CNBC: Punish BP Shareholders?

Today I discussed BP’s capping of the well and whether BP shareholders should be punished with Dan Weiss of the Center for American Progress, and CNBC hosts Larry Kudlow and Trish Regan. Here is a transcript:

Larry Kudlow:  All right, President Obama speaking out on BP’s latest attempt to stop its oil leak, adding that the problem would not be fully resolved until relief wells have been completed.  Now BP says it is encouraged by early tests that show it has stopped the flow.  Two hundred million gallons have spilled into the Gulf.  In our viewer outrage segment, Andy from Florida says, BP knew that they had problems and still drilled.  I want to see people go to jail.  People should be selling their stock, not buying.  So we ask, should BP shareholders be punished for BP’s actions?  Joining us now, is Peter Flaherty, President of National Legal and Policy Center and Dan Weiss, Director of Climate Strategy at Center for American Progress.  All right Peter, you heard the viewer outrage, what is you take?  I mean the shareholders have been punished already but apparently people want to see more.  What do you think?

Peter Flaherty:  Well I think it would be a mistake to put shareholders in jail.  I know that isn’t what the emailer was suggesting, but there is a lot of vitriol against BP, and much of it is deserved.  But shareholders have already suffered enough.  The share price is off forty percent.  The dividend has been suspended.  The big danger now is dilution.  I just hope that the United States government doesn’t lead BP down the path of dilution through some forced merger or capital infusion like it has done with other industries.

Trish Regan:  Dan it doesn’t sound like the viewer wants people that invested in BP to go to jail.  That is not really the case, but there are some…The viewer is suggesting that the stock price should go down, and that seems to me to be perfectly normal.  I mean if you get a company…

Peter Flaherty:  Well what good is that?  I think the share price is going up.   I think that staunching the flow is a game changer.  Perception is everything and I think that if the share price can recover, even to a modest degree, it will help forestall dilution in the form of some sovereign wealth fund or some other vulture investor coming in and scooping up things on the cheap.

Larry Kudlow:  Dan isn’t really the crux of this issue whether management was aware that it cut corners for whatever reason and then whether governments will sue the management or prosecute the management.  Isn’t that really the crux of the matter?

Daniel Weiss:  That is an important piece of it, yes.  There is no question, the shareholders benefited during the bounty times, when BP made a hundred and sixty billion dollars in profits over the last decade.  They need to share in the responsibility…

Trish Reagan:  Right.

Daniel Weiss:  …for managements poor decisions for cutting corners and evading costs.  And, this is not such a great management team.  Just witness the BP oil for terrorists swap that they tried to engineer in Libya.  That is another reason why shareholders ought to be very concerned about this management.

Trish Regan:  You know Dan, I don’t understand why you have such a problem with that.  If you are a free market thinker and a company has really screwed up it is natural that its stock price goes down.  It is natural that it may want to hold onto some cash.  In this particular case you actually had politics getting involved when it came to its dividend.  But, naturally you would think that the company shouldn’t issue a dividend at a time like this when it knows that it may have some real significant liabilities. 

Peter Flaherty:  It has already said that there will be no dividends.

Daniel Weiss:  The shareholders benefited in the good times.  They have to be responsible for the mismanagement during the bad times.  And it raises the question whether or not new management is necessary.

Trish Regan:  That is part of being an owner of a company, is it not?

Daniel Weiss: Absolutely.

Larry Kudlow:  Yeah, I will tell you what, Dan, still they have not been prosecuted under the Iran sanction law.  They continue to trade with Iran, the enemy, and break the law.  And that burns me up and it has from day one.  All right gentlemen, thank you very much. END TRANSCRIPT

The segment was a bit short so here are some additional points:

Because of the uncertainty about capping the well, and what else politicians will try to do to the company, BP has been trading as a distressed stock. With the capping of the well, I hope that BP can now be evaluated like any other stock.  It is fortunate that this has occurred prior to July 27 earnings report.

Perception is everything. If the share price can regain some of its loss, it will prevent management from selling off parts of the company for a price that is too low to sovereign wealth funds or other vulture investors.

If oil prices don’t crash in the short to medium term, BP should have enough liquidity to cover its spill obligations.

Restoring the dividend I think would be fair to shareholders and boost confidence in the stock, but that is really a decision that is down the road.  BP has already said that it won’t pay one for the rest of the year.

The bigger threat now is dilution.  Shareholders have seen the share price cut 40% and the dividend suspended. Hopefully BP can rely on short term borrowing from banks and forestall having to issue more shares.

I hope the government doesn’t pressure the company into some kind of ill-considered capital infusion or merger, like it has done in other industries.

The more the company is run by its own board of directors and not politicians, the better it is for shareholders. The politicians will continue to scapegoat BP management, and maybe they deserve it, but we must consider that ordinary people will be hurt if they keep meddling.

Unrelated, although important, is the Lockerbie matter. This demands a thorough investigation. Many of the victims were Americans.


CNBC: Flaherty Says White House Allies Cashing in on BP

Yacht Race Is Final Straw for BP’s Tony Hayward

CNBC: Flaherty Criticizes House BP Hearings

Obama Failing Leadership Test on BP Oil Disaster

CNBC: Flaherty Says BP Escrow Fund is Political Posturing

CNBC: Flaherty Slams Obama, Pelosi on BP Response

CNBC: Flaherty Rips Congressional Calls to End BP Dividend

Suspending BP Dividend Dumb Idea

Radical Group Seeks Federal Seizure of BP Assets

Beyond Pathetic