The next time Barack Obama
places heavy emphasis on the first word in British Petroleum
or another American politician boasts about having his “boot on the
neck of British Petroleum” just remember it’s your pension that’s
taking a kicking.
This is not just a
problem for City fat cats or a big bad oil company everyone loves to
hate. BP paid £6.6bn in dividends last year – equal to £1 in every £7
paid out by all the companies in the FTSE 100 – and remains a major
holding in most income-hungry pension funds.
That seemed a
reasonable strategy while returns on cash deposits were negligible but
BP’s share price has now plunged by 33 per cent since the disaster in
the Gulf of Mexico. It stood at 646p in April but traded around 433p
today.
Independent statisticians Bloomberg list household name
fund managers including BlackRock, Legal & General, Barclays,
M&G, Scottish Widows, Threadneedle and AXA among major shareholders
in BP. Some may have bought since the share price began to slide but
most are sitting on massive losses.
You could even argue that
BP’s survival – and the beleaguered giant is now being talked of as a
takeover target – is vital to the British Government’s plans to cut
budget deficits and balance its books. BP paid £5bn tax in 2009 and
£10bn tax the year before when oil prices were higher.
At the
most microscopic end of this macro economic disaster, I had better
declare an interest here; like hundreds of thousands of small
investors, I hold BP shares and hope to continue doing so.
Nobody
should belittle the scale of the disaster in the Gulf of Mexico. 11
workers died when the Deepwater Horizon rig exploded, incalculable
environmental damage has been done to more than 70 miles of Louisiana’s
coastline and tens of thousands of people’s livelihoods have been
threatened.
No wonder nearly 250,000 people appear to have joined
a Facebook
group called “Boycott BP” and American politicians including
Interior Secretary Ken Salazar seem to be competing to see who can
vilify the oil giant in the most lurid language.
Now the latest
bad news from America is that CBS
News and the Washington Post are reporting that the government may be
preparing to prosecute BP, alleging criminal negligence. BP denies
it took any safety shortcuts – despite the shameful history of its
Texas City refinery explosion in which 15 workers died – and insists
it is doing everything possible to put things right in the Gulf of
Mexico.
But the American government and media seem to have
decided the oil company put profits above safety in its list of
priorities. Nor is there any reason to suppose British politicians and
journalists would behave any differently if it was an American company
that suffered similar setbacks here.
Or is there? When the Piper
Alpha rig exploded in the North Sea in July, 1988, no fewer than
167 workers died and environmental damage pushed insured losses to
£1.7bn. It was the worst offshore oil disaster in the world at that time
and feelings ran high in Aberdeen, where many families suffered
bereavement and financial loss.
But I do not recall Margaret
Thatcher seeking to make political capital out of that tragedy by using
inflammatory language about having her boot on the throat of
Occidental Petroleum, the American oil giant which operated Piper
Alpha. Oxy, as it was known because of the Los Angeles-based company’s
New York Stock Exchange ticker, did not become the target of any
government-sponsored hate campaigns in Britain.
By coincidence, I
happened to be in Aberdeen at the time of the Piper Alpha tragedy and
remember an uncle who worked on the rigs pointing out that drilling for
oil deep below the sea is a dangerous business. Perhaps intelligent
American politicians and journalists ought to remember that fact.
Finally,
Robert Preston of the BBC asks, Will
BP be forced out of the US?:
There's another
£13bn off BP's market value today, taking the cumulative loss
since the company sprung its hideous leak to well over £40bn.
Given
that BP is a core holding of most British pension funds, that's tens
of billions of pounds off the wealth of millions of British people
saving for a pension.
And with BP dividends representing around
8% of all income going into those pension funds (and a considerably
higher proportion of all corporate dividends received by those funds),
if BP's oil spill in the Gulf of Mexico causes collateral damage to its
dividend-paying capacity, well, many of us will be feeling a bit
poorer.
As
I've written here before, it's certainly not ludicrous to assume
that the final cost for BP of this mess could wipe out at least an
entire year's profit (which for the past three years was just over £13bn
on average) - once compensation and possible fines have been paid.
Perhaps more damagingly, the debacle is
doing considerable harm to the value of its brand in the US - with what
looks like every US citizen, from President Obama down, equating BP
with the sullying of one of America's most cherished coastlines.
The
talk among BP oil executives is that the company's reputation in the
US may have been so tarnished that the board will conclude that an
orderly withdrawal from America - with the sale of its massive US assets
- may be necessary (it's widely thought, for example, that Chevron
would be an enthusiastic buyer of those assets).
Were that exit
to occur, it would represent one of the great corporate humiliations of
all time, a reversal of those mega-bids of Amoco and Arco by BP - when
under the sway of Lord Browne - which transformed a division-two
British player into one of the global giants only a decade or so ago.
And what of Lord Browne's successor as chief exec, Tony Hayward?
It would be challenging to identify any specific decision or lapse
by him as the cause of what is now seen as the worst oil spill in US
history.
But some argue that BP was slow in recognising the
gravity of the debacle after the explosion in April.
And then
there's the boringly obvious point that angry shareholders, angry Gulf
coast fisherman and angry US citizens have a very human need to blame
someone - and if not the BP boss, then who?
It's difficult to
see how Mr Hayward's tenure at BP can extend beyond his immediate
management of this remarkable crisis.
I'm not
sure what to make out of the precipitous slide in BP's share price. There is
no doubt in my mind that some big hedge funds are making a killing on
BP's CDS, and stand to make even more if they're loading up at these
levels and BP shares snap back.
But for British pension
funds, this BP oil disaster is a financial disaster. They're going
to have a tougher time making up for these losses, and it will take time
to repair the damage they sustained.
Well, whoopy frigging boo hoo for those Brit pension funds.
After all, if one lies down with the devil, one must expect the consequences.....
The unexpected always happens.
Joseph Conrad, Lord Jim
Disasters demand attention, even when they shouldn't. The depression is clearly the bigger story, now. Prediction is fun, but fairly futile. One of the greatly underestimated social forces in the world is inertia, the tendency for things to remain much as they are, for much longer than they should.
Great post Zack.
Say Leo, would you suggest the pension fund managers divest their assets from BP into any Chinese solar company?
Clearly with oil and oil companies in general getting so much scrutiny over this, the alternative energy sector should fly sky high soon.
Obviously, like many of the major investment banks, the risk models BP used to determine compensation were, how shall I say, fraudulent, for many years. Under rational circumstances, compensation would be clawed back. It's impossible to place a cap on what this should cost BP. You cannot place a dollar figure on the loss of the livelihoods of tens of thousands of people for a generation or on possibly permanent environmental devastation. BP should be wiped out. And pension funds should not be investing in companies engaged in high-stakes/high-cost practices who operate with fraudulent risk models.
That's my take, poor Brit's........................We can feel our pain.
Like our WONDERFUL "FUCK YOU SYSTEM",Any idea of the multiple BILLIONS Americans have LOST are losing because the government screwed away our retirement supplements?.
At least BP, is losing it by accident.............not by sheister Politicians, and a corrupt government.
Where the hell is our generations Jefferson?.
SOYLENT GREEN..................... remember to eat your neighbor!!!!!!!!!!.
Government Bitchezz
BP up and RIG tanking today. I thought RIG was not accountable in any of this?
Anyone ever look at the stock price of Exxon after their disaster? How many billions does BP have in profits and what can they sustain as a hit?
I'm seeing a current market cap of $115.84 billion. I'm hoping that's a misleading number, as I would have thought it would be much higher. Doesn't matter. This is a trillion dollar disaster. Even if doszap's $36B number would be correct, how many companies are in a position to pay out damages equaling 1/3 of their market cap, which is usually vastly greater than their actual value of tangible assets? I don't think BP's goodwill, if you can still call it that, is going to have much value.
Leo, last guessimate was 36 Billion and climbing...........for cost of clean up, reparations...................figure that to double if this bitch flows till December.
We have hurricane season coming.......................and it's sposed to be a bitch.
I read these figures but I'm left wondering if they're GROSSLY inflated to scare people. So much disinformation in the markets these days...all I know is some big hedgies are buying a shit load of BP at these levels.
The size of this disaster will cause the $75M cap to be evaded somehow. Perhaps with provisions on liability for intentional acts, criminal acts, or gross negligence. (This does not imply that I have proof of BP having committed criminal acts or intentional destruction, though the reports so far give me a basis for thinking such a claim is possible.)
The dollar cost of this disaster will almost certainly exceed BP's entire enterprise value, if it hasn't already. It would be a good time for the US government to put BP into some sort of conservatorship, perhaps an involuntary Chapter 11, to ensure that its assets aren't dissipated before legitimate claimants can get to them.
As for UK pensioners - that's the breaks. Pensioners get screwed many times, look what happened to people who had Enron or Worldcom stock, 99.99% of whom were not in on the respective accounting frauds.
The size of this disaster will cause the $75M cap to be evaded somehow.
You seem to agree with our president for life, that any law you don't like can be perverted, destroyed, laughed at, and cast aside at will. Be careful what you wish for.
When this finally is resolved in federal court, many years from now, I suspect the federal law limiting liability to $75 million will trump any Micky Mouse EPA regulation clearly intended to deal with "spills".
That said, if even a small portion of the alleged negligence of BP is true, these people have no business running a lemonade stand. There are competent grown-ups in the oil patch, and one group or another will buy out BP.
I wish it were that easy to get rid of the fucktards in the federal government.
BP's tight wad management who of course pay themselves millions but want maintenance costs cut to save a million here and there are now doomed for extinction. What was the cost of the battery in the preventer? $200,000? This spill may well cost them the company especially after the lawyers have finished with them who are being encouraged by the support of a democratic administration in office.
RIP BP.
I love that line in "The Usual Suspects" where the gimpy guy says something like "The greatest trick the devil ever played was convincing us he didn't exist." It always reminds me of the insane notion that retirement funds could/should be entrusted to the stock market -- despite all the history of sociopathic greed, theft, and corruption, and then the compounding of that mistake by systematically neutering any meaningful regulation or even bothering to enforce existing securities laws. All done to allow companies and individuals to underfund their pensions by assuming outsized returns based on a carefully selected [brief] historical period during which the roulette wheel came up red eight times in a row, which became the basis for the future plans. Well, I can tell ya, the future ain't what it used to be.
Great comments, mrhonkytonk1948, and in the USA those pension funds (specifically superannuation funds) which have been heavily invested in those private equity LBO funds (which are destroying employment, viable companies, and the unions in their leveraged buyout scams and avoiding any and all taxation in the process) will probably continue to be funded from those phantom trillions doled out by the Fed (and nobody knows at the Fed where those trillions disappeared to???? Hmmm....).
and in Australia (which I believe still has some connection to The Crown),
http://www.supersystemreview.gov.au/content/submissions/downloads/John_Goldberg_091209.pdf
BP may well crash and burn over this in the coming years.
http://maxkeiser.com/
Looks like BP needs a bailout. We need to keep the bond holders and equity holders whole, just like all the other companies we bailed out.
Noone can be allowed to fail anymore, nevermind that they have poisoned the world's oceans or have fraudulently cheated the world's capital markets endlessly.
Sure, most of their securities are held by the ultra-rich. But there are a few grannies and orphan's funds that own about 1% of BP, AIG, Greek bonds, etc.
No, we shouldn't just bail out the pensions directly, that would be wrong. We need to bail out the companies owned by the pensions so that the primary owners of BP, etc (ie the ultra rich) are also bailed out.
</sarcasm>
This was a pattern of behavior for BP. In 2005, they blew up Texas City due to negligence. In 2006, they spilled 170K gallons of oil on the North Slope in Prudhoe Bay, again due to negligent maintenace. In the past decade, they've received 3x the number of serious safety violations as everyone else in the industry combined.
Here, the blame is to be shared between BP and Halliburton. The problem started with a faulty cement job on Halliburton's part. These losers can go away too, as far as we're concerned. They have bitten us in the ass as a nation one too many times.
BP possibly ignored Deepwater Horizon's electrician (per the 60 Minutes interview, though this is unsubstantiated) when he presented evidence that shredded pieces of the BoP's gasket were found in the drilling mud weeks before.
BP failed to order a cement bond log.
BP ignored the results of a pressure test indicating the well casing had been compromised.
BP ignored, in the final 5 minutes, instrumentation indicating that internal wellhead pressure had increased to 21K psi. The rig was screwed at that point, but the 11 who died could probably have gotten away.
Point being, this was beyond an accident. This was, to draw the parallel to our financial system, nonfeasance in the pursuit of profit.
I think it would be an underestimation of US anger to characterize this as a political witchhunt. In this case, they waited to see which way the wind was blowing, then went in that direction. BP must die, plain and simple.
It's utter FIRE-capture bullshit to argue that they shouldn't be prosecuted because pensioners would take a 2% haircut. These authors should listen to themselves and think about what they're saying... 11 people are dead right now, and due to BPs negligence, hundreds of thousands more will die likely on Chernobyl-on-the-Gulf because, directly or indirectly, their lives and livelihoods have been taken away for a generation.
Besides, those funds woke up every day for weeks with the opportunity to sell those positions. If they don't run trailing stops, don't have hedges on or don't have a sell discipline to prevent a disastrous loss, frankly, fuck them. Consider it evolution in action.
Zack, excellent post, totally agree, you can't put a price on human life. There is definetely a pattern of negligence here, and criminal indictments will follow.
@ZackAttack
Thanks for this detailed post. I made a similar post yesterday and the BP apologists came out of the woodworks. Some people will allow anyone to shit in their living room, even going as far as to defend the action of shitting in their living room. BP screwed up royally. BP compounded the foul up by conducting an experiment with Corexit. They will have to pay. Big time. Other integrated oil companies seem to be respecting the environment just fine, thank you.
Halliburton has little responsibility in the matter. They are just a cement contractor that brings the materials specified, mix them on the job site, and pump the job volumes that the well owner specifies. All of the specs for the job are the well owner's responsibility and there is no Halliburton warranty of success. In this case the failure could be because the hole volume was larger than calculated because of formation washout or the bottomhole formation could have absorbed some of the cement or . . . , so that the cement did not fill high enough or bond fully between the pipe and the well bore. That is what the cement bond log is run to check. If the CBL shows a bad job Halliburton will run another job as the owner specifies and bill the owner for that one too.
If they don't run trailing stops, don't have hedges on or don't have a sell discipline to prevent a disastrous loss, frankly, fuck them. Consider it evolution in action.
+!
Deliberate indifference for the law and the consequences of your actions is not lynch mob justice as some would have us think. You are exactly right. Fuck them! Hard! Endlessly! The Crown in action folks. This is how England treats its allies.....
I'm sorry, but what has the "Crown" got to do with anything? BP is a publicly listed company owned primarily by an assortment of pension funds and similar dumb money. No part of it has been owned by the British government since 1987. Do BP appear to have behaved abominably? Absolutely. Will I shed any tears if this incident results in the company's liquidation? Absolutely not (I'll wish the same was happening to a bunch of other equally deserving mega-caps on both sides of the Atlantic). But a British company /= Britain. Insofar as any government is responsible, it's the one which awards and regulates oil drilling off the US coast.
DO traded 15 million stocks yesterday. With 139million stocks that is over 10% while the free a float is only 5%!
Also the short interest in up to 7%.
So, or this is naked shorting and could trigger a shortsqueeze into the skies or institutions are selling.
What do you guys think?
http://www.zerohedge.com/article/series-lucky-coincidences-involving-gol...
Equities going down shouldn't be a shock to pension plan managers. I'm sure they'll figure out a way for that "unseen once a lifetime event" (that happen all the time) to not effect their bonus - that is what pension plans are all about any way.
Leo, I think the pension info you supply is extremely important and appreciated. I love the slash and burn of Leo Weekends but think that occasionaly the attacks on your views become a bit too personal.
BP, a Louisiana Purchase In Kind from the British pensions. Bad deal for both parties.
BP = DEAD MAN WALKING
Bill will the drill rigs not simply go abroad where they can drill into whatever they want?
Not all the rigs are in the GOM you know.
Don't you think Mexico or Brasil will be more tolerating these risks and let them drill without any assurance?
Leo, great scoop. Thanks. Me? I cannot but help to think that since BP is a Crown asset all of the oil that is being released into the GoM should be renamed the QE III as it sets sail on its maiden voyage. Who said Britannica was finished wrecking havoc just yet?
Barak Obama: Exporting American poverty world wide. American lawyers are feasting on the carcass of the American Economy, but they grow hungry again. Now American lawyers will feast on Brittish Petroleum, sinking Brittish Pensions. Who's next?
From one Bear to the next ... there is plenty left in those American trash cans, the lawyers won't go hungry. P.S. I just saw where Federal regulators are investigating Ford for accelerator problems .. GM must have figured it out, no problems there.
BP blew that rig in order to shut down all competition in the future. The US was just about to maybe take some baby steps towards oil production again, and then BP staged this disaster to lock it all up for a generation. The share price garbage is just a smoke screen. The government can just turn the dial any time and put it back up or whatever. They are limited to only $75 million. Thats a pittance to pay to kill the competition for a generations time. This is just like when they mad sure the Valdez operation went as badly as possible.
The only way to deal with a Bilderberg criminal organization like BP is total nationalization. Oil produced in America should be used exclusively in America. Profits from the oil should flow back into America, not to hostile foreign regimes like the British Empire.
Say, you know what the technical term for a nationalist government that believes in state ownership of industry is . . . ?
The only thing hostile here is you against reality.
Protectionism is for idiots, of any nation.
Well I am disturbed that bP is being treated so much worse than our financial firms. it seems unfair. speaking of which the federal reseve has just come out in favor of insane credit card fees and of course that is where the consumer protection agency is to to be housed.
my understanding BP has an awful environmental history. once more short term profits for the ceo (who will walk away with millions) while the morts (pension holders) get screwed. Pension funds need to be involved with management as big shreholders on thngs like salary and making sure the compnay is acting in the best interests of their shareholders. it is kind of clear the company hasn't been doing that for a while.
But we and the Brits have the most screwed up rigged markets so it's no surprise.
Thanks Leo, good work.
Leo, my friend, I was seriously concerned about you when I saw CSIQ in after hours down to $9.75. I appreciate you and your efforts and you know it. I don't approve of the way people treat you here and also believe you are an asset to this blog with some very thick skin to put up with the BS you do.
But can we talk about diversification if you insist on being in this market? You asked if anyone here was short on your previous post and I have been making a great deal being short since the top where all cycles pointed to late April as the end of the bear market rally, just as they called for Mar 6-9 2009 to be the bottom of the first leg down. My trades are 2- 3 days at most. And I have no fear shorting this market because I am a trader and while there will be bounces, the trend is down IMHO.
I know you are a big boy and don't want to hear from the bear camp, but please be careful. Please use stop losses if you need to. You have your healthcare taken care of and for that you are lucky. But capital preservation is the name of the game now.
Your friend,
Howard
Concerned about him?
HB you don't get it, youre a FOOL to be shorting! A dip in Canadian Solar (no matter the reason, though SEC investigations are always BULLISH) is simply another reason to BUY BUY BUY.
Leo is averaging down and buying his golden solars for pennies. Good for him, less bullshit for us rational people:)
Exactly, on solars, every time they get whacked hard, AVERAGE DOWN!!!! I can guarantee you that's what the big hedgies are doing here while the little guys and gals are running scared. NO FEAR!!! In life, you have to be opportunistic and never look a gift horse in the mouth.
Also, ever wonder why the fucking SEC is investigating a Chinese solar company? Why not investigate all the naked short-selling going on in the sector?!? I openly wonder if some bureaucrats at the SEC are now on the take from some big ass hedge funds. Nothing shocks me any longer. Nothing.
Didn't Ackman have a hedge fund that was highly leveraged and 300% invested in TGT? Lost about 95% of its value? Careful with these hedgies. Look like Tarzan, fight like Jane.
Classic Leo,
on stops and chinese solars.
by Leo Kolivakison Fri, 12/04/2009 - 10:15
#152527
"Stops are for myopic traders who twitch all day long. I am proud to tell you that I doubled and tripled down on some of my long-term solar positions after they fell 50% because I knew they were being manipulated by the big hedge funds. That's called conviction and knowing where the big macro picture lies".Leo,
CSIQ has pulled back to the July 13th breakout area at $9.21... Same area I mentioned here for the SPY on Jan 15. ( CSIQ and TSLwere both at $23 )
by El Hoselon Mon, 01/25/2010 - 10:34
#205403
"July 13 breakout area , ( SPY $87.59 ) Sticks out like a sore thumb, that is where you could expect a natural retracement in a BULL market to go. Maybe this market is super natural and it is different this time....otherwise that is a good target area." "TSL and CSIQ look like $16 or so."
El Hoser,
Never owned CSIQ, but given this overreaction to the SEC investigation, it's now on my radar. And if I did own it, I'd be accumulating a shit load more at these levels. This is all bullshit. Look, you can poo poo me on solars, but I'd rather follow Vinik and Citadel than the El Hosers of this world.
Let's mark this day down, shall we? Come back to me in a year and tell me how right you were on CSIQ. In fact, PLEASE short it at these levels..fool!
Leo,
TSL and CSIQ hit my $16 target ( from $23 on Jan 25.) I never said anything about shorting, I gave you a target in January for two solars.
We don' t have to come back in a year... fool.
I am right now... fool
I don't have to "poo poo you" because you shit yourself in front of everyone at ZH daily
You are an idiot, and paper trading doesn't count. Mark these words down, fool, solar is the next big thing. Buy now at these ridiculously low levels.
I was not aware leo was treated poorly. have always thought he did good work. wish I knoew of some place to get protection on my munis.