NYSE Moves to Delist Enron Stock

Enron Corp.’s fall Tuesday from the august New York Stock Exchange to the lowest tier of securities trading--the unregulated “pink sheets”--reflects deep skepticism about the energy-trading firm’s past and future, experts said.

At this point, few financial institutions will allow their names to appear in the same news report as Enron if they can help it. The NYSE, in its announcement Tuesday that it is suspending trading in Enron pending an official delisting, avoided pointed language. Instead, the exchange chose to explain the move by citing the likelihood of a “protracted” bankruptcy, and uncertainty “as to the timing and outcome of this process as well as the ultimate effect on the company’s common shareholders.”

The NYSE’s technical basis for suspending trading--the first step toward booting the stock off the market--was that Enron’s shares have failed to close above $1 for more than a month. That is one of the grounds for delisting under NYSE rules.

But the exchange has plenty of leeway in allowing companies to trade even after a descent into penny-stock territory, if market officials see residual value for shareholders, and a benefit for the NYSE itself.

One example is Bethlehem Steel, which has traded below $1 on the NYSE since the company filed for Chapter 11 bankruptcy protection Oct. 15. The stock ended at 51 cents Tuesday. Also, Finova Group, a finance firm that exited Chapter 11 last August, has spent the last two months below $1.

The NYSE temporarily halted trading in Enron on Friday, and that halt lasted through Tuesday.

Enron said its stock now will trade in the so-called pink sheet market under the symbol ENRNQ. It was quoted there Tuesday at 50 cents.

Pink sheet stocks are traded between brokers; prices can be viewed at www.pinksheets.com.

Shares of bankrupt companies frequently turn out to be worthless when the companies reorganize. Thus, many experts say most trading in Enron shares will be sheer speculation. “It’s just hoping that you buy low and the stock shoots up for a day on some news,” said Jon Schotz, head of Santa Monica investment bank Saybrook Capital. “You’re gambling. Red or black.”

But Lawrence E. Harris, a professor of finance at the USC business school, said good reasons may exist for the NYSE and other markets to continue listing companies that have fallen on hard times. Flexibility in selling stock to record losses for tax purposes can be important for shareholders, he said. Also, exchanges may not want to lose listings of bankrupt companies that will emerge, reorganized, as solid operations with new common shares, he said.

Harris also said bond holders and other creditors of bankrupt firms, whose claims take precedence, sometimes allow stockholders to retain valuable interests as an incentive to get companies out of bankruptcy more quickly.

Enron, however, is a different matter, especially because its accounting irregularities may have been outright fraud and, at the very least, are inconsistent with NYSE requirements for accurate financial reporting, Harris said.

“The NYSE does not want its list to be depreciated by a rogue firm,” he said.