Reverse Spin: Banks see red as Enron goes code blue

The collapse of Enron Corp. last week sent shudders through the market and is causing investors to see red – both literally and figuratively. Asked about her exposure to the stock, one money manager told InvestmentNews, “With nearly a billion shares outstanding, every money manager has some somewhere.”

Indeed, some of the world’s leading banks were hoping to bail out the Houston-based energy trading company, thus getting a slice of a potential acquisition deal in the works with rival Dynegy Inc.

Now that the deal is off, those banks will redo their books. As talk of bankruptcy swirled around Enron, the big boys of Wall Street were licking their wounds.

J.P. Morgan Chase & Co. last week said it had $500 million in bad loans to the once high-flying Enron, and Citigroup Inc. reportedly has an exposure of $700 million to $800 million, half of which is not secured. And Enron’s implosion is causing members of Congress to push for hearings.

The stock price of Enron, which traded above $90 per share in August 2000, closed at 28 cents Friday after Dynegy pulled out of talks earlier in the week, and the company’s debt was downgraded to junk bond status. If Enron files for bankruptcy, it would be the largest in U.S. history.

Making it official

What a week for investors. With the markets rallying over the past two months, the bad news from Enron came on the heels of Monday’s declaration by a panel of top economists that the U.S. economy had been in a recession since March.

But other reports Thursday said there was good news, with orders for durable goods posting the biggest rise ever in the month of October. Although, some noted, those orders were skewed by aircraft and defense orders.

Spear Leeds hit with $1 million fine

On Wall Street, the American Stock Exchange hit a top firm with the largest fine in the history of the exchange.

The Amex fined market specialist Spear Leeds & Kellogg $1 million. The unit of Goldman Sachs Group Inc. failed to supervise one of its traders, Pasquale Schettino, who was barred from the exchange in 1999. Spear Leeds, as is the custom, agreed to settle with the Amex without denying or admitting guilt.

And two electronic communication networks, Archipelago and REDIBook, last week said they would merge to create the largest ECN in terms of volume.

U.S. attorney clears Credit Suisse unit

The U.S. attorney’s office in Manhattan said it would not criminally charge Credit Suisse First Boston for its role in bringing hot technology stocks to market in the dot-com boom.

The company, however, still faces civil charges from regulators at the Securities and Exchange Commission and the National Association of Securities Dealers.

Insurers win a terrorism vote

A study sought by the life insurance industry on the potential effects of terrorist acts on the life insurance industry would be conducted under legislation passed Thursday, 227-193, by the House of Representatives. The House included the provision in its bill to provide backing for terrorism property-and-casualty insurance.

The House bill provides that the government pay 90% of insurance claims over $25 billion in the year after enactment and 80% in the second and third years. Insurers would be required to repay a portion of the government’s outlays.

Insurers plan to drop terrorism-attack coverage for policies starting next year if there is no government backing.