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Morning Line: Shrewd investors see this as moment to buy BP
The news from America is leading towards two fundamental conclusions about BP as it faces the Gulf of Mexico oil spill crisis.
The news from America is leading towards two fundamental conclusions about BP as it faces the .
Firstly, it will be forced not to pay out its next dividend. contained in the pay-out and use them later but it isn't going to be able to make any distributions. Investors should accept that.
Secondly, BP is going to reach a conclusion with the US government which ensures that it will pay out a lot of money towards the clean-up but in exchange for that pay-out it will be able to pay out a relatively fixed amount of money.
It will no doubt have to let go of control of the pay-out process to a government-run agency as part of this. That enables the president to get some of the credit for the clean-up and limits the ability of the company to re-build its US reputation. But it could also enable it to put a price on the spill rather than face on-going soaring costs.
The president's senior adviser David Axelrod spelt this out when he said the money would go into a escrow account. This makes it look like BP is separated from the payouts which implies they are fairer for the people of Louisiana. However, for BP it also moves them a step closer to being able to put a lid on the total sum involved. Many will argue that as soon as you have any realistic figure on the costs you have to start to see BP's current share price as cheap.
Among those who are the newly-appointed managers of the Schroder Income fund Kevin Murphy and Nick Kirrage.
Robin Geffen, the founder of Neptune Investment Management who recently shot to fame with his fight against Prudential's $35.5 billion takeover of AIA, has also been buying. He agrees that the political manoeuvering in the United States are moving the company closer to being able to put a cap on the cost of its liabilities.
He said: 'This isn't going to be a liability forever and a day, the scheme being discussed would allow people to draw a line under it.
'We took the view last week when it got absolutely cannoned that it was reaching a low point. We thought the Americans would have one last panic and it would look like they were believing the whole thing was going down which obviously we don't believe it is. Regardless of what happens in the next dividend I think it still looks undervalued.
'The Americans do not want to completely destroy BP to the extent that it is bought by the Chinese because they are sitting on strategic assets they do not want them to have in the Gulf of Mexico.'
BP shares fell in London trading, down 3.73% at 377.2p.
More about this:
More from us
- BP: Should investors 'be greedy when others are fearful?'
- BP shares fall to year lows on US political pressure over oil spill
- Schroder Income
- BP hit by fears of $20bn demand for Gulf clean-up
13 comments so far. Why not have your say?
robert street
Jun 14, 2010 at 14:00
No - but Yeah!
report thisPaul Darlington
Jun 14, 2010 at 14:19
Well, its a match of two halves Jimmy. The second half has just kicked off,
report thisJETTE BARTON
Jun 14, 2010 at 14:20
Even if there is an escrow account I suppose the US govt. can't stop BP being sued as well. Smart move by US but it doesn't get BP out of trouble maybe big trouble. Grab the money and then let the dogs loose.
report thisWiseOwl
Jun 14, 2010 at 14:22
Its the same re-cycling of news, anyone got anything better to say?
report thissnoekie
Jun 14, 2010 at 14:42
And cause for great concern because of the comment that
'It will no doubt have to let go of control of the pay-out process to a government-run agency as part of this. '
1 cent to $100 that they will splash out left right and centre on the feeblest of pretexts.
Govt must stay out of that process. More to the point, Obama in intermeddling in business, something he should stay out of because he is a socialist who is inot in private practice and will happily the money, because it is not his, and by allowing 'fraudulent' claims, he will be buying votes.
report thisMichael Hellman
Jun 14, 2010 at 15:14
Whilst I think BP is looking like a good long term buy, I cant help thinking back to other household names like Equitable Life, Northern Rock, Bradford&Bingley, Halifax. If a "cap" can be put on the liabilities then lets sit back and watch those BP covered warrants rocket, but on the other hand......
report thismichael mouse
Jun 14, 2010 at 17:41
the shares might be a buy, but it seems premature to believe that the company's liability is capped.that will surely depend on the US courts.
report thisPaul Gill
Jun 14, 2010 at 18:51
I can see BP shares dropping to 300p unless the US government accepts a fixed amount and guarantees no private lawsuits,therefore once BP pays thats the end of the matter,if this happens then yes they are a good buy,but we all know the Americans love a lawsuit and so until that is finalised keep your eyes open and beware you don't lose your socks!!!
report thismahendra sodha
Jun 15, 2010 at 17:20
Does anybody know if, subsequently, BP will have some/any claim (for the costs it will have incurred) against Transocean and Halliburton?
report thisIan Hazell
Jun 17, 2010 at 10:38
The question of a counter claim against Transocean & Hiliburton seems to me to be of vital importance..... A good project for a young investigative journalist perhaps?
report thisCape Town
Jun 20, 2010 at 16:01
I am astonished that the president of the united states should publicy rebuke BP in this way. Remember these things
It is BP, not British Petroleum as Obama calls it – most shareholder capital is in the hands of US citizens I understand (tb checked) and dividends are as important to US peneionsers as ours.
This kind of rip-off of 20 billion could happen in a third world country , but in America? There is a judicial system after all and respect for the law. What ever made BP agree to this escrow fund, where were the levers? If there is some agreement to limit / share clean-up and compensation costs, then it needs to be made public on grounds of transparency in the market.
BP has an arangement with the owners of the rig, Transocean and Halliburton – Halliburton is the US company that used to be headed by Dick CHENEY, before he resigned to lead Bush’s US into the Iraq war... to have some building work to do.
So a bit of respect please from a democratic country (the US) for the due process of law and transparent government. Or are we in India and Union Carbide or Goldman Sachs and the damage they have caused throughout the world. Did any Indian or UK government criticise and punish these outfits? Yet their damage was greater.
The current crit by White House Chief of Staff Rahm Emanuel that BP's Tony Hayward has gone boating with his son is totally out of order and a gross impertinence. He is clearly doing the bidding of his master Obama and trying to engineer the sacking of the head of a respectable company. Shame of these policiticans and where is Cameron to defend BP from this upstart?
The main challenge for BP is to get out of this supine position and establish their respect for the planet and win back the their respect and integrity, so important to shareholder value (I bought at 380).
report thisAnonymous 1 needed this 'off the record'
Jun 20, 2010 at 16:05
Fully support the previous contributor. The company is important ot the economy of US as well as UK, so the role of government now must to be stabilise. "The upstart" needs to be removed and replaced by a cooler head.
report thisCape Town
Jul 04, 2010 at 15:13
And how wrong the shrewd investor was
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