Subject: Shell-Shocked Enron Parts With CFO.htm
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked]
Date: Wed, 24 Oct 2001 17:04:16 -0700 (PDT)

Adjectives suitable for use on corporate email fail me in attempting to
describe this individual, whose animus, in my view clearly is at such a
level that it cannot possibly be disinterested.

   _____

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<http://www.thestreet.com/tsc/c.gif> 	Shell-Shocked Enron Parts With CFO
  <http://www.thestreet.com/tsc/c.gif>
By Peter  <mailto:[email-masked]> Eavis
Senior Columnist
10/24/2001 06:40 PM EDT

Enron's ( ENE <http://tscquote.thestreet.com/StockQuotes.jhtml?tkr=ENE>
:NYSE - news <http://tscquote.thestreet.com/BBNews.jhtml?tkr=ENE>  -
commentary
<http://find.thestreet.com/cgi-bin/texis/cmttkrfind/results.html?tkr=ENE&sit
e=tsc>  - research
<http://thestreet.multexinvestor.com/search.asp?Ticker=ENE>  - analysis)
<http://www.riskgrades.com/clients/thestreet/index.cgi?tickers=ENE>
problems won't go out the door with Andrew Fastow.

The finance chief, who was replaced Wednesday, came under scrutiny as the
executive who orchestrated and profited from a hedging deal that went sour,
saddling Enron with a $1.2 billion charge to equity. As details of this
deal, and  <http://www.thestreet.com/markets/detox/10002702.html> others,
have emerged over the past two weeks, Enron stock has collapsed, falling 54%
in just seven days.

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Wednesday, the stock fell a further 17% on enormous volume, signifying that
once-faithful mutual fund holders were bailing. Also Wednesday, a raft of
once-friendly analysts downgraded the stock. Faced with betrayal on that
scale, Enron management at last felt compelled to act; a press release says
Fastow is taking a leave of absence. He's been replaced by Jeffrey McMahon,
formerly CEO of Enron's industrial markets group.

How might the Enron bulls spin this? Likely, they will point to McMahon's
alleged opposition to Fastow's role in the big hedging deal, called LJM2, to
show that the "Fastow era" is over. The Wall Street Journal, citing
anonymous sources, reported Tuesday that as treasurer at Enron McMahon
complained about Fastow's possible conflict of interest. Probably, the fear
was that Fastow couldn't serve Enron and LJM2 equally, especially as he was
allegedly making a lot of money from LJM2.

Clearly, if McMahon turns out to be a new broom, that's a positive for
Enron. An Enron spokeswoman declined to comment on whether The Journal's
account of McMahon's stance on LJM2 was correct.

Plunging
Investors not liking Enron here

  <http://images.thestreet.com/markets/detox/1425.gif>

Not much else is encouraging, however. Fastow's departure shows that it took
massive drops in Enron stock to force senior management into action. On a
difficult  <http://www.thestreet.com/markets/detox/10002864.html> conference
call Tuesday, CEO Ken Lay gave Fastow resounding backing. It took
Wednesday's plunge to get Lay to sign off on a new CFO. In other words, Lay
listens only when the market screams and hollers. How much further does the
stock have to fall to bring further much-needed reforms at the company?

The spokeswoman responds that Lay had discussions with analysts Tuesday and
Wednesday that led him to the conclusion that Fastow's replacement was
necessary to rebuild investor confidence.

Enron culture is thick with financial sorcery. People got upset by one
shadowy deal, but no one knows exactly how the company's core energy trading
business makes money. It's hard to believe the LJM2 deals were done in
isolation and without the knowledge of the board.

In fact, the chatter is that Fastow and Skilling proposed the LJM2
transactions to the board after it was reluctant to enter the broadband
business. The board apparently feared the volatility that might come from
being in broadband, so Fastow allegedly proposed LJM2 as a way to hedge that
volatility away. This meant LJM2 entered agreements that gave it access to
increases in the value of broadband assets but protected Enron from the
downside. Should the whole board be on the hook, too? The spokeswoman
responds that the board would not have entered the LJM2 transaction if it
had not thought it would benefit Enron and its shareholders.

Lay has shown himself to be woefully out of touch with the market's views.
Arguably, that's downright reckless for a trading company that is dependent
on potentially skittish short-term financing. Letting things get this bad
has risked good faith among Enron counterparties and bankers. It shows an
unhealthy reluctance to address key problems until they're unavoidable. The
spokeswoman responds that the company is now working hard to improve
transparency.

Any efforts in that direction will be much appreciated, but is it any wonder
people compare this lot to Long Term Capital Management?

   _____

Know any companies that the market may be misvaluing? Detox would like to
hear about them. Please send all feedback to [email-masked]
<mailto:[email-masked]> .

In keeping with TSC's editorial policy, Peter Eavis doesn't own or short
individual stocks. He also doesn't invest in hedge funds or other private
investment partnerships.
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