Enron Losses Hit Mutual Funds

Tax-News.com, Toronto

14 February 2002

A study by Toronto newspaper the Globe and Mail into holdings of Enron stock by Canadian investors shows that many of them have suffered significant losses because of the collapse in the energy company's stock price.

Enron's stock plunged last October after the Houston-based company announced heavy losses and alerted the world for the first time to the private partnerships which had been used to keep financing structures off its balance sheet. The company sought bankruptcy protection from creditors on December 2, pushing the shares into the penny stock category, down from $80 a year ago.

Many Canadian mutual funds and financial institutions were sitting on millions of dollars in Enron Corp. stock just before the energy trading giant's spectacular collapse, and at least some are known to have suffered losses.

A study of portfolio holdings filed with the U.S. Securities and Exchange Commission, as well as information compiled for The Globe and Mail by Bell Globemedia Interactive, a sister company, show that many Canadian banks, insurance companies and mutual funds held millions of dollars' worth of Enron stock as of Sept. 30, 2001, just two weeks before its fateful announcement. The vast majority of Enron stock studied was held in mutual funds and segregated funds, which invest on behalf of individual Canadians.

The MD U.S. Large Cap Growth Fund, for example, which invests on behalf of Canadian doctors, took a $40-million hit on Enron when it sold off its remaining stock at the end of November. The fund manages $677.5-million in assets on behalf of physician members and their families.

Bank of Montreal, one of the Big Five domestic banks, manages $11.4-billion in mutual funds through subsidiary BMO Investments Inc., the country's 12th-largest fund company. BMO had $16.1-million (U.S.) worth of Enron stock sitting in its mutual funds at the end of September. By the end of October, it held only $2.1-million in Enron stock.

At the other end of the spectrum, a small startup fund managed by Middlefield Financial of Toronto counted Enron among its top 10 holdings for three months last year. As of Aug. 31, Enron made up 7.7 per cent of the Middlefield Alternative Energy Cl Fund, which manages $219,000 (Canadian) in assets. By Oct. 31, the fund held $4,000 worth of Enron stock, accounting for 3 per cent of total assets under management, the biggest weighting of any domestic mutual fund.

Most fund companies and financial institutions contacted by The Globe declined to talk about their Enron exposure. None of the domestic fund companies held Enron in their portfolios as of the end of November, according to Bell Globemedia data.

Companies refusing to talk about the debacle included Toronto-Dominion Bank's mutual fund arm TD Asset Management, with $24.2-million (Canadian) in Enron stock as of Sept. 30, Mackenzie Financial Corp.,with $4.7-million (U.S.) in Enron stock as of Sept. 30.

Some fund managers were sassy, though. Fund manager Bill Onslow of the Altamira U.S. Larger Company portfolio had 2.5% of funds invested in Enron at the beginning of last year but began selling some of his Enron stock last January because he felt the stock was trading at too high a multiple. He sold the balance of the fund's holdings at $38.43 a share in August, when Enron CEO Jeffrey Skilling suddenly resigned. "The final straw for me was when the CEO resigned," Mr. Onslow said.

.

Recommended

Write a comment