The sudden collapse of energy giant Enron will have global consequences for many banks and insurance companies who were involved in its energy trading and supply activities. Notably affected are insurers, who underwrote a large portion of the company’s debt securities.
Enron officially filed for Chapter 11 protection over the weekend, following the failure of merger talks with rival energy company Dynegy Inc. Its collapse could be the biggest bankruptcy in U.S. financial history with debts in excess of $13 billion. Preliminary estimates indicate that life insurers may have as much as $1 billion in loss exposures, and P/C insurers may have twice that amount at risk.
Enron’s main financial backer J.P. Morgan Chase, who chose not to advance further funds, stands to lose around $500 million. Other bank loss estimates include the U.K.’s Abbey National, $165 million, Barclay’s $100 million, France’s Credit Lyonnais $250 million, Royal Bank of Scotland $100 million, Holland’s ABN-Amro $98 million, and four Australian banks between $50 and $100 million.
In the Netherlands Aegon NV, the parent of Transamerica Corp. was heavily involved in Enron’s European energy trading activities, and announced that its gross loan exposure was around $300 million. Holland’s ING Group also has substantial exposure, estimated at around $195 million.
In the U.S. life insurers John Hancock with an estimated exposure of $320 million, Principal Financial group with $172 million and MetLife with $63 million stand to lose the most.
Chubb Corp. estimated that its exposure to surety bonds issued by Enron is around $220 million. Other bond insurers are also exposed, but haven’t yet made estimates on the losses they may be facing. Some analysts have put the total as high as $2 billion. Standard & Poor’s has estimated that the total worldwide exposure to Enron-related derivatives may be as high as $6.3 billion.
Other commentators have indicated with near certainty that a number of lawsuits will be filed against the company, its officers and directors, including shareholders’ derivative actions, seeking recovery from investments that have plunged in six months from around $80 per share to zero. Bermuda’s ACE Ltd. and XL Capital reportedly face significant exposures from these liabilities.
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