Democrats Aim at BP and Instead Hit Retirees
By Jeremy Weltmer • Friday, June 11, 2010 11:46 am
In recent weeks, fiscally ignorant Senators and Congressmen have been trying to put the thumbscrews to BP and nix its dividend until some indeterminate point in the future. Congressman Welch and 40 of his colleagues wrote in a letter to BP,
“as BP presides over one of the greatest environmental and economic catastrophes of our time, we find it troubling that your company plans to divert financial resources to shareholder dividends and slick marketing campaigns….We urge you to halt your planned dividend payout and cancel your advertising campaign until you have done the hard work of capping the well, cleaning up the Gulf Coast and making whole those whose very livelihoods are threatened by this catastrophe. Not a moment before then should you return to business as usual.”
Senators Schumer and Wyden wrote that they
“find it unfathomable that BP would pay out a dividend to shareholders before the total cost of BP’s oil spill clean-up is estimated. The total cost of the clean-up estimates could reach $37 billion if the well leaks until relief drilling is completed in August, according to Credit Suisse Group AG. While we understand the need to reassure shareholders that the disaster in the Gulf will not substantially impact BP’s long term financial health, we are concerned that such action to move money off of the company’s books and into investors pockets will make it much more difficult to repay the U.S. government and American communities that are working around the clock to stem the damage caused by this devastating oil spill. We urge you to reconsider your dividend pledge until accurate costs of clean-up and liability claims can be estimated. We are certainly not opposed to BP paying dividends after the well is capped, clean-up has been completed, and the victims have been justly compensated.”
Perhaps even more worryingly, the Wall Street Journal reported that “a Justice Department official told Dow Jones Newswires on condition of anonymity Thursday that the agency has no plans to seek an injunction that would block BP from paying dividends, but hasn't ruled out that option at some future time.” As high-minded as this rhetoric may sound, it both belies the facts of BP’s finances and ignores the ramifications of not paying a dividend.
In recent weeks, BP’s shares in London and in depository in the US have been in a freefall that does not correlate with the company’s remaining assets or cash flow. Fadel Gheit, an analyst at Oppenheimer & Co, stated that “we estimate that BP shares currently discount $60 billion in potential liabilities, which we think is very unrealistic.” BP’s finances speak for themselves:
“Following Tuesday's letter signed by 31 members of Congress calling for BP to suspend dividends, the company's stock, yielding 11%, now appears priced for a deep cut. Yet there are good reasons why BP should resist these demands, at least for now. The consensus estimate for BP's operating cash flow this year is $34 billion. Capital expenditure and acquisitions swallow $28 billion and dividends another $10.5 billion, leaving a deficit of $4.5 billion. Even then, year-end net debt would be about $31 billion, equating to 22% of total capitalization. BP's target "gearing" ratio is up to 30%, implying extra debt capacity of about $17 billion. That is about the same as the top end of the first year's pretax cleanup costs estimated in the Credit Suisse report cited in the congressional letter. So BP can likely handle the costs without touching dividends.”
Provided that the relief well in August does not fail, BP can meet its obligations both to its shareholders and to those affected by the spill.
Moreover, the composition of BP’s shareholder base makes a dividend cut even more worrying. Looking at the top shareholders for BP, both the number two and number three shareholders are pension fund investment units Legal & General Group, the U.K. insurer and money manager, and Norges Bank Investment Management, the Norwegian state sovereign fund. Moreover, as BusinessWeek reports, of the 31% of the company’s market capitalization in the UK, the vast majority is held by pensioners or pension funds trying to reap its 11.51% dividend yield. Indeed, last year, BP made up 14% of total shareholder payouts on the London-based FTSE 100 stock index.
Radically slashing BP’s dividend as a symbolic and populist gesture would do much more to harm retirees who hold a dividend-concentrated portfolio as a way to augment government pensions or retirement programs than anything else, especially when the company can afford to meet both its obligations in the Gulf and to its shareholders. Perhaps this explains why Chancellor of the Exchequer George Osborne told The Wall Street Journal that it is “important to remember the economic value BP brings to people in Britain and America” in a typically British understatement.
Comments (16)
Post Your Comment
I live in Midland, Texas and draw a very small check from BP (Arco) as a survivor of my husband Bob Holman (in the amount of $75 monthly). I am embaressed at the attitude that our President has concerning this company. I know probably someone used "bad judgement and caused the problem, but his attutude toward the whole company of BP is disgusting. He seems determined to ruin the company, not thinking of the employees that will be effected and the retirees and stockholders. His attitude is only for political purposes and his own popularity. Those people he listens to in Washington can't even do what they need to and should keep their nose out of it.
>> Nelda Holman June 14, 2010 4:56 pm
Obama is like a bull in a china closet.
>> Gary June 17, 2010 3:19 pm
Alakazaam-information found, problem solved, tnkhas!
>> Dollie October 10, 2011 2:23 pm
zGfACv cjrxmgcmajgb
>> ztuzrvl October 11, 2011 10:38 am
AjOprg , [url=http://neodcvcqpbht.com/]neodcvcqpbht[/url], [link=http://cbtnoyzbzdni.com/]cbtnoyzbzdni[/link], http://sweimjxneqdk.com/
>> jqskwee October 12, 2011 4:40 am
PXzx03 waizjjmjfhgz
>> mfklgvxlc October 13, 2011 10:14 am
WbeDiE , [url=http://vmgyrkeynfmk.com/]vmgyrkeynfmk[/url], [link=http://ulglespsuutm.com/]ulglespsuutm[/link], http://jgidlkslbdme.com/
>> nlihzmpfqo October 15, 2011 10:11 am
Good day I am so delighted I found your site, I relaly found you by mistake, while I was looking on Aol for something else, Nonetheless I am here now and would just like to say thanks a lot for a incredible post and a all round thrilling blog (I also love the theme/design), I don’t have time to go through it all at the minute but I have bookmarked it and also added in your RSS feeds, so when I have time I will be back to read a lot more, Please do keep up the great work.
>> Lorraine August 30, 2012 1:53 pm
ulmmK6 npltmicbwzqf
>> slgaxsc August 31, 2012 3:31 am
MfE4Pm , [url=http://pnxdslnntpfc.com/]pnxdslnntpfc[/url], [link=http://onhekbgnhqpm.com/]onhekbgnhqpm[/link], http://nmfvsnontqnz.com/
>> siasyg August 31, 2012 3:31 pm
MTPip0 pmcxtbogbtgm
>> rfpwfxead September 1, 2012 2:06 pm
KyvplX , [url=http://hedeweixmons.com/]hedeweixmons[/url], [link=http://pzqmymepmppc.com/]pzqmymepmppc[/link], http://gjaiwidgrakh.com/
>> dvomkxivj September 2, 2012 5:15 pm
That's a sensible anwesr to a challenging question
>> Lavigne September 13, 2012 7:30 pm
g9N1CH urdlxwoicapp
>> ffnaquqmc September 14, 2012 8:11 am
aJOhg1 pljcyuxzyxrv
>> senytbcrz September 16, 2012 9:00 am
s8qiWq , [url=http://lvwdcrbelemk.com/]lvwdcrbelemk[/url], [link=http://czvopyujjjph.com/]czvopyujjjph[/link], http://rfvmzpwerszf.com/
>> lglqfboxsx September 17, 2012 9:39 am
Add a Comment