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By Jason Simpkins
Associate Editor
To say that Citigroup Inc. (C) has had more than its fair share of trouble lately might be an understatement. The nation's number one mortgage lender has been devastated by the subprime collapse and struggled to regain its footing since August. But when it rains it pours, and it's pouring on Citigroup right now in the form of a $20 billion Enron lawsuit.
That's right Enron – the Texas energy giant that collapsed in 2001, leaving its investors and employees hanging out to dry – still exists. Except now it exists as Enron Credit Recovery Corp., and its sole purpose is to recoup enough of the company's losses to pay creditors. In its latest press release, found on the company's website, Enron says it has distributed more than $1.7 billion in cash to creditors so far.
According to a recent CNNMoney.com article, the company has now set its sights on the beleaguered Citigroup. Enron reportedly began its campaign against Wall Street back in 2003, when it filed suit against 11 banks, alleging they helped manufacture financial statements and knowingly assisted Enron in duping the public.
Nine of the banks targeted have settled, leaving Deutsche Bank AG (DB) and Citigroup standing alone. Citigroup reportedly averaged a deal a month with Enron from 1997 right up to the company's 2001 bankruptcy. Working against Citigroup are 4,235 pages of analysis from the Enron bankruptcy examiner who concluded that Citigroup helped Enron to "produce materially misleading financial statements."
Citigroup allegedly helped Enron improperly record more than $5 billion in cash flow from operations and understate its debt by billions. According to the CNN article, Enron's position is that Citigroup was aware of the company's dire position when it did so, citing an internal email from one Citigroup banker to another.
"When Enron blows up, will it be worse than Long-Term Capital?" read the email, dated April 2001, seven months before Enron's bankruptcy.
The article also says Citigroup may be guilty of crafting "some fiendish structures under which, in the event of Enron bankruptcy, third party investors – who believed such a thing was highly unlikely – would step into its shoes as Enron's creditors."
Enron insists that Citigroup should pay back the $3 billion it collected in the years before Enron's collapse. Citi should also be responsible for the $18-billion gap between what other creditors are being paid and what they are owed, Enron charges.
Citigroup can hardly afford such a payment at this time. The company has already been caught off-guard by a $15 billion write down on the value of its collateralized debt obligations (CDOs) and the possibility of a $30 billion capital shortfall. It has also been shaken by the forced retirement of CEO Chuck Prince, and seen its stock plummet 41% in the past six months.
News and Related Story Links:
- CNNMoney:
Enron suit: A new tempest for Citi?
- Money Morning:
India Government Rejects Citigroup Bid to Boost its Stake in India's Chief Stock Exchange
- Money Morning:
Goldman Analyst Says 'Sell' Citigroup, Lowers 2008 Estimates
- Money Morning:
Citigroup's Troubles Continue to Grow
- Money Morning:
<a href="http://www.moneymorning.com/2007/11/05/citigroup%e2%80%99s-ceo-prince-opts-to-retire-robert-rubin-steps-in-as-chairman/" title="Permanent Link to Citigroup’s CEO Prince Opts to Retire;
Robert Rubin Steps in as Chairman">Citigroup's CEO Prince Opts to Retire; Robert Rubin Steps in as Chairman
Tags: Citigroup
