[A-List] RE: Enron

[Henry C.K. Liu]

The Dow Jones Daily Bankruptcy Review reports that Enron's filing lists $13.15
billion of debt, the list ran some 56 pages.  This does not reflect off balance
sheet and contingent opbligations.

GE essentially derives most of its profits from interest spread. Its commerical
papers are sold at less than 2% interest rate now, and it uses repos at Fed
Funds rate (2%).  GE  lends funds through vendor financing, a devise for forcing
its industrial products down the throat of buyers, at double digits.

The credit structure today is very different than a decade ago, so that the
wealth evaporation process is much faster. Real estate mortgages though still
important constitute a proportionately smaller part of total credit. Mortgage
backed securities have turn debt into equity investments.  Most of the mergers
in recent years were done with a combination of loans and stocks. Equipment
leasing, for example, gets liquidated quickly. Vendor financing has very little
to workout and are mostly liquidations candidates. Lucent and GE own 15% of
scores of bankrupt companies that translate into zero salvage value. The process
was visible in the Asian financial crises that began in 1988. Most of the damage
was donne in a few weeks and then it has been more than 3 years now and the
workout is still in process.

Unlike 1929, when credit was used only to purchase equity shares, today's equity
market crash affects not just investor losses, but massive  corporate and
personal borrowing based on pre-crash market values not just from banks, but
significantly from the capital and credit markets. Structured finance and vandor
finance were unknown until a decade ago. Look at the GE Capital lists of
financial services and you will see short fuses in most of them. Remember GE is
the world buiggest and most extensive financial gonglomerate, drawfing the
Citigroup by a wide margin.


(The following was posted to another list in December 2000.  Since then both
Enron and PG&E have filed bankruptcy.)


Here is an official list of activities of GE Capital:

Capital Services, a wholly owned subsidiary of GE, is a diversified financial
services company that creates comprehensive solutions to increase client
productivity and efficiency. Its operations consist of 28 distinct businesses in
the areas of Equipment Management, Consumer Services, Mid-Market Financing,
Specialized Financing and Specialty Insurance and includes global operations in
Europe, Asia and Latin
America.

Aviation Services is one of the world's largest aircraft leasing companies, with
an owned/managed fleet of 850 airplanes and an additional 150 firm Boeing and
Airbus aircraft orders. GE Capital Aviation Services began its involvement in
aircraft finance in the U.S. over 30 years ago.  Today, it has numerous
long-standing customer relationships globally and has significant expertise in
both aircraft hardware and complex financial/aircraft trading transactions.
(The EU's antitrust ruling agains the GE/Honeywell merger was based on
monopolistic implications of GE aircraft leasing in seeling GE jet engines.)

Commercial Equipment Financing provides innovative solutions to meet the
equipment and real estate financing needs of growing businesses, government and
not-for-profit entities. Our specialists in the manufacturing, transportation,
construction, corporate aircraft, electronics, material handling, services, and
healthcare industries will help you with equipment acquisitions. Through
creativefinancing and lease structuring, you can increase your borrowing
capacity, leverage favorable tax situations, and mitigate equipment
obsolescence.

Commercial Finance is a leading global provider of innovative financing
solutions primarily for non-investment grade companies. GE  Commercial Finance
was created in 1994 and consists of seven
customer-focused business segments.

Employers Reinsurance Corporation is a world leader in risk management
solutions. ERC provides risk transfer to insurance companies,  Fortune 1000
companies, self-insurers, healthcare providers, associations and other  groups.

GE Equity is the private equity arm of GE, and is a subsidiary of GE Capital. GE
Equity offers innovative deal structures, which includes the use of preferred
stock, convertible debt, subordinated debt, and common stock. With a portfolio
of over 150 companies located throughout the United States, Latin America, Asia,
and Europe, GE Equity provides creative,  flexible,  and innovative deal
structuring designed to satisfy the needs of its clients. GE Equity was formed
in late 1995 as part of GE Capital. With 120  investment professionals, and five
business units, GE Equity continues to create value for its clients by providing
them with the strength of the GE brand name, distribution channels, technology
support, business training, portfolio company networking, sourcing discounts, GE
knowledge and operating experience.

Financial Assurance is a dynamic, integrated family of investment and insurance
companies, which includes nine business units. GE Financial Assurance provides
quality financial security solutions that
help consumers accumulate, preserve and protect wealth over a lifetime and
achieve desired financial goals during each stage of their lives.

Global Consumer Finance is a leading provider of credit services to retailers
and consumers in 29 countries around the world.   Global Consumer Finance offers
private label credit cards and proprietary
credit services to some of the world's leading retailers and manufacturers,
automobile financing solutions through auto dealers, and diversified financial
programs directly to consumers.

GE Global eXchange Services combines innovative Internet commerce technologies
with Six Sigma process disciplines to create intelligence for business supply
chains around the globe. The company enables global  business-to-business
Internet commerce by offering Internet Data Exchange (IDE), which supports all
major data formats including eXtensible markup language (XML); Enterprise
Application Integration (EAI)  software;  procurement software and services; and
trading partner exchanges. Managing the world's largest electronic community of
more than 100,000 trading partners, GE Global eXchange Services is a part of GE
Information Services, Inc., a wholly-owned subsidiary of the General
Electric  Company, USA - and is headquartered in Gaithersburg, Maryland.   (800)
560-4347.

Mortgage Insurance Corporation for lenders and investors, we reduce financial
risk by protecting against borrower default. For borrowers, that may mean an
opportunity to buy a home sooner... with less down
payment.

Real Estate finances and invests in a broad range of commercial and residential
properties. Real Estate provides financing for the acquisition refinancing and
renovation of income producing properties such as office buildings, rental
apartments, shopping centers, industrial buildings, mobile home parks, hotels
and warehouses. Financing includes intermediate to long term senior or
subordinated fixed and floating rate
loans, as well as equity on a joint venture basis. Loans range from $2 million
for single property mortgages to several hundred million for multi-property
portfolios.  Real Estate also offers loan servicing and asset management
expertise to other real estate investors and advisory services for pension fund
clients through GE Capital Investment Advisors.

Structured Finance Group is a major investor and leading provider of innovative
financial solutions for clients in the global commercial and industrial,
communications, energy, and transportation sectors.        With more than 30
years of experience, Structured Finance Group meets the needs of its clients by
combining industry and technical expertise with significant financial
capabilities. It delivers a full range of
sophisticated financial services and products and participates in development
projects, partnerships and joint ventures.

Vendor Financial Services is a global leader in providing financial solutions
and services to equipment manufacturers,  distributors, dealers and end users.
Vendor Financial Services has built and managed successful private label and
outsourced sales financing operations by creating flexible programs that sell
where our customers need to sell: directly to end users of all sizes, through
channel distribution, in
the not-for-profit arena, to local, state and federal governments. And every
commitment is undertaken to
help our customers generate more revenue and enhance their brand equity through
innovative, tailored programs. With approximately $15 billion in served assets,
Vendor Financial Services works with our
customers to drive new business and make existing customers repeat customers
through superior service, a commitment to quality and fairness, and the
application to the latest technology.

Well, every one of the above is a financial time bomb with a short fuse!
Every deal GE Capital is involved in will find itself engaged as both lender and
equity partner of the borrowers subsidary, holding both preferred and common,
bonds and shot-term papers structured by
service the bonds. In fact it is not much an exaggeration to say that GE lends
to itself for its own expansion across corporate borders.  Typically GE Capital
funds the construction of a production facility which it then owns, then leases
it to a business entity which it also owns minority interest, to whom its give a
credit line, for whom its provide lender financing to push sales, and to whom
its provide factoring and payment insurance for a fee. The key advantage always
traces back to GE's financial powess to get cheap money in large chunks and
retail the funds at profitable spreads, expoliting the financial power to usurp
management control to creat unseen monoplolies around anti-trust regulations.
Well,  lately GE bonds have experienced a rapid rise of interest cost that has
yet to peak, and the slow down of the economy is making even GE Capital's good
deals look bad, let alone crazy deals in telecoms and GE    Global eXchange
Services.

Another over-looked factor is that, to avoid capital gain tax,  everybody,
corporate and personal alike, was borrowing against appreciated share values.
That was one of the reason prices kept going up was because there were few
sellers. Now all these loans are under water. So margin calls force fire sales.
For every dollar liquidated from sale, 28% of the appreciated value goes to
capital gain taxes. That accelerates the collapse into a fast downward spiral.
California's three investor-owned utilities, which supply power to
customers at frozen rates ranging between $54 and $65 per megawatt hour, are
paying as much as $1,200 per megawatt hour for their juice.  Since June 2000,
they have amassed a deficit of more than $7 billion.  Prior to deregulation,
California spent $23 billion a year on electricity.  Recently, it has been
spending as much as $850 million a day.  Over the course of the last week, the
credit ratings of both Southern  California Edison and Pacific Gas Electric Co.,
the state's other big utility, have been cut.  Wednesday,
Standard & Poor's joined in the chorus, putting the two utilities on negative
credit watch. The California electric ultitlities bankruptcies are a certainty.
So a few tens of billions in every sector, and the banks     are cooked.


Henry C.K. Liu

Sabri Oncu wrote:

> Henry,
>
> I am aware of the list below:
>
> http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3WH7L1NUC&liv
> e=true
>
> Do you know of other sources information on companies with exposure to
> Enron? By the way, why do you think GE may be the next big one, because of
> its heavy involvement in finance and derivatives of all sorts?
>
> Best,
> Sabri Oncu
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