Andersen considered dumping Enron a year ago

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Andersen is drawn into Enron controversy

Andersen, the accountancy firm, yesterday acknowledged the existence of an internal memo proving that it knew in February of the troublesome financial situation at Enron, the energy trader that collapsed in history's largest bankruptcy.

The memo details a meeting of Andersen executives who discussed Enron's massive "off balance sheet" financing and even pondered dropping the company as a client. Andersen said the memo was merely a standard annual review about whether to retain Enron.

In revealing Andersen's latent concerns, the missive provides grounds for lawsuits against accountancy firm by the thousands who have suffered losses following Enron's formal demise on 2 December. It also piles further embarrassment on the company after revelations that key staff ordered the shredding of documents despite an investigation into Enron having already begun.

Citigroup, the world's largest financial services group, yesterday capped its exposure to Enron at $455m (£316m), $228m of which it took in a charge in the fourth quarter. The bank is among Enron's largest creditors and advised the company on its failed merger with Dynegy. Separately, Bank of New York blamed Enron's collapse for an 11 per cent drop in fourth-quarter profits.

Earlier this week it emerged that a senior Enron executive who had once worked at Andersen warned one of the accountancy company's partners of the company's perilous financial situation in August. Sherron Watkins raised her concerns in a telephone conversation, citing the off balance sheet financing behind the year-2000 accounts signed off by Andersen in February.

She also voiced concern to a friend at Andersen, which subsequently reconsidered ditching its client once more. Enron countered Andersen's concerns citing an independent investigation by the law firm Vinson & Elkins into the off balance sheet financing.