NEW YORK (CNN/Money) -
Merrill Lynch & Co. received more investment banking business from Enron Corp. once it replaced a research analyst whose criticism of the Houston energy trader had brought complaints from Enron executives, according to published reports.
The reports came as congressional investigators are set to hear testimony Tuesday about the relationships between the now bankrupt energy trader and the Wall Street firms that served it. The investigators are also expected to probe partnerships set up by Enron to increase earnings and reduce its debt, and whether Merrill executives had doubts about those deals that eventually played a key role in Enron's bankruptcy filing.
The issue of Merrill possibly forcing out an analyst who had given Enron a "neutral" rating could be another blow to the nation's largest securities firm, which earlier this year agreed to a $100 million settlement as well as changes in its research department following conflict-of-interest charges brought by N.Y. Attorney General Eliot Spitzer.
The Wall Street Journal and New York Times, both quoting congressional investigators who have seen subpoenaed, internal Merrill Lynch documents, reported Tuesday that the documents suggest top executives complained to Merrill Lynch President Herbert Allison in April 1998, claiming that Merrill had lost business from Enron due to the research of Merrill Lynch analyst John Olson.
The Journal quoted a memo written by two Merrill investment bankers, Rick Gordon and Schuyler Tilney, as saying that Enron's decision to exclude Merrill from a lucrative deal, "was based solely on the research issue and was intended to send a strong message as to how 'viscerally' Enron's senior management feel about our research effort." The Times quoted apparently the same memo as saying that all of the investment banks that had won a portion of the underwriting deal from Enron had "buy" ratings on Enron stock.
The papers said that Gordon and Tilney asked Allison to contact Enron Chairman Kenneth Lay. In August of 1998 Olson left Merrill Lynch under pressure, the papers reported, and a January, 1999 memo from the executives to Allison suggested that the change had been a lucrative one for Merrill.
"It is clear that your responsive message was appreciated by the company (Enron), and any animosity in that regard seems to have dissipated in the ensuing months," the Times quoted an e-mail from the two executives to Allison. "To that end, we have recently been awarded two significant mandates by Enron ... Total fees to Merrill Lynch for these two transactions alone should be $40 million to $50 million."
Merrill officials to the papers deny that they did anything wrong or that it removed Olson in order to increase business from Enron. But last week it announced it had placed Tilney on administrative leave, with pay, after discovering that he intended to invoke his Fifth Amendment right not to testify before Tuesday's congressional panel.
The papers also reported Tuesday that Merrill Lynch documents show there were internal questions about the Enron partnerships it participated in. The Journal said that a senior Merrill Lynch banker wrote concerns about Merrill participating in the purchase of three energy-generating barges off the coast of Nigeria in 1999 that helped to increase Enron's reported profits.
Enron executives promised Merrill to arrange a resale of the barges by June 2000, the papers reported, and the barges were repurchased by one of the partnerships that Enron created during that time.
Merrill has insisted in statements that it believes it did nothing wrong in its dealings with Enron and its partnerships. Monday the CEO's of two Merrill competitors, J.P. Morgan Chase & Co. and Citigroup Inc. signed affidavits to congressional investigators denying knowledge of any wrongdoing by their firms in their dealings with some other Enron transactions.