Enron could cost Abbey £95m

COLLAPSED US energy group Enron claimed its first casualty in the banking sector as Abbey National admitted it has been forced to make a massive bad debt provision against the group. Abbey's controversial wholesale banking division has £115m of Enron bonds in its portfolio and believes up to £95m of them could be worthless.

'No one could foresee this,' said Abbey director Mark Pain. 'On Wednesday this company was investment grade. Once it had been downgraded, we went through our exposures and £95m is the provision we are going to be making.'

Abbey's confession raised immediate questions about the exposure of other banks. 'Enron had approximately £12bn of exposure to financial institutions on its balance sheet. We have less than 1% of that. Where's the other 99%?' said Pain.

Dutch bank ABN Amro said it may have to take a provision of e100m against Enron. Barclays and HSBC, two of the biggest corporate lenders in this country, had no comment to make. Royal Bank of Scotland, which owns NatWest, said: 'It is too early to say. Enron is a large group with a wide range of interests and assets.'

Abbey shares were the biggest fallers in the FTSE 100 index, sliding 3.5% lower to 997p as the bank confessed too that bad debt provisions elsewhere in the wholesale business could amount to more than £160m. The figure is at the upper end of expectations and comes against a backdrop of deteriorating market conditions, particularly in the US. The division-flustered analysts in the summer with the shock announcement of a £64m provision against US bonds.

Abbey's wholesale business, which invests in bonds and other securities around the world, has concerned the City for some while and last month its long-standing chief exeutive Gareth Jones resigned. Pain has since taken over his job.

'Nothing else in our books gives me huge cause for concern,' said Pain. 'I have carried out a thorough review of all our portfolios and we will be very careful and very cautious in the future. It is a question of working out whether the reward justifies the risk. We have not been as well rewarded as we would have liked,' he added.

Abbey's mortgages and savings businesses have performed well this year but its consumer finance and life assurance divisions have been hit by economic conditions.

About 1,500 London Enron staff are expecting to lose their jobs. PricewaterhouseCoopers, called in as administrators

of Enron Europe and three other arms of the company, was expected to tell workers at the Victoria HQ that they are no longer needed.

Some workers said desks were already being vacated, but that most employees were waiting to hear their fate. Janine Lindsay, who works in Enron's cash management, said: 'Morale is low and people are bitter at the way this has been handled. People feel they have been left in the cold.'