Enron Corp. - University of California | Office of The President

its financial results. Thus, the banks and bankers who were partners in LJM2 were not only
knowing participants in the Enron scheme to defraud, they were direct economic beneficiaries
of it. And these payments from LJM2 were on top of the huge advisory fees, underwriter fees,
interest and loan commitment fees these banks were already getting from Enron.
650. In analyzing potential borrowers who seek commercial loans or credit facilities, banks
are required to perform extensive credit analysis of the borrower after obtaining detailed financial
information from it. Not only is this required by the internal procedures of each of the banks named
as defendants, but because a bank's commercial lending activities are subject to governmental
regulation and oversight, it is required to perform such analysis, and to have in its files
documentation that this type of detailed credit analysis occurred. Included in this credit analysis is
a detailed review of the borrower's actual and contingent liabilities, its liquidity position, any equity
issuance obligations it may have which could adversely affect its shareholders' equity, any debt on
which the borrower may be potentially liable, even if not on the borrower's books directly, the quality
of the borrower's earnings and the borrower's actual liquidity, including sources of funding to support
repayment of any loans. In addition, when each bank named as a defendant made large loans to or
committed itself to credit facilities for a corporation, it was required to closely monitor the company
by frequently reviewing its financial condition and ongoing operations for any material changes and
insist that top financial officers of the borrower keep it informed of the current status of the
borrower's business and financial condition. As a result, each of the banks named as defendants
obtained and retained extremely detailed information concerning the actual financial condition of
Enron throughout the Class Period and was aware that the actual condition of Enron's business, its
finances and its financial condition was far worse than was being publicly disclosed by Enron, or as
described or disclosed in each of the bank analyst reports on Enron.
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