A Missing Piece

BP has now agreed to set up a $20 billion dollar fund and cancel its dividends, as this Blog indicated it would have to a week ago. In the deal announced after talks at the White House there is a large piece missing. President Obama indicated this tidy sum was ‘not a cap’ on BP’s potential liability from law suits and fines. There is therefore a ring fence for the fund but none for BP as a whole.

The Times now reports that lawyers in the US are beginning to see Chapter 11 as a very real prospect, again as prophesied in my post 18/06/10, if BP’s liabilities remain open ended. There are serious problems surrounding this. Such is the public anger in America, with mid term elections looming, President Obama would be unlikely to obtain Congressional agreement to a cap. On the other hand without one BP in its present form may go under. Chapter 11 is not the end of the world. General Motors has now come out.

It would allow an orderly re-structuring, maybe with a bad US segment to be run off and a good one to be sold on. Whichever way would be bad news for current shareholders. Because of the big holding of pension funds  in this company on both sides of the Atlantic, anger needs to be tempered by self interest and a cap agreed. In the triangle of politics, oil and pensions, the latter may in the end be seen as the critical issue. Anger will then focus full square on the executives of BP. The content of those emails may be their undoing.