Reduction of trading lines by Fimat

Dutch - there is a mess with Fimat and since you used to run John's book an=
d may see something in this situation I do not, I wondered if you could giv=
e me any feedback in this before I send it to Deffner. Thanks, Sarah=09

On Tuesday, Oct. 30 Warren Tashnek (Fimat Houston) and Steve Forman (Fimat =
NY) telephoned me to inform Enron that Fimat cut its trading lines from $20=
million to $11 million for Enron. This cut is irrespective of the $20 mil=
lion credit limit we have from Soc Gen for the margin line. (Soc Gen is th=
e bank that owns Fimat brokerage.) Fimat made this decision based on the f=
ollowing events according to Steve:

Thursday 10/25
ENE positions were expitted from ABN to Fimat. The positions came from exi=
sting positions at ABN, JP Morgan, SSB and Goldman Sachs. Generally broker=
s agree how to handle expitting of trades including the transfer of cash as=
sociated with the moving of the trades.=20
Specifically a major issue evolved with ABN and Fimat. In this case, Fimat=
agreed with ABN to transfer the trades at the trade price and then rebook =
them at the trade price. There was a $10 million variation margin associat=
ed with this transfer of trades at the trade price which ABN agreed to send=
on Friday to Fimat. Since Fimat agreed to accept the trades at the trade =
price, Fimat was exposed in the event that ABN did not send the $10 million=
on Friday. If Fimat had agreed to transfer the trades at the settlement r=
ate instead of the trade price then Fimat would not have been exposed for $=
10 million in variation margin on Thursday night. =20

Friday, 10/26
On Friday, Fimat did not receive its $10 million from ABN as agreed. When =
Fimat called ABN, ABN told Fimat that ENE called ABN and instructed ABN to =
send the money directly to ENE. This left Fimat exposed for $10 million on=
behalf of Enron. =20
On Friday morning, Fimat brokerage statements showed that ENE was owed $28 =
million by Fimat. Fimat sent $5.7 million to Soc Gen to pay down the Soc G=
en margin line for Enron. This left $22 million available for ENE but Fima=
t wanted its $10 million. This led to confusion between Enron and Fimat.=
=20
On Friday, there was a conversation between Fimat NY and Fimat Montreal. F=
imat Montreal asked Fimat NY to take positions on behalf of ENE. The numbe=
r of positions and the variation margin associated with these positions wer=
e undisclosed. =20
Very late on Friday, HSBC tried to transfer Canadian positions to Fimat Can=
ada without an account for Enron at Fimat Canada. =20
Based in the bad press on Enron and the gossip in the financial community r=
ight now, Fimat NY told Fimat Montreal to refuse the transfer. =20
Fimat wants to know why Enron is expitting trades from bigger brokerage hou=
ses that have increased risk allocations fro Enron. Fimat is uncomfortable=
with these events. =20

Monday, 10/29
Fimat decides it wants an explanation from Enron. Fimat wants to reassess =
the brokerage statements and double check both the amount of money transfer=
red to them and also the positions transferred. Fimat informed Enron that =
it would not move money based on brokerage statements alone. Fimat would n=
ot confirm to Enron what amounts of money should actually move until later =
in the day. This does not work for Enron as we must inform our Treasure by=
8:00 am as to what cash transfers will occur. Under our current loan agre=
ement with Soc Gen, Fimat informs Soc Gen by 12:00 noon if money should mov=
e so Fimat is changing its way of doing business with Enron based on its di=
scomfort with ENE as a counter party. =20

Tuesday, 10/30
100 positions were expitted to Fimat to offset the gas positions from ABN.

Fimat proposed solutions
$3 million T-bill posted to Fimat as collateral on ENE behalf
Guarantee to Fimat with respect to trading from ENE (although ENE has alrea=
dy posted guarantee to Soc Gen for margin line)
ENE to convince Soc Gen to guarantee to Fimat that Soc Gen will make paymen=
ts on ENE's behalf

My tkae on the situation:
Fimat is upset based mainly on Enron's handling of expitted trades and bad =
press. I told Fimat that I believed the reason trades were expitted to Fim=
at was that ENE wanted to move its positions to brokers who were offering m=
argin lines to ENE. I promised to look into our handling or mishandling of=
the situaiton but it seems that disorganization rather than ill intent was=
responsible for Fimat's inconveniences. I explained that Enron is prepar=
ed neither to mediate between Soc Gen and Fimat nor to cause Soc Gen to mak=
e payments to Fimat on our behalf. That issue should have been resolved wh=
en the amrgin line was set up and the payment mechanism has been working fi=
ne so far. As far as the confusion with ABN, we were not party to the disc=
ussions betweeen Fimat and ABN and can not make any comment to that. Fin=
ally we can not make margin payments to Fimat when we do not have proper no=
tice time. I am sorry that there is bad press out there but I do not think=
we should give Fimat special permission to comb through our statements on =
an on going basis. This may have been necessary for them earlier this week=
but they need to get their act together and get the proper number to us ea=
rly in the morning like all the other brokers. =20

We need to determine how much we need Fimat right now. I am not inclined t=
o entirely blow them off especially sinces I do not want them to tell othe=
r brokers that we are acting strangely and hurt our reputation further righ=
t now. At the same time, no one around Enron needs more work right now and=
we can not hold a high maintenance broker's hand hand every step of the wa=
y. Let's decide what to do and implement.

Sarah