Sunday, June 13, 2010

The fall of a country called BP?

From the beginning of the year, and especially from the start the Deepwater Horizon oil spill on April 20th, the market capitalization of BP plc has fallen by some 41,4% to around $106,4 billion. Roughly $75 billion of equity value was destroyed. So far, estimates of total costs to BP reach $30 billion, and some US senators want BP to put $20 billion in an escrow.

Compare this with around EUR 189 billion ($228 billion) of Greek debt outstanding, and $166.8 billion of bank's exposure to Greek debt. Prospects of Greek default sent financial markets tumbling. But the default did not happen, so far. Meanwhile, the BP equity actually evaporated and probability of further loses to investors - both equity holders, creditors ($29 billion long term debt, $24 billion other liabilities) and derrivative counterparts - seems pretty high.

The potential bankrupcy of BP could be similar in size to the default of Greece.

Among the top holders of BP shares are pension and investment funds. These large institutions are usually slow to move. Also, the size of their positions makes the maneuvering difficult. Most probably, they will have to swallow the most of the potential loss. Or rather ultimately the people whose money they manage will have to do so.

This will influence consumer confidence, propensity to save and willingness to invest in equities.

UPDATE 2010-06-14, 10:50 CET

Senior US politicians are pushing President Barack Obama to seek $100bn in damages against BP for the Gulf of Mexico oil spill in an attempt to kill the company.

If such an action were to be taken and won, the Ftse 100 flagbearer would almost certainly collapse into bankruptcy. Many prominent US figures would welcome this as suitable punishment for the environmental devastation off the Louisiana coast. 

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