Archive

BP fights to stay afloat after spill disaster; Prudential's Asian invasion fails:  Cracks in Coalition

BP struggles in Mexican waves

Peter Sutherland must be thanking his stars that he retired from BP long before its Gulf of Mexico horrors. The tide of pollution from the leaking Macondo well, where an explosion killed 11 rig workers, will be followed by a tsunami of litigation and political/regulatory recrimination.

Fierce criticism led by the White House has forced Carl-Henric Svanberg, who succeeded Sutherland, into the open after initially leaving his hapless chief executive Tony Hayward to take the flak. Heads will surely roll eventually, as President Obama has suggested.

The key questions for BP are: can it finally plug the well after eight weeks of spill? And can it stay independent? It has captured 15,800 barrels a day of the oil flow but US agencies say the total flow could be 20,000 or even 40,000, way in excess of the 5,000 initially suggested.

Bid speculation began when BP's market value crashed from £123bn to £66bn. It has crept back above £70bn but BP looks vulnerable to a move from Shell or Exxon Mobil (and to further boat rocking from Russia, a huge earner for the group). At least, no one may risk a bid until the final bill for the spill is clearer.

As the toxic tide menaces coastal wildlife and fisheries, Americans are angry. UK investors protest that all the blame has been heaped on British Petroleum with hardly a word about the rig's operator TransOcean or the other US firms involved.

US elections loom but it is unprecedented for a president to urge a company to fire its CEO and axe its dividend. It is even suggested that BP pay the wages of rivals whose offshore drilling, the White House has halted. It is hard to believe that Sutherland's diplomatic skills would not have helped to limit the damage.

Problems at the Pru

When Tidjane Thiam became chief executive of insurance giant Prudential last September, it seemed an inspired choice. The first African CEO of a top 100 UK company, he had a glittering CV - MBA at INSEAD in France, cabinet minister in his native Ivory Coast, McKinsey partner, World Bank, etc.

Within six months, he launched an ambitious megabid for AIA, the Asian operation of stricken US insurer AIG, which had been rescued by the US Treasury during the crunch. There were plans to float off AIA - a huge operation with 320,000 sales agents.

But the Pru had to abandon the bid after a series of gaffes and a shareholder revolt. Now, Thiam is fighting to keep his job. Harvey McGrath, Pru's Northern Irish chairman, stood by his CEO but some want him to go, too.

It is a tragedy in some ways. Thiam and McGrath were surely right to see Asia as a growth engine. But the Pru's market value is just £13.5bn, and the price was an eye-watering £24bn. Even the planned £14.5bn rights issue to help fund the deal was larger than the Pru itself. That upset investors who complained that it was paying 1.6 times AIA's embedded value and 21 times historic earnings.

A dismal series of hitches and glitches followed. Unhappy AIA executives saw it as a shotgun marriage and wanted out. The Financial Services Authority (FSA) held up progress for a critical two weeks on concerns about Pru's capital strength.

As opposition mounted, three large Pru investors warned they would block the bid unless the price was cut. Thiam went back to try but AIG's board turned him down and revived its plan to float.

That leaves the Pru under fire, with investors lambasting its execution skills and talk of a break-up bid. McGrath bravely dismissed those calling for regime change as "outliers" but its biggest shareholders remain angry. The story is far from over.

Cracks in coalition

Fresh-faced Chancellor George Osborne (pictured above) delivered his first budget on June 22nd and it was billed as a Budget that could make or break the coalition.

Of course, the cracks had already started appearing in the Con-Dem coalition well before the new chancellor took to his feet. The biggest crack swallowed Osborne's chosen right-hand man Lib Dem David Laws, who had been hailed as the hard man who would force through public-spending cuts.

Instead he became the shortest-serving Cabinet minister ever, resigning on day 17 after the Daily Telegraph revealed his £40,000 rent payments to his male partner - which should have been disclosed under parliamentary rules.

Fellow LibDem Danny Alexander took over but it was a brutal reality check for the coalition, and for Nick Clegg's boasts that his LibDems were squeaky clean.

And the budget has only added to the pressure on the new government. Osborne announced plans to increase VAT sales tax to 20% from 17.5% next year and to raise £2bn through a tax on bank balance sheets. He also announced £11bn in annual cuts to welfare spending.

The VAT increase has proven particularly unpopular and has opened up yet more fault lines in the coalition. Four Liberal Democrat MPs have expressed their unease about the budget by demanding a vote on a proposal for the Treasury to investigate the impact of the VAT increase on poor families.

There were fig leaves for the Lib Dems, with compromise on the divisive issue of capital gains tax on the sales of assets such as second homes. The rate will go up to 28% from 18% for higher rate taxpayers - a middle ground between Lib Dem demands for it to rise to 40% or 50% and Conservative resistance to a rise.

But there are also fault lines between the coalition partners on bank and regulatory reforms, with new doubts on the future role of the FSA.

 An MPs' committee backs Osborne's view that banks should be split into "safe" retail deposit takers and "casino" investment banks. LibDem Business Secretary Vince Cable has his own strong views and continues to air them. 

Osborne's family fortune comes from Osborne & Little wallpaper, so he should know how to paper over cracks. But more keep appearing. As any newlywed can tell you, when it's DIY time, the honeymoon is over.

Back to top.