Swords Sharpen for Hayward: Dividend the Key Issue

Just a few weeks ago the online debate would have been unthinkable.

But today, the Times newspaper, Britain’s bastion of the establishment and the powerhouse of the Murdoch media empire, is asking its readers whether the embattled boss of BP should fall on his sword and resign.

The swords and knives are certainly being sharpened.  But for the City it is all about the dividend to shareholders, and not dead birds or destroyed livelihoods. If Hayward pays he stays if he defaults he is gone…

So it is not about the costs of the cleanup (Credit Suisse says they could be as high as $37 billion) or damages and fines (also running into the tens of billions. The reason is that these are costs in the future.

It is whether the company will pay the dividend now. The reason this is so important is that £1 in every £6 of dividends paid to UK pension funds comes from BP.  If BP doesn’t pay, many pension funds will be in deep doo-doo.

Despite the outrage in the US, BP shareholders are still supporting Tony Hayward so long as he holds good to his promise not to cut the dividend.

So if BP defaults on its pledge to pay up the share-price will plummet and Hayward will be gone. One trader The Times spoke to this morning said he expected BP to cut the dividend by around 50%. This may not be enough to save Hayward’s skin.

Adding to the pressure are two US Senators Wyden and Schumer, who have written to Hayward demanding that it does not pay the dividend until the full costs for cleaning up the Gulf oil spill can be calculated.

The Senators wrote:

“We find it unfathomable that BP would pay out a dividend to shareholders before the total cost of BP’s oil spill clean-up is estimated.  The total cost of the clean-up estimates could reach $37 billion if the well leaks until relief drilling is completed in August, according to Credit Suisse Group AG.”

“While we understand the need to reassure shareholders that the disaster in the Gulf will not substantially impact BP’s long term financial health, we are concerned that such action to move money off of the company’s books and into investors pockets will make it much more difficult to repay the U.S. government and American communities that are working around the clock to stem the damage caused by this devastating oil spill.”

They finished by saying that “We urge you to reconsider your dividend pledge until accurate costs of clean-up and liability claims can be estimated.   We are certainly not opposed to BP paying dividends after the well is capped, clean-up has been completed, and the victims have been justly compensated.”

“But the families of those who have perished in this disaster, the industries that have been devastated from the ecological damage along the coasts, and the individuals who are sacrificing their health and safety to stem the damage deserve to know that BP will fulfill its obligations to them before its shareholders. ”

And the fines BP will face will increase due to Hayward’s recent acknowledgement that Hayward has finally conceded the company did not have the equipment needed to stop the disaster.

“What is undoubtedly true is that we did not have the tools you would want in your tool-kit,” Hayward has told the Financial Times. He accepted it was “an entirely fair criticism” to say the company had not been fully prepared for a deep-water oil leak.

Also BP’s latest efforts to plug the leak has failed.  The company has received a staggering 38,000 suggestions from members of the public about novel ways to stop the leak.

Surely one of these has to work…