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bl<>BP Plc will suspend its $10 billion dividend as President Barack Obama’s demand to set aside cash for the Gulf of Mexico spill stretches the company’s finances, analysts said.



BP Dividend ‘Off the Table’ as Obama Demands Gulf Spill Fund


BP Chairman Carl-Henric Svanberg will meet Obama at the White House today to discuss how to compensate victims of the spill after Obama in an Oval Office address yesterday called for creation of a fund. Lawmakers, who will question Chief Executive Officer Tony Hayward tomorrow, have said the company should suspend the dividend and put $20 billion in an independently administered escrow account to pay claims.

Bloomberg forecasts show that BP is unlikely to pay a cash dividend in the second and third quarters. BP’s payments accounted for about 14 percent of all dividends in the U.K.’s benchmark FTSE 100 stock index last year. Fitch Ratings yesterday lowered BP’s credit score by six grades to BBB, two levels above junk, on concern costs will escalate.

“Hayward’s response to the president is very important, and the dividend could be fairly easy to give,” said Gudmund Halle Isfeld, an analyst at DnB NOR ASA in Oslo. “If I were an investor, I would say it’s okay to suspend the dividend for a quarter or two to ensure the company gets through the storm.”

BP spokeswoman Sheila Williams said no decision on the second-quarter dividend has been made.

Fitch said it would be “surprised” if BP didn’t suspend the quarterly payout until the full costs are known. Cleanup and liabilities may reach $40 billion, Standard Chartered Plc estimated last week.

‘Lack of Access’

“It’s not financially obvious how they could set up an escrow, given their credit rating and lack of access to credit markets,” Nomura’s Syme said. “It’s in the interest of BP to do something rather than nothing but they’re constrained by liquidity.”

Credit investors are pricing in a more than 39 percent chance BP will default within five years. The rising risk implied by credit-default swaps is up from 7 percent a month ago, according to CMA DataVision.

BP had $5 billion of cash available, $5.25 billion of credit lines it hadn’t used and another $5.25 billion of stand- by bank facilities, BP said in an investor conference call June 4. Fitch said yesterday it expects BP’s lenders to allow the company to use the credit lines if needed.

BP generated $27.7 billion in cash flow from operations last year and posted profit of $6 billion in the first quarter. Capital spending will total about $20 billion the company said in this year’s strategy presentation.

Cleaning Up

The company has spent about $1.6 billion on containing and cleaning up the spill so far.

If BP maintains its dividend this year at the 2009 level the dividend yield, or annual payout as a percentage of the current share price, will be more than 10 percent. That compares to 2.8 percent for Exxon Mobil Corp. and 5.9 percent for Royal Dutch Shell Plc.

“BP has the strength of balance sheet and free cash flow to sustain dividends at existing levels for now,” Collins Stewart analyst Gordon Gray wrote in a note today. “However, the rising level of public anger in the U.S., including pressure for BP to establish an escrow account for spill compensation, now point to the likelihood that BP will not pay a cash dividend for the second quarter.”

To contact the reporter on this story: Brian Swint in London at [e-mail].
Last Updated: June 16, 2010 06:36 EDT

[Stock Lobster]

RuhRoh: Euro Weakens, Spanish Bonds Fall on Deficit Concerns; U.S. Futures Decline

By Stephen Kirkland

June 16 (Bloomberg) -- The euro weakened, snapping a two- day rally against the dollar, and the bonds of Spain, Portugal and Greece fell on concern Europe’s deficits will persist. U.S. index futures declined and European stocks pared gains.

The euro depreciated 0.3 percent to $1.2293 as of 11:20 a.m. in London. The extra yield investors demand to hold Spanish 10-year bonds instead of benchmark German bunds rose to the highest since the euro’s 1999 debut. Futures on the Standard & Poor’s 500 Index dropped 0.3 percent and the Stoxx Europe 600 Index added 0.2 percent. The MSCI Emerging Markets Index advanced for a seventh day, increasing 0.5 percent. Gold climbed to within 1.4 percent of the record.

Spanish Prime Minister Jose Luis Rodriguez Zapatero announces a labor-law overhaul today to tame one of Europe’s biggest budget deficits after unions called for a general strike in September, the first in eight years. Debt levels in Spain and Portugal may “snowball” in coming years and additional budget cuts are needed to meet deficit targets, the European Commission said in a May 26 draft document obtained by Bloomberg.

“Focus is back on Spain after a couple of days of news about global growth,” said Arne Lohmann Rasmussen, chief currency analyst with Danske Bank A/S in Copenhagen.

The euro dropped 0.5 percent against the Swiss franc, 0.2 percent the pound, and 0.1 percent compared with the yen. The 16-nation currency has weakened 14 percent this year against the dollar.

Spreads Widen

The difference in yield, or spread, between Spanish and German 10-year bunds, Europe’s benchmark government debt securities, widened to 219 basis points, from 206 basis points yesterday, according to Bloomberg generic data. The Portuguese- German spread increased 17 basis points to 295 basis points, and the Greek-German yield difference rose 10 basis points to 651 basis points.

Credit-default swaps on Spanish government debt rose 10 basis points to 256, compared with the record-high closing level of 275 basis points on May 6, according to CMA DataVision.

The European Union denied a report that the International Monetary Fund, the EU and the U.S. are putting together a 250 billion-euro ($307 billion) credit line for Spain.

The drop in U.S. futures indicated the S&P 500 may pare some of yesterday’s 2.4 percent rally that erased the index’s loss for the year. Output at factories, mines and utilities increased 0.9 percent in May, the biggest jump since January and the 10th gain in 11 months, according to the median estimate of 82 economists surveyed by Bloomberg News before the Federal Reserve’s report due at 9:15 a.m. in Washington. Other data may show wholesale prices and home construction declined last month.

BP ‘Recklessness’

In Europe, Daimler AG led automakers lower, retreating 2.2 percent in Frankfurt. Schroders Plc fell 2.3 percent in London as Citigroup Inc. recommended selling the shares.

BP Plc gained 1.1 percent, rebounding from its lowest level in 13 years. U.S. President Barack Obama vowed that the company will pay for all damage caused by its “recklessness” and that the government would commit to restoring the Gulf Coast.

The MSCI Asia Pacific Index rallied 1.1 percent to a four- week high. Toyota Motor Corp., a carmaker that gets about 28 percent of its sales from North America, gained 1.2 percent in Tokyo. Nintendo Co. jumped 5.2 percent in Osaka, Japan, after the company introduced a new handheld video-game player. Markets in Hong Kong, China and Taiwan were closed today for a holiday.

The MSCI emerging index extended its longest stretch of gains in two months as benchmark equity gauges in every major developing nation open for trading today except Morocco rose. Romania’s BET Index jumped 1.9 percent, the most worldwide, and the country’s government bonds rallied after Prime Minister Emil Boc survived a no-confidence vote. South Korea’s won led gains in emerging-market currencies, strengthening 1.4 percent against the dollar.

Gold, Oil

Gold climbed 0.1 percent to $1,235.20 an ounce, compared with a record $1,252.11 on June 8. Copper increased 0.1 percent to $6,688 a metric ton on the London Metal Exchange, the seventh consecutive advance. Crude oil for July delivery on the New York Mercantile Exchange dropped 0.4 percent to $76.66 a barrel.

To contact the reporters on this story: Stephen Kirkland in London at [e-mail];