A hilarious 2001 Wall Street research note praised Enron's 'revolutionary' business model 9 months before it started to collapse

Today, Enron’s name has become a byword for accounting fraud and corruption, but obviously that wasn’t always the case. Before it collapsed, it was known for being a cutting-edge innovator in pretty much any sector it turned its mind to.

And so there’s some pretty cringe-worthy commentary about the company circulating, dating back to before it fell apart. But a note posted on Wall Street Oasis on Enron, written in January 2001, is perhaps the most breathtaking.

It was written by researchers at Bear Stearns, which itself went under in 2008 and was acquired by JP Morgan.

One of the opening paragraphs gives the tone of the piece, with sets a $US98 share price target for the company, up from $US76 at the time it was written:

Already an established leader in the natural gas industry, Enron is moving rapidly — through revolutionary communications systems and interfaces — to become the world’s preeminent energy and commodities marketer, high-density Internet distributor, and distributed energy leader. We believe that Enron should be compared to leading global companies like GE, Citigroup, Nokia, Microsoft, and Intel, and that its valuation reflects this eminence.

The rest of the note isn’t much better.

The Bear Sterns price target must have seemed for a while to be too pessimistic. By August, the price had surged to above $US90 per share. At the same time, whistleblower Sherron Watkins sent a message to Enron’s CEO warning that the company could “implode in a wave of accounting scandals.”

By October, the company was reporting massive losses, and by December it had filed for what was then the biggest bankruptcy in American history.

The note is actually a little difficult to read. It refers to a “virtually unlimited” market for Enron’s retail energy services, noting that Fortune magazine named it one of “America’s Most Innovative Companies” five years in a row.

The earnings figures expected for both 2001 and 2002 turned out to be a little rosy, too:

The note is also positive about Enron’s asset sale plans. It turned out later on that those assets had colossally inflated values. Here’s the note:

Enron is currently seeking to monetise several billion dollars worth of assets over the next year, including sizable past investments in its international portfolio. While we applaud these steps, sales of certain assets could prove more difficult in the current global economic environment.

Not all analysts felt the same way — when Richard Grubman flagged up Enron’s evasiveness when it came to its balance sheet, CEO Jeff Skilling called him an “arsehole” on an conference call with Wall Street researchers.

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