Has BP Sprung A Counterparty Risk Leak?

A casual glance at the BP annual report reveals the following suddenly relevant tidbit:"OTC contracts: These contracts are typically in the form of forwards, swaps and options. Some of these contracts are traded bilaterally between counterparties; others may be cleared by a central clearing counterparty. These contracts can be used for both trading and risk management activities. Realized and unrealized gains and losses on OTC contracts are included in sales and other operating revenues for accounting purposes. Highly developed markets exist in North America and the UK where gas and power can be bought and sold for delivery in future periods." While we are positive that BP's risk management department has done a terrific job at evaluating the viability and credit risk of its own counterparties (thank you Federal Reserve), the question now becomes, is the inverse also true (ahem, collateral calls on increasing rating agency, ahem)? As the firm likely has tens of billions in open OTC positions in various commodity and currency markets, is it time that speculators shifted their attention from BP to the Morgan Stanleys (wink wink), Deutsche Banks, and Goldmans of the world?

As for the question if there is enough OTC risk for counterparties to be impaired by, the answer, as can be seen on the chart below, a resounding yes:

Zero Hedge will shortly conduct an in depth investigation into just which banks are on the hook from a potential BP failure and by how much. Based on some preliminary rumors, we would be rather concerned about investment banks whose traders enjoy abusing their expense accounts at Hawaiian Tropic on Times Square.