Thursday, June 17, 2010
Who's fooling who? Or is it who's fooling whom?
The President announced today that he has asked and BP executives have agreed to set aside $20 billion for the reimbursement of damages and compensation for our citizens in the Gulf Coast of Louisiana, Florida and Alabama. The problem is that BP does not have $20 billion in cash to set aside.
They will need to cut spending and sell billions in assets to raise the necessary cash to fund this compensation fund by 2013. They are also going to suspend dividend payments for the next 3 quarters and possibly for the foreseeable future until such time that the Gulf Coast is cleaned up.
Sounds simple huh? Until you figure that BP still needs to continue operations to deliver revenue and the likelihood of doing this in America will be hampered since there will be no offshore drilling for the next 6 or more months. They will need to increase production in the oil exploration efforts around the world.
They obviously cannot raise this money by selling stock as their stock price is in a free fall and issuing bonds is not likely either. Who is going to buy BP stock or bonds? Not anyone who is looking for growth especially since BP stock has lost half of its value since this accident.
The suspension of dividends will affect numerous pension funds around the globe that hold BP stock and had come to rely on these quarterly dividends to help pay their pensioners. This will have far reaching economic consequences right away since we already have many municipalities on the brink of bankruptcy because of burgeoning pension benefits that need to be paid against reduced tax revenue.
Why BP would ever agree to anything like this is amazing to me. The reason, but not their fault, is that under current Federal law BP is only liable for $75 million in damages. BP has decided to waive this limit. However, why let a U.S. President demand what a foreign corporation has to do? Is it the right thing, but of course! Is it what the shareholders would want, No! I can understand the quandary that BP is now faced with from a public relations standing and a business standing.
B-Rock has decided that the Pay Czar, Kenneth Feinberg, will administer the claims against this fund. This is the same guy that helped to decide how much an executive should earn at any financial institution that took TARP funds. He also administered the claims for the victims of the 9/11 terror attacks. Because of this federal bureaucratic process there will be many claims that are not paid timely. Also, who is to decide how quick is timely?
Do not get me wrong. I want BP to get the Gulf Coast cleaned up. I grew up in Pensacola, Florida; my parents still reside there and I will be vacationing there next week. I like my beaches white and my water clear. I just think that BP should have allowed the courts in America help them work through this financial mess.
BP does not have $20 billion and they do not have to have it all until 2013. I guess we were all hoodwinked by the President's announcement today. I see no timely financial payments coming for our friends in Gulf Coast. People are going to be hurting. We are going to need timely prayer to help these residents.
These are my words! Please post yours!