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Updated from 2:18 p.m. EST

The nation's two biggest banks,


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J.P. Morgan Chase

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, say they learned their lesson about fancy financing after being raked over the coals for



But skeptical lawmakers on Capitol Hill aren't so sure.

So, a Senate subcommittee will hold an all-day hearing Wednesday to see if the banks really are changing their ways in the aftermath of one of the nation's biggest corporate scandals, and discuss the need for possible stiffer regulation.

In advance of the hearing, lawmakers released a new batch of information that paints a highly unflattering picture of several previously undisclosed business deals between the two big banks and Enron.

The release of the information and news of the hearing helped drive down shares of Citigroup and J.P. Morgan. In afternoon trading, Citigroup's stock was down $1.40, or 3.7%, to $36.15, while shares of J.P. Morgan dropped 93 cents, or 3.8%, to $23.50.

The selloff in both stocks is reminiscent of the way Wall Street reacted this summer, when the Senate Permanent Subcommittee on Investigation held a similar hearing to examine $8 billion in prepaid oil and gas deals involving the banks, Enron, and several offshore shell companies. Lawmakers denounced the oil and gas deals arranged by the banks as "sham transactions" that helped Enron inflate its revenue.

And lawmakers on the Senate subcommittee again are making similar claims about these additional financing deals involving the banks and Enron's fledgling pulp and paper trading business.

A 35-page investigative report compiled by the Senate subcommittee concludes the banks were willing participants in "sham contrivances" that aided Enron's "deceptive accounting or tax strategies." And Enron rewarded the banks with millions in fees and "favorable consideration in other business dealings."

The report highlights a number of internal bank emails and recent interviews with bank employees that show some of them had grave doubts about the transactions. In some instances, the bankers even questioned their superiors about reasons for going forward with deals.

In one particularly pointed email, for instance, a Citigroup employee writes: "Sounds like we made a lot of exceptions to our standard policies. I am sure we have gone out of our way to let them know that we are bending over backwards for them ... let's remember to collect this IOU when it really counts."

In an interview with committee investigators, a J.P. Morgan employee testified that the bank had marketed a complicated and questionable tax-avoidance strategy it set up for Enron to at least 15 to 20 other companies.

The four deals in question -- which have bizarre names like Slapshot, Fishtail, Baccus and Sundance -- were part of a strategy by Enron to move the assets of its pulp and paper trading business off its balance sheet, while at the same time inflating revenue by an estimated $112 million and saving some $65 million in taxes. The committee report tries to explain the deals in a series of mind-numbing flowcharts that resemble some Rube Goldberg-like contraption.

The committee's investigators also question whether the banks' investments in some of these deals were ever at risk.

In the Fishtail transaction, for instance, the report notes that J.P. Morgan was permitted to defer "any actual investment in the venture until a later date,'' a move that effectively rendered it a "sham joint venture.'' The Fishtail deal was conceived as a joint venture between J.P. Morgan and the now-infamous LJM2 Partnership in a special purpose entity that purported to buy Enron's pulp and paper business for $200 million.

LJM2 was the $390 million partnership run by Andrew Fastow, Enron's former chief financial officer, who has since been indicted on fraud charges. Enron relied on LJM2 to buy and sell some of the assets that no one else wanted.

At the hearing, a number of officials from the banks and regulatory agencies are expected to testify, including Douglas Roeder, the Office of the Comptroller of the Currency's senior deputy comptroller for large banks, and Richard Spillenkothen, the Federal Reserve's supervision director.

Testifying for Citigroup will be Charles Prince, the newly appointed chief executive of corporate and investment banking. He's expected to say that under policies enacted by the bank this summer, it's doubtful that Citigroup would participate in those kinds of deals now.

A J.P. Morgan spokesman said the nation's second-largest bank also had taken steps this summer to bolster its corporate governance practices and heighten the bank's internal review of all its sophisticated lending deals. "While we don't think we did anything illegal ? we would not do this transaction today,'' the spokesman said.

But Sen. Carl Levin (D., Mich.), the subcommittee's chairman, said his goal is to gather testimony from bankers and regulators in an attempt to gauge just how much things have changed since Enron.

"Wednesday's hearing will give us the opportunity to hear what they and the federal regulators are doing so we can determine what the federal government must do in addition to deter these kinds of acts," said Levin, in a prepared statement.

Of course, it's doubtful Levin will get a chance to follow through on the hearing. Next year, he'll be replaced as chairman when the Republicans take control of the Senate.