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Enron stock sustains further heavy losses

Enron Corp stock sustained further heavy losses on Friday as investor confidence in the former Wall Street favourite was rocked by reports about the company's relationship with a limited partnership that was run until recently by Enron's chief financial officer.

The energy giant's stock closed down $2.95 or 10.2 per cent at $26.05 per share, making a cumulative loss of 27 per cent for a week in which Enron reported a third-quarter loss of $638 million, its first quarterly loss in over four years.

Analysts said confidence was shaken by several articles in the Wall Street Journal this week alleging possible conflicts of interest on the part of Chief Financial Officer Andrew Fastow, who until recently ran a limited partnership that bought assets worth hundreds of millions of dollars from Enron.

"I don't think this thing passes the smell test," said one analyst who spoke on condition of anonymity. "I think the CFO should be out of there right now. In the interest of the stockholders, that CFO should be gone," he said.

Enron has rejected the suggestion that there was anything improper about the arrangements, but Fastow severed his ties with the LJM2 partnership earlier this year to allay concerns raised by investors and analysts about his dual responsibilities.

POOR JUDGMENT?

Analysts said that at the very least, the arrangement showed poor judgement by senior managers at Enron, which recently pledged to be more open with investors and analysts following a series of high-profile stumbles that culminated with the shock resignation of new chief executive officer Jeff Skilling in August.

"For a company that had a lot of question marks around it already, these questions about financial dealings are really worrisome for investors," said Commerzbank Securities analyst Andre Meade. "It points to poor decision-making on behalf of the board and top management at Enron," he said.

Enron, North America's biggest buyer and seller of natural gas and electricity, was one of Wall Street's high flyers last year, when its stock posted a gain of 87 per cent.

The stock's ascent was driven by enthusiasm for the company's plans to build a broadband telecommunications business and the success of its EnronOnline Internet energy trading platform.

This year Enron's shares have fallen 69 per cent as sentiment toward broadband and the Internet soured, Skilling resigned after only six months as CEO, and the company's Dabhol power plant project in India became mired in a payments dispute.

Moody's Investors Service said earlier this week that it had placed all of Enron's long-term debt obligations on review for a possible downgrade after Enron took $1.01 billion in write-downs and charges that substantially reduced valuations for several non-core businesses, including broadband and water services.

Some of Enron's financing arrangements require the company to maintain investment grade credit ratings.

Analysts said Enron's credibility has been severely damaged and the recent reports about the LJM2 partnership had raised concerns that more unpleasant surprises may lie ahead.

"What don't we know that went on at that company? Where's the credibility?" asked one frustrated analyst. "We don't know if it's limited to this," he said.

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