Barclays to be sued over Enron

BARCLAYS is to be sued for its role in the collapse of Enron, according to sources close to a huge class action by shareholders.

The bank is so far the only British institution expected to be named in an amended complaint set to be filed on Monday by Enron shareholders, who lost billions of dollars when the American energy trading company collapsed.

Barclays provided a $240m (£157m) loan and $11.4m of equity finance to two of Enron's special purpose vehicles at the heart of the scandal.

The finance, provided by Barclays' investment banking arm Barclays de Zoete Wedd in 1997, was used to buy a stake in Chewco, one of Enron's controversial off balance sheet partnerships.

BZW was identified in February by US academic William Powers in his report into the collapse as the bank providing finance to an off balance sheet vehicle that later 'played a central role' in Enron's decision to restate its accounts last year. Powers said the loan was 'fatal' to compliance with US financial regulations.

BZW was later broken up, with the equities side sold to Credit Suisse First Boston, which is also expected to be named in the complaint. The fixed income side of BZW was absorbed into Barclays Capital. Merrill Lynch, Deutsche Bank, J P Morgan Chase and Citigroup are also expected to be named in the complaint, as well as consultants McKinsey & Co. UBS's PaineWebber unit confirmed today that it faced similar legal action.

The suit, led by University of California Board of Regents, which lost $145m in the collapse, initially named only Enron top executives and its auditors Andersen. But the plaintiffs are widening their search for compensation in their amended suit. The law firm representing the plaintiffs is Milberg Weiss Bershad Hynes & Lerach of San Diego.

Barclays today had no comment. But one Barclays insider said the loan was regarded at the time as an absolutely straightforward financing and that the bank believed it did nothing wrong. The loan was repaid in 1999. At its results in February, Barclays set aside £1.1bn for bad debts, but declined to quantify its Enron exposure.

Greenwich NatWest, now part of Royal Bank of Scotland, also helped in off balance sheet financing for Enron.