=
ms if its stock price or credit rating fell below certain levels.=20
''I just can't help you on that,'' he said. Pressed further on questions ab=
out a bewildering constellation of business partnerships that involved Enro=
n's former chief financial officer, he said, ''You're getting way over my h=
ead.''
At the least, Mr. Lay -- a man of big ideas, a crusader for free markets, a=
risk taker in the Texas wildcatter tradition -- had taken his eye off the =
ball. While he was busy befriending the nation's most powerful politicians,=
erecting one of the tallest buildings in Houston and pasting Enron's logo =
on the city's new ballpark, the little things were turning out to be Mr. La=
y's big problems.=20
One after another, disclosures spilled out of his company over the last mon=
th: the partnerships had hidden billions in debt; years of Enron's reported=
profits had been exaggerated; the government was investigating. Rivals wer=
e shunning Enron's energy trading desks, which Mr. Lay had built into the w=
orld's leaders. And sure enough, the stock price tumbled day after day, and=
credit agencies lowered Enron's ratings once and then yesterday again, tur=
ning the company's debt to junk and its shares into a penny stock.=20
Three weeks ago, Mr. Lay tried to salvage his creation by selling it to Dyn=
egy, his Houston rival. Yesterday, Dynegy pulled out of the deal. Deprived =
of enough information, and then repelled by what they learned, the free mar=
kets in which Mr. Lay had put so much faith all but destroyed, in a matter =
of weeks, everything he had built.=20
''If they had been going a slower speed, the results would not have been di=
sastrous,'' said Bob McNair, a Houston energy entrepreneur who sold the bul=
k of his own company to Enron three years ago. But Enron, he said in an int=
erview this month, was like a race car, and the markets like an unforgiving=
track. ''It's a lot harder to keep it on the track at 200 miles per hour,'=
' he said. ''You hit a bump and you're off the track.''=20
From his youth, Mr. Lay, 59, had nurtured an abiding faith in the markets' =
wisdom. He studied economics at the University of Missouri, living at home =
to save on room and board, and eventually earned a Ph.D. in the subject. As=
a naval officer serving in the Pentagon, he worked to develop more efficie=
nt accounting systems. Later, he served as an aide to a federal government =
regulator for the natural gas industry -- a market that Enron would come to=
dominate.=20
Moving into the private sector, he worked his way up the ranks of the natur=
al gas industry, becoming chief executive in 1984 of the Houston Natural Ga=
s Corporation, a big regional pipeline operator. He engineered its merger w=
ith Internorth, an Omaha pipeline company, and then became chief executive =
of the combined company and changed its name to Enron.=20
Mr. Lay saw Enron's mission as far more than being a conduit for fuel. At t=
he time, gas prices were regulated and pipelines played a relatively passiv=
e role; buyers and sellers could not cut deals on the fly. But as oil price=
s plunged in the mid-80's and gas users began switching to cheaper fuel oil=
, Mr. Lay returned to Washington to argue, successfully, for rules changes =
that he said would save the pipeline business by allowing operators to shop=
for the best deals from both gas producers and utilities.=20
The new flexibility brought the threat of chaos, however, as natural gas pr=
ices began fluctuating wildly. That is when the new Enron was truly born. T=
o help customers shield themselves from risk, Mr. Lay's Enron developed hed=
ging contracts for gas like those traded in the markets for corn and copper=
and winter wheat. Its innovative ''gas bank'' let utilities lock up the lo=
ng-term prices that they craved; Enron lined up the gas supplies from produ=
cers, arranged for delivery -- and took a cut of every deal.=20
That business became the forerunner of Enron's entry into hundreds of other=
markets, helping customers obtain supplies and manage risks in products ra=
nging from electric power to pulp and paper and, most recently, fast broadb=
and access to the Internet. Trading soon provided more of the company's pro=
fits than the traditional natural gas business.=20
While other companies, including Dynegy, focused on accumulating hard asset=
s like pipelines, turbines and gas fields, Enron increasingly saw itself as=
a pure trading company with an almost limitless future.=20
''There is a very reasonable chance that we will become the biggest corpora=
tion in the world,'' Mr. Lay's handpicked successor as Enron's chief execut=
ive, Jeffrey K. Skilling, told the authors of a book, just published, about=
business on the Internet. Even the book's title, ''Radical E: From GE to E=
nron -- Lessons on How to Rule the Web'' (PricewaterhouseCoopers), showed t=
he cachet the company had attained. Enron, the authors wrote, was ''creatin=
g a culture in which radical and creative thinking is encouraged and reward=
ed.''=20
Mr. Skilling abruptly resigned in August, after just six months on the job,=
propelling Mr. Lay back into the gritty details of Enron's businesses that=
he had sought to leave to others.=20
As the company grew, he had become increasingly involved in public affairs,=
serving as host when a global economic conference was held in Houston in 1=
990 and when the Republican National Convention came to the city in 1992.=
=20
Like the leaders of many big Texas businesses -- the construction colossus =
Brown & Root after World War II or Ross Perot's Electronic Data Systems in =
the 1960's -- Mr. Lay knew the value of courting politicians and policy mak=
ers.=20
He played golf with President Bill Clinton; became good friends with the Te=
xas governor, Ann Richards; and supported Senator Phil Gramm of Texas, whos=
e wife, Wendy, a former chairwoman of the Commodities Futures Trading Commi=
ssion, joined Enron's board.=20
''He's a stand-up guy,'' said Ms. Richards, now a business consultant in Ne=
w York. Asked to be more specific, she said, ''He's at the meeting'' -- mea=
ning she could count on Mr. Lay to become directly involved with whatever s=
he asked him to do, and not just sign onto a project for show.=20
Mr. Lay's deepest political ties were with the Bush family. In the 1980's, =
he became a major fund-raiser for George H. W. Bush. When Mr. Bush lost his=
1992 campaign for re-election as president, Mr. Lay brought a number of se=
nior Bush aides to Enron as directors or consultants, including James A. Ba=
ker III, the former secretary of state, and Robert A. Mosbacher, the former=
secretary of commerce.=20
Mr. Lay also cultivated Mr. Bush's son George W. long before he was conside=
red a serious national candidate. After the younger Mr. Bush's election as =
Texas governor in 1994, Mr. Lay became head of the Governor's Business Coun=
cil, an important advisory post.=20
The bond with President Bush is personal. As governor, Mr. Bush sent Mr. La=
y a kidding note in 1997. ''One of the sad things about old friends is that=
they seem to be getting older -- just like you!'' he wrote. ''55 years old=
. Wow! That is really old. Thank goodness you have such a young, beautiful =
wife,'' he added, a reference to Mr. Lay's wife, Linda.=20
In 1999, Mr. Lay sent a handwritten Christmas note to Mr. Bush and his wife=
, Laura. ''Linda and I are so proud of both of you and look forward to seei=
ng both of you in the White House,'' he wrote.=20
Yesterday, the White House press secretary, Ari Fleischer, said the Treasur=
y Department was monitoring Enron's downfall for its effect on the market. =
Asked if the president himself had any reaction, Mr. Fleisher said, ''The p=
resident's reaction is that it should be monitored.''=20
In some ways, Enron's collapse was one more example of the bursting of the =
Internet bubble. But Mr. Lay was not some stylish dot-com brat; by all acco=
unts, he is an immensely likable product of Middle America. Growing up in t=
iny Rush Hill, Mo., he was driving a tractor by age 12 and salting away sav=
ings. By 16, his sister Sharon recalled this week, ''he was bucking bales''=
-- that is, loading hay -- ''and had two jobs in the summer, painting hous=
es.''=20
''I don't think you could ever say that he did something the easy way,'' sh=
e said.=20
That work ethic ran in the family. Mr. Lay's father was a minister who also=
sold farm equipment. The family's finances were spotty, ''at times no mone=
y, at times some money,'' Ms. Lay recalled. Still, the Lays took in people =
from their church who were in need.=20
Over the last decade or so, Mr. Lay earned some $300 million from Enron, mo=
stly by exercising stock options. Earlier this month, when employees grew i=
ncensed at the prospect of his collecting a big severance package with the =
company's sale to Dynegy, he volunteered to walk away from $60 million in p=
ayments.=20
Mr. McNair, the Houston entrepreneur, who has known Mr. Lay for years, sugg=
ested that perhaps everything had not been disclosed to him. ''Maybe the pe=
ople who reported to him told him what they wanted him to hear, but they we=
ren't telling him everything,'' he said.=20
Mr. McNair said he spoke to Mr. Lay recently and found him ''somewhat in a =
state of shock.'' Mr. McNair added, ''He's devastated.''=20
In the end, it seems, the man whose company did so much to help others mana=
ge their risk could not manage his own.

Photos: A portrait of the chairman from Enron corporate report for 1999. (E=
nron)(pg. C7); (pg. C1) Graphs: ''Enron's Collapsing House of Cards'' Kenne=
th L. Lay, starting with an ordinary pipeline business, turned Enron into o=
ne of the fastest growing companies of the 1990's. But it has swiftly colla=
psed since revealing huge hidden debts, causing its stock to plunge and req=
uiring it to restate earnings. Graphs track Enron's stock price and sensor =
debt rating since Sept. and Enron's earnings since 1997. (Sources: Bloomber=
g Financial Markets; Moody's; Enron)=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE DERIVATIVES
Market That Deals in Risks Faces a Novel One
By DIANA B. HENRIQUES

11/29/2001
The New York Times
Page 7, Column 1
c. 2001 New York Times Company

When members of the International Swaps and Derivatives Association gathere=
d in Washington last April, the man they all wanted to hear was Jeffrey K. =
Skilling, then the president and chief executive of Enron.=20
Enron had helped create the global market for energy-based derivatives -- c=
ustomized risk-swapping contracts that enable companies to hedge their expo=
sure to changing energy prices and supply fluctuations. Even among traders =
more familiar with interest-rate swaps or currency hedges than energy contr=
acts, Mr. Skilling's presentation did not disappoint.
''He dazzled everybody -- it seemed he could figure out a way to trade the =
minutes on this phone call,'' one industry executive said.=20
But yesterday, many of those same executives were crossing their fingers an=
d hoping that Enron's crisis would not spread into the energy swaps market =
that the company had done so much to enliven.=20
As the day ended with fairly stable trading, there were a few cautious sigh=
s of relief. But nobody is quite sure just how much money the energy-relate=
d derivatives markets will have at risk if Enron fails.=20
According to Swaps Monitor Publications, which collects data for the deriva=
tives markets, Enron ranks among the top energy-swaps traders in the world,=
on a par with financial giants like Bank of America and Barclay's.=20
At the end of September, Enron's gross derivatives trading liabilities -- t=
he amount of money it would owe to other market players if it filed for ban=
kruptcy -- stood at $18.7 billion, up slightly from June levels but about $=
1.3 billion less than at the end of last year.=20
But that level may overstate the risk to other companies. ''These numbers d=
o not take into account the unknown amount of collateral that Enron may hav=
e posted,'' said Paul Spraos, Swaps Monitor's president. Such collateral sh=
ould, in principle, diminish Enron's actual liabilities to the derivatives =
market, he said.=20
In a typical energy swap, a company will enter into a contract to lock in a=
fixed price of a certain commodity, like natural gas or electricity. The o=
ther company, the counterparty, in the deal assumes the risk of future pric=
e changes and quotes a fixed price that includes its own profit. The effici=
ent trading and pricing of these contracts requires a marketplace with larg=
e, active traders.=20
As of last night, there were no signs of a major panic that would drive maj=
or participants to the sidelines, industry executives said.=20
''It's not likely that Enron's problems will cause serious difficulty for a=
ny other sizable counterparty,'' said Mark C. Brickell, a veteran swaps-mar=
ket executive and the chief executive of Blackbird, a technology firm that =
operates an electronic swaps-trading system. ''While t