Pension funds will be hit by ban on BP dividend payouts
BP’s shares plunged by as much as 12% yesterday as US officials threatened to seek a ban on dividend payouts following the Gulf of Mexico crisis.
Any ban could have major repercussions for pension funds in Great Britain and Northern Ireland which invest heavily in the oil giant because of the stability of its dividend payout to shareholders.
While BP’s shares recovered some ground to close 6.6% down — wiping another £5bn off the value of the group — investors were spooked after US Department of Justice officials reportedly said they were planning “to take action” to make sure BP had enough cash to cover claims arising from the spill.
This was seen as a threat to the BP dividend, which has not been cut since 1992. Around £1 in every £7 paid in dividends to UK pension funds by FTSE 100 Companies comes from BP.
It is estimated that about 18 million people in the UK either own BP shares or pay into a pension fund that holds them, with the company previously paying out around 15% of all the dividend income in Britain.
The company has so far refused to comment on the future of dividends, with the board due to make the decision at the end of July.
Haydn Gibson, managing director of financial services firm ASM Howarth in Belfast, said there are obvious negative implications for pension schemes local people are part of.
“Anyone in a pension scheme that is invested in BP shares, the valuation of that pension fund could be hit. The drop in dividend could also affect the valuation of the fund,” he said.
“However, generally somebody will be managing the pension fund and the value of that will be quite widely spread.
“It won’t all be in the same sector. The fact that one stock is falling, the value of the pension scheme will not fall by the same amount.”
Around £50bn has been wiped off the value of the firm since the Deepwater Horizon oil rig disaster on April 20, which killed 11 workers.
Beleaguered BP said the cost of the clean-up and containment efforts had now hit $1.43bn (£979m).
But its latest effort to capture oil spewing out of the leak is now collecting about 15,000 barrels a day.
The firm is facing mounting pressure from President Barack Obama over its response to the oil spill, with attacks becoming increasingly aggressive.
President Obama’s administration has insisted on referring to BP by its former name “British Petroleum” and the US leader suggested its chief executive, Tony Hayward, should be sacked. David Cameron said yesterday he understood the US government's “frustration” over BP's efforts to cope with the Deepwater Horizon oil leak and would discuss the situation with President Obama.
But London Mayor Boris Johnston hit out at the anti-British rhetoric from the US.
“When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves,” he said.
BP employs 22,800 staff in the US, while the region accounts for around a third of its profits and proven oil reserves.