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Friday, 30 November, 2001, 22:54 GMT
Enron crisis widens
Enron employee leaves the company
Enron has begun wielding the axe among its staff
The collapse of the energy giant Enron could cost the insurance industry $2bn, according to the ratings agency Fitch.

"Coming in the wake of the events of September 11, Enron's problems will only serve to further harden insurance rate activity," Fitch said.

The news comes as sacked workers come to terms with their shock, and amidst revelations of a range of lucrative perks enjoyed by some Enron directors.

The cost to the insurance industry from the collapse of Enron would arise from the coverage of the company's bonds and other financial transactions, Fitch said.

Additional insurance claim could come in relation to liabilities held by Dynegy, which pulled out of merger plans with Enron, and Enron's auditor Arthur Anderson, Fitch said.

"These losses are expected to be manageable if they are well diversified among insurers and reinsurers," Fitch said.

Bankruptcy protection imminent

The bad news was brought to the insurance industry soon after Enron's traders in London were brought another shocking announcement.

The company, which has said it will file for bankruptcy next week, axed 1,100 jobs at its London energy trading centre on Friday, leaving just 250 staff.

Many left the building feeling robbed, not only of their salaries but also of the year-end bonuses they had expected to receive.

Making matters worse from their point of view were revelations that many Enron directors had enjoyed a wide range of lucrative company perks, including consultancy work or favourable purchasing agreements from affiliated companies.

"Directors who have side consulting arrangements are not considered, under governance guidelines, to have the necessary independence from management," said director of the Center for Corporate Governance at the University of Delaware, Charles Elson.

Detailed disclosures

In a statement published earlier this year, Enron gave details of extra earnings by its directors.

  • John Urquhart, director, received $493,914 in 2000 for consulting services to Enron.
  • Lord John Wakeham, director, received $72,000 in 2000 for his advice on Enron's European operations
  • Herbert Winokur, director, was affiliated with the privately owned Enron supplier National Tank which made $370,294 in sales to Enron in 2000

"Best practice is no consulting fees to any directors," said editor at the research body The Corporate Library, Nell Minnow.

In addition, the Enron document revealed that Enron used a travel agency which is 50% owned by the sister of its chairman and chief executive, Ken Lay.

Sharon Lay's travel agency sold travel services worth $517,200 in 2000.

Questions asked

US lawmakers, under the command of the Congress' subcommittee on the capital markets chairman Richard Baker, have asked the financial markets watchdog, the Securities & Exchange Commission (SEC), why it had not seen the collapse of Enron coming, a spokesman said.

"[Mr Baker] is very interested in hearing from the SEC about whether the regulatory ball had been dropped with regards to Enron, and he's also interested in whether the analysts dropped the ball as well," Mr Baker's spokesman said.

See also:

30 Nov 01 | Business
Enron crisis claims 1,100 UK jobs
30 Nov 01 | Business
Enron 'to file for bankruptcy'
30 Nov 01 | Business
Europe escapes Enron knock
21 Nov 01 | Business
Crisis fears hit Enron shares
09 Nov 01 | Business
Traders wary of Enron's fate
09 Nov 01 | Business
Enron admits inflating profits
01 Nov 01 | Business
Troubles multiply at Enron
22 Oct 01 | Business
Probe sends Enron shares tumbling
05 Oct 01 | Business
Q&A: Bankruptcy made simple
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