Banks count cost after Enron collapse

British banks are today counting the cost of the collapse of US energy giant Enron which yesterday filed for bankruptcy protection with debts of more than $30 billion.

The Financial Services Authority is trying to calculate how much banks stand to lose as a result of their exposure to Enron, but losses are expected to run into millions of pounds. An FSA spokesman said: "We are monitoring the situation. It is a bit like after 11 September when we talked to insurance companies."

Enron's UK subsidiaries are believed to owe millions of pounds to banks including Barclays, Royal Bank of Scotland and Abbey National. Abbey has revealed it lent £115million to the group and is expecting to lose up to £95million.

National Australia Bank, which owns Yorkshire Bank and Clydesdale Bank in the UK, also revealed it had exposure to Enron totalling around £140 million. Barclays's exposure is estimated at between £50million and £300million, while Royal Bank of Scotland's is between £140million and £600 million.

In all, Enron is believed to owe at least £15 billion to banks worldwide.

The potential losses were totted up as Enron applied to a New York court for Chapter 11 bankruptcy, which will allow the energy trader to continue operating while its creditors try to sort out its finances.

Enron is also suing rival Dynegy for breach of contract after it pulled out of a proposed $9billion merger, a move which triggered Enron's collapse - the biggest in history.

Dynegy's chairman today branded Enron's lawsuit against his company "frivolous and disingenuous".

Meanwhile, there is growing anger among the 1,100 staff who were sacked from Enron's London headquarters on Friday. While London staff received no redundancy money or notice payment, there were reports of sacked Houston workers receiving six weeks' pay.

There were also claims from disgruntled staff that any employees on business trips overseas would be forced to pay their own hotel bills and air fares home.

Jobs at Enron's other UK businesses not placed in receivership are expected to be safe providing bidders emerge. They include Wessex Water, the Teeside power plant and Enron Direct, a supplier of power to small businesses.

Enron's spectacular fall from grace was sparked six weeks ago when a discrepancy in its accounts prompted an investigation by US financial watchdogs and a slump in the firm's share price. Enron later admitted its profits between 1997 and 2001 were $600million lower than had been claimed.

While the loss of investor confidence threatened Enron, a takeover bid from Dynegy looked to have provided it with a lifeline until Dynegy pulled out of talks on Wednesday.

Attacks put lid on pay deals
City & Business