Panic on the Streets of Carlisle...Dublin, Dundee, Humberside

by Eric Martin

As Atrios notes, the discussion surrounding BP's imminent $10 billion dividend disbursement, as well as the fretting about how many British pensioners rely on revenue from that dividend, has been "weird" to say the least. 

1. A God Given Right. Dividends are not guaranteed.  If a company suffers a massive setback that exposes that company to sizable liability (like, say, wrecking the Gulf of Mexico), then it is well within reason to expect the company to hold back on distributing dividends to shareholders.  That Obama has been suggesting that such a course would be prudent is neither out of bounds nor unreasonable.  On the other hand, that a company would quickly usher over $10 billion out the door when it is facing liability from a public catastrophe that could well run high enough to require some of that money be added to the kitty, well, that isn't entirely ethical, if coldly rational from a corporate perspective (trust the markets!).

2. Grandma and Grandpa. In a related sense, there has been much discussion about how many pensioners in the UK are counting on their of cut of BP's annual dividend (is there any doubt that these stories are getting a little push from BP's PR people?).  With these sympathetic figures positioned in the forefront, the argument goes something like this: Obama should stop criticizing BP because it's hurting the overall stock price (not that this has much to do with the pensioners' dividends, but whatever), it would be improper to make BP withhold the dividend payment from people that need it, and Obama shouldn't make BP foot the entire bill for the cleanup and wider economic impact lest the company go bankrupt, and then where would all the British retirees be?

The first point is irrelevant to the pensioners, the second is discussed in #1 above, and the third contention is entirely beside the point.  To the extent that British pensioners, or shareholders (the majority of which are neither old nor gray nor baking cookies for grandkids), would be hurt by BP declaring bankruptcy and winding down under the weight of the cleanup/restitution bill, the pain felt by those British citizens is a problem that the British government should tend to with money provided by British taxpayers.

Simply put, US taxpayers should not subsidize, or bailout, a private British entity out of concern for what might happen to British citizens as a result, even if the people impacted are elderly and quite charming (and not simply useful props). Nor should US leaders quietly acquiesce to the payment of a $10 billion dollar dividend when there's a good chance that money will be required to right an unthinkable wrong in the United States.

Comments

[Ugh]

US taxpayers should not subsidize, or bailout, a private British entity out of concern for what might happen to British citizens as a result, even if the people impacted are elderly and quite charming (and not simply useful props).

BP didn't have the foresight to be an Isreali company.

[Eric Martin]

rimshot

[Chaz]

It stinks for any pensioners who may get hurt by this, but I have absolutely no patience for the idea that BP is somehow a victim here. As a result of a preventable incident, BP killed a bunch of it's subcontractors, put the brown pelican back on the endangered species list, destroyed the local fishing industry and are on course to foul something like a third of America's coastline. When you as a company do things like that, your stock takes a nosedive, you will probably have to suspend paying dividends and you stand to face all sorts of civil and criminal charges. In what sort of bizzarre alternate reality should it be any other way?

[Nate]

But but but... The magic of the market!

[Jesurgislac]

2. Grandma and Grandpa. In a related sense, there has been much discussion about how many pensioners in the UK are counting on their of cut of BP's annual dividend

This is pure distraction.

I'm sure many pension companies have invested in BP, and many of them may now be looking uncomfortably at that part of their funds.

But the whole point of a pension company is that you don't invest so much in any one company or any one area that anyone's pension is significantly impacted if one company goes down the tubes. A pension company that invested so much in BP they can't recover is a bad pension company - and the government's been regulating pension companies pretty tightly. It may not be good, but it won't be particularly bad for individuals.

is there any doubt that these stories are getting a little push from BP's PR people?)

I don't have any doubts at all: BP's PR team wrote them and distributed them. "Little push", jeez.

[Jacob Davies]

Hard to tell from here even how much is going on in the press in the UK, other than Boris Johnson who is exactly the sort of upper-class twit you expect to find defending giant British multinationals.

Tearing BP's heart out and eating it serves a very useful purpose: it reminds the other oil companies that shaving a few mil here and there on drilling procedures isn't worth it when one mistake could cost tens of billions of dollars. Not making them pay the price is an invitation to do it again and again.

Still need more regulation though, because the oil companies always have a collective incentive to ratchet up risks to make short-term earnings targets, which is why self-regulation never really works.

[cleek]

When you as a company do things like that, your stock takes a nosedive, you will probably have to suspend paying dividends and you stand to face all sorts of civil and criminal charges. In what sort of bizzarre alternate reality should it be any other way?

Greenpeace asserts that as the Union Carbide CEO, Anderson knew about a 1982 safety audit of the Bhopal plant, which identified 30 major hazards and that they were not fixed in Bhopal but were fixed at the company's identical plant in the US. In June 2010, seven ex-employees, including the former chairman of UCIL, were convicted in Bhopal of causing death by negligence and sentenced to two years imprisonment and a fine of about $2,000 each, the maximum punishment allowed by law.

too bad for the British Pensioners, BP didn't destroy India's coast.

[efgoldman]

I have seen speculation (sorry, no link - at work, don't have time to search) that BP sent out the dividend and is doing other imprudent or profligate things for the express purpose of not having enough in the kitty to pay claims, filing for bankruptcy, and screwing everybody.

It would be irresponsible not to speculate...

[John Thullen]

Well, there are American pensioners who will be hit by BP's dividend cut as well. Not to mention Hong Kong pensioners, etc. etc.

And, in fact, shareholders are victims too.

Corporations, through their shareholder relations departments, withhold the truth about bad news from their shareholders, too. Most of the time shareholders (except for the insiders) hear the news along with the rest of the public, who hear the news from a corporation's PUBLIC relations department, a whole different set of liars.

Some of the smartest and pretty much most honest mutual and pension fund managers in the world were lied to and cheated by the banking managements.

Part of it is outright bullsh*t, but a large part of it is the Kudlowian Panglossian curse of eternal optimism, which of course is charming but also outright bullsh*t. Corporations care so much for their shareholders that they lie to them for their own good, he lied.

That the entire capitalist system would collapse without this charming network of lying optimists makes it no less full of crap.

Between historically low bond yields, a public safety net under constant eternal attack by the same Kudlowian jackals, and the dividend cuts, caused largely by treacherous behavior on the part of the wolves (self-described) who run the companies (the banks, for example) and Wall Street, pensioners on a fixed SS income only or a mix of fixed income and dividend-paying shares are looking at bad news.

Caveat emptor is all fine and good, but whatever the Latin is for "line up a few dozen of the more egregious sellers every ten years and shoot them" would be not only wordy, but a fine tonic for the system as well.

Of course, there are those who say that killing the liars and cheats would scare everyone else away from risk.

I don't know. I think there are enough sociopaths out there ripping people off who would enjoy the added downside risk of death by execution.

You could hedge with firing squad options.

Don't let anyone tell you that truth is NOT relative. Especially that relative who is trying to sell you life insurance, shares, options, or just about anything.

[Eric Martin]

Perhaps, but then I read that their annual dividend is roughly the same size each year. If so, that would rule out dividending away the money on purpose. Though they could be engaged in other spending/chicanery.

(This is not to say that their standard annual dividend shouldn't be suspended given the circumstances, which it should, just that the dividend itself might be more a matter of course)

[J.J. (Jay Jerome)]

Eric: "and Obama shouldn't make BP foot the entire bill for the cleanup and wider economic impact lest the company go bankrupt, and then where would all the British retirees be?"

BP has a 65% Share in the well. Andarko has 25%. The rig is owned and operated by the US firm, Transocean. The blow-out preventer that didn't work was made by the US firm, Cameron. The cement work to seal the well was installed by Halliburton. At this point, nobody knows what precisely caused the blow up. And nobody knows for certain who's to blame for it, individually or collectively. And though there's a blizzard of accusations flying around, that BP cut corners on the rig, cut back on safety personnel, bent this rule or that, none of that has yet been proven to have caused or contributed to the blow-out. Yet all of the finger pointing seems to be exclusively at BP.

And if the company goes bankrupt, it's not only the British retirees who will be hurt. About 29,000 of BP's employees are in the U.S. And that doesn't count the thousands of other Americans who work for BP suppliers in the US, or the number of ancillary business that depend on dollars being spent by those people, all of whom will be effected negatively if BP goes under- restaurants, grocery stores, cleaners, appliance stores,etc etc etc.

Also, about 40% of BP stock is owned by Americans, portions of it invested in retirement and pension funds here... and though you seem to relish snide condescending swipes at the British elderly, it's likely some of your own cookie-cooking grandparents or parents or aunts or uncles will see their dividends circumscribed too.

Bottom line, why is BP the only company getting the middle-finger from the Obama administration? I remember when O'Blah-Blah was campaigning for president in 2008 and singled out Halliburton as one of the major corporations responsible for much of America's financial woes at the time, saying they had to accept accountability for the negative results of all the sweetheart deals they received. Now, far as I know, he hasn't mentioned their accountability for the Gulf disaster at all. I guess his transformation into Dick Cheney continues uninterrupted.

[Bernard Yomtov]

Perhaps, but then I read that their annual dividend is roughly the same size each year. If so, that would rule out dividending away the money on purpose. Though they could be engaged in other spending/chicanery.

As a general matter, common dividends are discretionary, both as to timing and amount. Companies follow regular patterns only to maintain a reputation for predictability, stability, etc. In fact, there is nothing I know of to prevent BP from cancelling a dividend, or from paying ten times the usual amount.

At some point I suppose it becomes what I think is called "fraudulent conveyance," making selective and excessive payments in anticipation of bankruptcy. Maybe the lawyers can shed some light.

[Eric Martin]

BY: No doubt it's discretionary. But yeah, keeping it the same size can rule out claims of malfeasance in particular instances - and is good for predictability which investors like.

[Eric Martin]

JJ:

Quit mumbling, I can't understand a word you're saying.

[Jesurgislac]

Quit mumbling, I can't understand a word you're saying.

I don't want to understand a word he's saying. Unless it's "Goodbye".

[Tony P.]

The rig is owned and operated by the US firm, Transocean. The blow-out preventer that didn't work was made by the US firm, Cameron. The cement work to seal the well was installed by Halliburton.

BP is British.
TransOcean is Swiss.
Halliburton's HQ is in Dubai.

Had the Marianas-flagged Deep Horizon rig NOT blown up, in what sense would the 50K barrels of petroleum per day that the well would demonstrably be capable of producing be "domestic oil"?

--TP

[jrudkis]

BP has a 65% Share in the well. Andarko has 25%. The rig is owned and operated by the US firm, Transocean. The blow-out preventer that didn't work was made by the US firm, Cameron. The cement work to seal the well was installed by Halliburton. At this point, nobody knows what precisely caused the blow up. And nobody knows for certain who's to blame for it, individually or collectively. And though there's a blizzard of accusations flying around, that BP cut corners on the rig, cut back on safety personnel, bent this rule or that, none of that has yet been proven to have caused or contributed to the blow-out. Yet all of the finger pointing seems to be exclusively at BP.

If there are other culpable parties, BP will have claims against them. Most environmental laws hold joint and several liability, so BP is on the hook for the whole mess (as well as the other companies individually), but BP is welcome to sue its subs for their portion of the damages. It is not necessary for the government to figure it out and apportion blame. Most likely they have multiple indemnification agreements between them that will determine who pays what, but if it is more than Transocean is worth (for example), BP is on the hook even if Transocean has the majority of fault.

[Free Lunch]

The House documents today seem to show that Halliburton was objecting to BP's irresponsible behavior, but that may have been because they wanted to have a few more billing days.

As for BP's dividend, fine, let them send it to London after they make a $20 billion deposit with a trustee who is allowed to pay claims with it.

[J.J. (Jay Jerome)]

eric: "I can't understand a word you're saying."

deaf ears
cause
clogged minds...
Old Chinese Saying

[ptl]

Simply put, US taxpayers should not subsidize, or bailout, a private British entity out of concern for what might happen to British citizens as a result, even if the people impacted are elderly and quite charming (and not simply useful props).

how about a private entity almost equally British and US owned, with potentially equal exposure of British and US pensioners (aka BP)?

[Jesurgislac]

ptl: how about a private entity almost equally British and US owned, with potentially equal exposure of British and US pensioners (aka BP)?

Good heavens, ptl.

Rich with irony though I think this situation is, with Americans who didn't give a toss about the comfy, happy life led on Long Island by the fugitive criminal from the Bhopal gas disaster, it is only the perception of BP as a British company that is letting Americans argue that the people who own it should pay a penalty for damaging so much of valuable US coastline.

If it was perceived as an American company, it would be "suck it up, suckers - who cares for you". Just like it would be if the oil spill had happened anywhere else in the world. Even if twenty thousand people had been killed - just so long as they weren't Americans, and it didn't happen in mainland US. (Alaska? Pffft.)

I'm all in favor of a company paying up for the damage it caused. And one of my first thoughts about this oil spill, when I realized where it was, that this was going to be one thing it would be very, very difficult for even a mega oil company to just makeitdidn'thappen... but I'm sure they'll have a go!

[ptl]

yes I know, Jesurgislac; I was hoping Eric Martin would respond, 'private British' is his wording, as is 'an unthinkable wrong in the United States'.

I'm all in favor of a company paying up for the damage it caused.

so am I - I would most, and first, though, like to see BP pay massive punitive damages to the families of the oil workers it killed, and pretty large damages to the workers it injured. Also if BP falls far, it falls far, fine..., but, the most likely thing then is Exxon taking over.

very, very difficult for even a mega oil company to just makeitdidn'thappen..

I think BP will not be able to wish it away however much money they spend trying to do that -- good.

thank you for responding

[cleek]

it is only the perception of BP as a British company that is letting Americans argue that the people who own it should pay a penalty for damaging so much of valuable US coastline

bullshit.

[John Thullen]

Yes, Transocean and Halliburton moved their corporate operations abroad to avoid paying U.S. taxes.

I wonder if we could convert some of those drones in use in Pakistan into tax-collecting drones.

You know, the drones Transocean and Halliburton refuse to pay for.

Transocean and Halliburton will reappear as real people in the next U. S. election thanks to Citizens United, however, to argue that they shouldn't pay taxes like real people, because they are corporations.

I find it difficult to believe BP is going to choose bankrupcy. They made five billion in profits in the first quarter and have close to 300 billion in worldwide PROVEN oil and gas reserves.

[sanbikinoraion]

Simply put, US taxpayers should not subsidize, or bailout, a private British entity out of concern for what might happen to British citizens as a result,

Fortunately, BP (formerly BP Amoco) is not a private British entity. It's a publically traded company, traded on both the New York and London Stock Exchanges. Its directors are 50% British, 50% American. Its shareholders are 40% British, 40% American and 20% RotW.

The blame here surely lies squarely on the shoulder of lax American regulation: after our own Piper Alpha disaster in the North Sea, the British government went medieval on the oil industry there and forced it to massively tighten up safety.

That's not to say that BP shouldn't pay both damages and punitive costs - I think they should, and that's the penalty of a lax regulatory regime: the losers in the lottery of safety failure pay the full whack.

But I also think that it's better not to kill people / wildlife / whatever and then be sued later, and it is almost inevitable that if tight regulation is not strongly enforced then enormous disasters will result.

[John Thullen]

sanbikinoraion has a valid point.

I believe the damages should be paid by the American voters who voted in politicians (Democratic and Republican) who refuse to allow the U.S. Government to regulate properly.

It could be a progressive fine or tax.

[Phil]

Fortunately, BP (formerly BP Amoco) is not a private British entity. It's a publically traded company, traded on both the New York and London Stock Exchanges.

I believe "private entity" here is being used to distinguish from "public entity," i.e., government. That an organization has stock exchange listings does not make it a public entity.

In any case, its shares on the NYSE are, I believe, all ADRs. BP is, indeed, chartered completely within the UK.

[wj]

I'm not sure why anyone is surprised by this particular reaction to a possible drop in BP's dividend rate. After all, why should the US be the only country with an entitlement mentality?

[Eric Martin]

What Phil and Cleek said.

I was using "private" in the "not government owned" sense, not discussing whether or not the shares were traded on a public exchange.

And it doesn't matter at all to me whether or not it's mostly British, or just partially. Tell the Mayor of London to relax then.

Regarding that matter, again, Cleek speaks for me.

[ptl]

What Phil and Cleek said

so Obama just happened to say British Petroleum and you just happened to say "an unthinkable wrong in the United States"?

wj, indeed.

[Eric Martin]

so Obama just happened to say British Petroleum and you just happened to say "an unthinkable wrong in the United States"?

Um, what? The name of the company is British Petroleum (or are we being cheeky with "BP" which stands for...what exactly? Beyond Petroleum? Ha.).

Thus, it would have been extremely weird, as well as duplicitous, for Obama to have referred to British Petroleum as "US Petroleum" "American Petroleum" "Part British and Part American Petroleum" or just plain "Petroleum."

And, yes, the damage is to the United States. By a company that is at least heavily foreign owned, and organized under British law. And now people are arguing that we shouldn't make them pay their fair share because of the harm it will do to British pensioners. So one must respond to these claims by identifying the key players and relevant geography.

Lastly, if British Petroleum has no special connection to, or significance in, Britain, while all the concern on the part of Cameron?

[sanbikinoraion]

I guess my point is, that while you're right that BP ought to pay, that your classifying BP as "British" isn't very useful in this situation: it's clearly not being run by a moustache-twirling Alan Rickman or Jeremy Irons and ultimately, the safety regime that Deepwater had to comply with was American, not British.

Cameron and Johnson are obviously doing what they think is best for their constituents and, being Conservatives, their constituents are largely rich businessmen with deep pockets. They are both, of course, massive wankers.

[ptl]

No Eric, the name of the company is not British Petroleum, it is BP. It dropped "British" ten years ago, first becoming BP Amoco then simply BP. I'll accept you may have simply been ignorant of this -- though your 'Beyond Petroleum' jibe suggests not.. -- do you think Obama and his advisers were too?

you write

As Atrios
notes, the discussion surrounding BP's imminent $10 billion dividend disbursement, as well as the fretting about how many British pensioners rely on revenue from that dividend,

linking to Atrios, who links to an NYT piece that doesn't mention any such discussion, and to the same NYT piece. I follow our press. Its reporting of the 'discussion' varies, as do its readers' views on the issues, the actual discussion, then, is not quite what you think it is. But wj's point is fair.

[biggerbox]

This isn't the first time in history that elderly pensioners had investments in an oil company, right? Did we hear this kind of whining when Exxon ran the Valdez into a reef in Prince William Sound?

I mean, I get how, for Brits, BP had come to be a 'reliable' blue-chip investment the way we used to treat AT&T back before the breakup, but it seems like they should have noticed that somewhere over the decades BP had morphed into a reckless giant exposing their blue-chip investment to considerable risk. I'm a big Anglophile, and I'm charmed by their ability to hold on to tradition, but the bad news is that, in "the City", it's 2010, not 1950, and 'British' corporations ain't what they used to be.

Sorry, folks, but elderly Brits don't have any more entitlement to safe investments than we do, and there's an ecosystem to repair.

[Eric Martin]

No Eric, the name of the company is not British Petroleum, it is BP. It dropped "British" ten years ago, first becoming BP Amoco then simply BP. I'll accept you may have simply been ignorant of this -- though your 'Beyond Petroleum' jibe suggests not.. -- do you think Obama and his advisers were too?

Yes, yes, and Blackwater is now "Xe." But I still call them Blackwater, as do many journalists and politicians.

"BP" stands for British Petroleum, even if they want to use only the initials now. Like Kentucky Fried Chicken going to "KFC."

I definitely pardon the people that still use the full, if only recently "unofficial" name.

linking to Atrios, who links to an NYT piece that doesn't mention any such discussion, and to the same NYT piece. I follow our press. Its reporting of the 'discussion' varies, as do its readers' views on the issues, the actual discussion, then, is not quite what you think it is

Yes, there was an implied context, that I'm sure many readers understood. I saw Bartiromo on Matthews mention the Brit pensioners, and have seen several other commentators on TV, and in print. It is being used as a shield, cynically, and the argument should be addressed. Even if it is not as big a deal in the UK press.

I apologize if it came across as hostile to the Brits. I'm a dedicated anglo-phile, and that is certainly not my intention.

[ptl]

I agree, Eric, people appeal to and for pensioners very cynically indeed. There is also a genuine concern, in this instance, about pension funds; but that is not quite the same thing. My sense is that the 'pensioners' point is not a big deal here.

Why is Cameron concerned? (I tried to answer that before but my browser crashed.)
Because he knows his constituency and because he's a capitalist through and through. He does though apparently get on very well indeed with Obama so will be measured...

I apologize if it came across as hostile to the Brits.

you didn't. I am simply very used to hearing 'BP' and it's actually a lot easier to say!

[Jesurgislac]

cleek: bullshit.

In fifteen years time we can compare and contrast with Exxon...

...assuming we're all still alive to do it.

[Bernard Yomtov]

cleek: bullshit.

In fifteen years time we can compare and contrast with Exxon...

...assuming we're all still alive to do it.

And this will prove what exactly?

I strongly disagree that the perception that BP is British is responsible for the strong public reaction.

Anyway, are you seriously suggesting that the reaction is not justified?

[russell]

I strongly disagree that the perception that BP is British is responsible for the strong public reaction.

I think it's the oily beaches, birds, and fish combined with the consistent stream of BS that is getting folks p*ssed off.

[hairshirthedonist]

There are probably some Americans who are more pissed because they think of BP as a foreign company, and there may be some people in the federal government who may bend to that perception and go a little harder on BP than they did (or, really, would have) on Exxon. So what? That has zero to do with what I, as an individual, think. I would imagine the same goes for all the other Americans commenting on this blog, not to mention all the Americans not commenting on this blog who don't care what sort of company effed up the Gulf of Mexico.

[Nell]

The Obama administration's position on BP dividends is certainly justifiable, in fact correct. But the admin might have broader credibility if it were pushing to get Goldman Sachs to give our bailout money back now that the financial house of cards no longer appears to be in imminent danger of collapse.

Or will we hear once again from Serious People that the world will end if GS doesn't get everything it wants Right Now?

[Jesurgislac]

I strongly disagree that the perception that BP is British is responsible for the strong public reaction.

I wasn't saying that, Bernard. People have strong natural human reactions to this awful disaster, without reference to the nationality of the people who did it.

(I admit what I was saying was far from clear, so sorry about that.)

But you know. You are not allowed, by your mainstream media, to get too angry with the corporations that own your government. You're just not.

You are allowed to get mad at foreigners for having nasty corporations. Here we go...

[Eric Martin]

FWIW, ptl et al, here's one of those "pensioners" stories that I was referring to - which Atrios linked to today:

http://www.washingtonpost.com/wp-dyn/content/article/2010/06/03/AR2010060303805.html

[Jesurgislac]

Imagine what the Republicans would be saying if this was an American corporation. Not just apologies - Obama would be labelled a traitor.