The Energy Group has no Enron exposure.
-----Original Message-----
From: Kovacevich, Dick M. (Wells Fargo CEO)
Sent: Thursday, November 29, 2001 11:29 AM
To: Hoyt, Dave; Murray, Tim H.; Watson, Paul; Loughlin, Michael J.
Cc: Chereck, Bob A.
Subject: RE: Enron Exposure is Nil
Terrific result! Great discipline!! Well done!!!
-----Original Message-----
From: Hoyt, Dave
Sent: Thursday, November 29, 2001 8:55 AM
To: Murray, Tim H.; Watson, Paul; Loughlin, Michael J.
Cc: Chereck, Bob A.; Kovacevich, Dick
Subject: RE: Enron Exposure is Nil
Tim ….I agree that Credit did a great job…..but I think you are being a bit modest…..you kept
us out of this…..It would have been easy for you to have tried to push this to create more
revenue….you played this right….you “made” us a lot of money… Thank you…..great job!!!!!
-----Original Message-----
From: Murray, Tim H. (EVP/Energy Group Manager)
Sent: Wednesday, November 28, 2001 2:16 PM
To: Dave Hoyt (E-mail); Paul Watson (E-mail); Michael J. Loughlin (E-mail)
Cc: Robert Chereck (E-mail)
Subject: Enron Exposure is Nil
As you no doubt have heard the news that Dynegy walked the Enron merger and the rating agencies downgraded Enron 6-8 notches from investment grade to junk status. The loss of Enron's investment grade status will crater their trading business. Chuck Watson (Dynegy CEO) made a real smart deal that put Ken Lay in a box. With the $1.5BN equity infusion trade for the pipelines in a walk-away scenario, Chuck wrapped up the most attractive tangible asset that Enron had.
The other asset (the trading franchise) value is dependent on the maintenance of their investment grade status - without it, Enron is not worth a lot. Now, with bankruptcy imminent, Chuck will fight Enron's creditors over a preference issue on the pipeline-for-equity breakup option. The pipelines are probably worth twice the $1.5BN cash that Chevron/Dynegy put up for the option.
I know many people will probably ask why we were so smart in this situation - how the fifth largest bank in the country a few blocks away is not one of the 103 banks that are sweating their Enron exposure. We probably received calls weekly about available opportunities and passed on most of them for a very simple reason: the return was not worth the effort required for credit approval.
Enron's banks booked exposure with cheap pricing based on the "Enron guaranty"....not an explicit guarantee but a wink and a nod. We knew that our credit folks would not accept that type of guarantee. We also did not want to stand in front of them and have to answer the question: "how does the company make money?".
That is why you won't find a credit request with our name on it for Enron. You should compliment our Credit Administration folks for inspiring such a culture that doesn't run with the crowd and requires us to ask fundamental credit questions.
We have no Enron exposure, but certainly, some of our clients will have derivative exposure. Many have already offset their hedge positions or have no net obligation to Enron. Understand that our clients are not compelled to disclose their counterparty positions in most cases, and are reluctant to do so because of the negative publicity associated with Enron exposure. We do not believe that an Enron bankruptcy will have a material effect on our portfolio.
Bayou City Capital Advisors
Backed by a team of experienced and highly skilled consultants. Our team has a unique combination of financial and technical expertise, knowledge, and connections within the energy industry.