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Morgan's Enron exposure widens
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December 20, 2001: 7:33 a.m. ET
Bank doubles initial estimates; Dynegy suit moves to Texas.
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NEW YORK (CNN/Money) - J.P. Morgan Chase & Co., the No. 2 U.S. bank holding company, surprised Wall Street late Wednesday when it revealed that its exposure to bankrupt energy trader Enron Corp. was more than double initial estimates.
Meanwhile a Texas judge granted former Enron merger partner Dynegy Inc.'s request to have its lawsuit against Enron heard in Texas, home turf to both companies.
Also Wednesday, a New York judge cleared the way for bidding on Enron's trading business, which the company values at $5 billion to $7 billion.
According to court documents, the court ruled the auction will be held on Jan. 10, with a buyer-approval hearing on Jan. 11. All bids must be in by Jan. 7.
J.P. Morgan said Wednesday its stake in bankrupt energy giant Enron Corp. that is secured by assets stands at $965 million, or more than double the amount it previously disclosed.
Lawsuit targets insurers
Seeking to recoup some of that money, J.P. Morgan Chase (J.P.M: Research, Estimates) said it has filed lawsuits against several top insurance companies that issued contracts, or surety bonds, guaranteeing Enron assets.
J.P. Morgan's filing shows it has sued insurers including Chubb Corp. (CB: Research, Estimates) , CNA Financial Corp. (CNA: Research, Estimates) and Citigroup Inc.'s (C: Research, Estimates) Travelers Property Casualty unit.
New York-based J.P. Morgan is one of several big financial institutions holding investments in the failed energy company that might never be regained. Once high-flying Enron filed for Chapter 11 bankruptcy earlier this month, after questionable financial dealings collapsed the company.
Morgan's shares climbed 81 cents to $38 ahead of its disclosure Wednesday.
J.P. Morgan -- which has already acknowledged about $600 million in unsecured exposure to Enron -- had previously said its secured stake in Enron "included" $400 million, but did not make public secured amounts beyond that.
The surety bonds at the heart of J.P. Morgan Chase's lawsuits against its insurers were issued to guarantee obligations of Enron North America Corp. and Enron Natural Gas Marketing Corp. under prepaid forward natural gas and crude oil contracts, the bank said.
"At issue in the case is approximately $1.1 billion, of which J.P. Morgan Chase's share is approximately $965 million," the bank said in a statement. "The litigation seeks a declaration that the insurance companies are required to pay under the bonds."
Payment is due Dec. 21, the bank added.
In addition, J.P. Morgan said a "European financial institution" which it did not name has failed to pay it on a $165 million letter of credit backing an Enron-related swap contract.
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Officials from Chubb, CNA and Citigroup could not be reached for comment by Reuters late Wednesday.
News of J.P. Morgan's exposure comes as a lawsuit brought against Enron by former merger partner Dynegy Inc. (DYN: Research, Estimates) proceeded. A federal judge granted Dynegy's request to have its suit to take over a valuable pipeline from Enron heard in a Texas court.
"We are pleased with the order and this was exactly what we expected to happen," Dynegy spokesman John Sousa told CNNfn Wednesday. "The case will be heard in state court where it belongs. And our goal now is to resolve this issue in state court as quickly as possible."
Separately, a U.S. bankruptcy judge has set the bidding process in motion for Enron's trading operating, which some insiders say could fetch up to $1 billion.
Enron said at a hearing Wednesday before Judge Arthur Gonzalez in New York that it would allow parties to bid for all or part of the wholesale trading unit. 
from staff and wire reports
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