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BP plans to suspend shareholder dividend

British energy giant BP plans to suspend its second-quarter dividend as it faces growing public anger over its handling of massive oil spill in the U.S. Gulf Coast, according to the BBC.
/ Source: staff and news service reports

British energy giant BP plans to suspend its second-quarter dividend as it faces growing public anger over its handling of massive oil spill in the U.S. Gulf Coast, according to published reports.

According to the BBC, BP directors will meet Monday to make a formal decision. The announcement is expected to be made after negotiating with President Barack Obama on Wednesday.

According to an earlier report from the Times of London, BP is preparing to defer payment of its next dividend to shareholders by placing the money in an escrow account until the full scale of the company’s liabilities from the Gulf disaster can be determined. Further quarterly payments could be treated in the same way.

"We are considering all options on the dividend. But no decision has been made," BP CEO Tony Hayward told the Wall Street Journal in an interview.

The move would affect the company's second-quarter dividend, which is scheduled to be announced July 27.

Presumably there would be no impact on the company's first-quarter dividend of $2.63 billion, which is payable June 21. That decision was announced April 27, just a week after the explosion that killed 11 rig workers and released a massive gusher into the Gulf of Mexico, the worst oil spill in U.S. history.

Some U.S. lawmakers and the Obama administration have pressured Hayward to halt the payment, creating friction with Britain, where widely held BP accounts for about an eighth of dividend payments in London's blue-chip index, providing crucial income for retirees.

House Speaker Nancy Pelosi on Thursday accused BP of a "lack of integrity" and urged the company to suspend its dividend to ensure victims of the oil spill are fully compensated.

BP, which generated $16.6 billion in profits last year, has not cut its dividend in 18 years.

Shares of BP moved higher for a second straight day as investors apparently dismissed new estimates that the oil spill in the Gulf of Mexico could be far worse than previously thought and the company may defer its second-quarter dividend.

BP shares rose $1.19, or 3.6 percent, to close at $33.97 in New York. The shares went as high as $34.46 during the session.

The stock jumped 12.3 percent on Thursday after a 15.8 percent slide to $29 on Wednesday, its worst drop since the spill began back in April. Prices hadn't been that low since 1996.

Even with the two-day rally, BP shares have lost $82 billion in value since the explosion on April 20.

Analyst Alex Morris of Raymond James said if BP cuts or suspends its dividend it could take some heat from Washington off the company.

"It's kind of counterintuitive, but the market hasn't exactly been reacting rationally to this whole saga," he said in an e-mail.

"We never thought (and still don't) that BP as a going-concern is threatened, but this week the market showed it's scared to death of a potential bankruptcy."

Analyst Michelle della Vigna of Goldman Sachs said BP shares can go up from here even under his worst-case scenario that has BP paying $70 billion in damages.

"This suggests that risk/reward is currently tilted to the upside, given there is still value in the shares, even at very conservative damage assumptions," the analyst said in a research note.

While final approval for the dividend plan would need to be given by BP’s board next month, a growing number of BP directors now recognize that the move may be essential to placate US public opinion, the Times said.

Hayward is scheduled to testify Thursday before a congressional panel examining the causes of the Gulf spill, and BP officials also have been invited to a White House meeting with President Barack Obama next week. It was not clear whether Obama will meet with Hayward.