Enron fallout spreads

December ?, 2001

Enron fallout spreads

Anita Raghavan Peter McKay and Gregory Zuckerman

Enron Corp.'s financial travails reverberated around the globe yesterday, roiling everything from paper mills in Scandinavia to bank trading rooms in Tokyo.

While none of the ripple effects was crippling, the fact that they were so widespread reinforced the scale of the Enron collapse.

The immediate aftershocks were perhaps most felt in London, where Enron's European arm filed for protection from its creditors after a spokesman said it stopped receiving cash from its Houston parent. The move threw European power markets into disarray, sparking a wave of frantic buying and raising the spectre of defaults among other players in the 150-billion-euro ($1330 billion U.S.) European power market. In addition, shares in Nodic paper makers fell on worries that the collapse of Enron could hit paper prices if Enron's big pulp stocks have to be sold for cash.

"The Enron group built an extraordinarily complex network of integrated businesses and this will take some time for administrators to work through," said Tony Lomas, a partner at PricewaterhouseCoopers, which was appointed administrator to Enron's European unit.

Besides banks, which are owed billions of dollars by Enron, there are scores of energy and metals trading companies that did business with Enron that are likely to suffer huge losses now that the company is unable to meet its obligations.

A spokesman for Enron said the company's European trading portfolio, which was put into administration yesterday, "is practically non-existent now."

In the U.S., Enron's woes continued to rattle energy markets following the shuttering of much of EnronOnline, the once-dominated electronic trading system operated by the company.

Traders who logged onto the system yesterday were met with a disclaimer, telling them to trade only to manage their own financial risk and not to expect the actual delivery of commodities.

That sent traders in industries ranging from shipping and credit markets to coal scrambling for an alternative.

"We're being crushed with people trying to get onto our system," said Jeff Sprecher, chief executive officer of the on-line IntercontinentalExchange, where traders waited up to 10 minutes yesterday to log in to trade energy. "We're dealing with a tremendous amount of growth in a very short time."

By far, Enron was most active in the electricity and natural gas trading, although its forays into smaller, sometimes obscure markets were considered significant, as well. For example, Enron had become the largest player in the coal market.

In financial markets, Enron's presence was felt around the world, as many hedge funds, brokerage firms and banks worried about Enron-related losses.

"A handful of people have an understanding what Enron is unwinding but the rest of us are just guessing," said Bill King, market strategist at M. Ramsey King Securities in Chicago.

While Enron itself has only issued $9-billion in bonds - a drop in the bucket compared to the $3.7-trillion dollar corporate bond market - some traders expressed concern that banks and other companies could suffer losses from exposure to the company.

In Tokyo, where Enron had issued 100-billion Yen ($806-million U.S.) in bonds, money managers rushed to calculate their exposure to the troubled firm.

Enron Australia, meantime, said it was suspending operations pending further developments regarding its U.S. parent.

Rasul Bailay and Hennry Sender contributed to this article.