In addition to the $13 billion in debt that Enron carries on its books, it has guaranteed at least $4 billion in off-balance sheet loans, and the hidden debt could total as much as $10 billion, said Carol Coale, a stock analyst with Prudential Securities.
The CEO and his son, ex-Chief Financial Officer Timothy Rigas, as well as two other members of the clan, have resigned in the last month; the resignations come amid disclosures of billions of dollars of off-balance sheet loans to the family backed by the company.
In other words, to continue offering high yields, Yu'E Bao has started to display classic signs of maturity mismatch – a cause time and again of instability in financial institutions.Adding to the concerns, Yu'E Bao is shifting more of its assets into assets held under repurchase agreements, a structure in China that allows banks to invest in high-yielding off-balance-sheet loan products.
Holding a balance-sheet loan allows the originator to reap all the financial benefits of the investment.
When a balance-sheet loan is held, the holder assumes the default risk or credit risk of the loan.
In interviews, one former Chesapeake employee with knowledge of the company's operations dismissed the notion that Chesapeake was essentially paying back an off-balance-sheet loan by paying unusually high fees for use of the pipelines.
The complex way they go about making off-the-balance-sheet loans is at the heart of China's $6 trillion shadow banking industry, which the government is now trying to tame.
The American cable company fired its accountants, Deloitte & Touche, after having to restate cashflow and revenues for the past two years, a few weeks after it emerged that Adelphia had made off-balance-sheet loans to its founders, the Rigas family.
On Aug. 10, government overseers acted again, ordering banks to move any off-balance-sheet loans back onto their books and to make provisions to safeguard against a rise in bad loans, according to a copy of the government order given to The New York Times by an industry expert.
As subjects like off-balance-sheet loans, auditing controls and insider trading have become cocktail party fodder, business professors find that students who in past years sat quietly through their lectures, perhaps discreetly dozing on some occasions, are now scrutinizing every word.
