Citigroup's deals under probe
Questions raised over undisclosed transactions with Enron
Dec. 8, 2002, 11:31PM
chron.com
By RICHARD A. OPPEL JR. and KURT EICHENWALD
New York Times
WASHINGTON -- Congressional investigators are examining a series of undisclosed deals
between Enron Corp. and Citigroup that raise questions about whether the bank ignored
its internal guidelines and sidestepped accounting requirements in order to satisfy an
important client, according to sources.
In the first deal, involving a venture between Enron and Citigroup called Sundance,
investigators are examining why Citigroup allowed the deal to go forward even though risk
managers and others at the bank lodged strong objections, telling Michael A. Carpenter,
the former head of Citigroup's corporate and investment banking unit, that the transaction
was too aggressive and put the bank at risk.
In the second deal, known as Bacchus, Citigroup agreed to invest 3 percent of the equity in
an off-the-books partnership in which Enron placed its pulp and paper business after
receiving a oral commitment from an Enron executive that the energy company would
"support" the bank's investment.
While the meaning of that phrase is ambiguous, Senate investigators think it means that
Citigroup's investment was not really at risk -- which, under accounting rules, would have
required Enron to put the partnership on its books.
Senate investigators say the Bacchus transaction was not a true sale but was really a loan
to Enron that the energy company used to book at least $112 million in profits in 2000.
Citigroup executives have told congressional investigators that they were surprised to learn
that Enron booked a profit from the Bacchus deal, as that was contrary to their
understanding of the transaction.
They have also told investigators that Enron made no guarantee that Citigroup would not
lose its investment and that it was their understanding that both Arthur Andersen, Enron's
auditor, and an outside law firm had approved Bacchus as a true sale.
The two Enron deals with Citigroup are expected to be the subject of a hearing on
Wednesday before the Senate Permanent Subcommittee on Investigations, whose ranking
members are Sen. Carl Levin, D-Mich., and Susan M. Collins, R-Maine.
Another deal, Slapshot, was an arrangement with J.P. Morgan Chase that allowed Enron to
obtain hundreds of millions of dollars in tax deductions normally not permitted.
The deals demonstrate the aggressiveness in recent years of major banking institutions in
putting together structured finance deals, which combine complex investment vehicles with
efforts to evade or maneuver around accounting, tax or other rules.
Ultimately, the deals show how banks were able to come right up to the line -- and, in the
minds of congressional investigators, possibly cross it -- when structuring a deal to give a
client the outcome it wanted.
According to people involved in the congressional inquiry, Citigroup executives are
expected to tell the committee on Wednesday that the transactions with Enron were legal
and followed accounting rules.
But in a statement on Sunday, the bank said: "Today, Citigroup would not approve the
transactions that have been under review.
"Under a new policy Citigroup initiated in August, no such financing will be approved
without meaningful disclosure of its impact on a company's financial condition." |
