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BP's Deepwater oil spill hurts British pensioners, investors

By Karla Adam
Friday, June 4, 2010; A15

LONDON -- As BP shares take a pounding and oil continues to spew into the Gulf of Mexico, Britons are starting to see the crisis not only as a disaster off America's shores, but also one with reverberations here.

For those about to retire, the leaking pipeline may mean leaking wallets. Thousands of Britons are invested in the British oil giant through pension funds -- analysts estimate that about 1 pound in every 7 pounds paid in dividends to British pension funds comes from BP.

Investors are eager for the crisis to be resolved. BP is a major player on the FTSE 100, London's main stock index, meaning that blows to its share price have significant effects on portfolios designed to track the index's performance, such as certain pension funds and insurance policies. The National Association of Pension Funds estimates that BP shares represent 1.5 percent of the total assets of pension funds in the United Kingdom.

Alan Smith, chief executive of Capital Asset Management, a London-based financial planning firm, said that "pretty much every pension fund in the country owns BP shares," but up until recently, "people looked at this as an environmental disaster rather than a man-on-the-street disaster. But now they are starting to think, 'This might affect me more than I think.' "

Smith estimated that if BP were to lose half its market value, a Briton about to retire could reasonably expect a decline of up to 3 percent in annual pension payments. "Those considering retirement in the next six months might be disappointed people when they realize the final amount of their retirement is less than hoped," he said.

On Thursday, credit-rating agencies Fitch Ratings and Moody's downgraded BP's debt and said further downgrades could follow. Since the Deepwater Horizon oil well explosion, the company's shares have fallen more than 30 percent.

BP's financial woes are also troubling for the British government, which is grappling with a ballooning deficit and could use a healthy tax return from the company to help replenish the public coffers. In a statement, BP said that last year it paid corporate income taxes of $6.3 billion, $1.1 billion of which went to Britain. In addition, the company said it expects to pay about $4 billion in 2009 production taxes globally, $200 million of which will go to Britain.

While BP faces an uphill battle globally to restore its reputation during one of the worst environmental disasters in history, the climb seems less steep here, where the company is headquartered, is a flagship of the economy and has worked hard in the past decade to drive home an image of a green-friendly company.

"BP is a great British company, for long a byword for good management and successful performance on an international scale," the Express newspaper said in an editorial. "It is depressing to see its name become synonymous with environmental disaster, at least for the foreseeable future."

The Daily Mail said President Obama's rebukes to BP resemble "a judge who, having sentenced a penitent offender, demands again and again that he be brought up from the cells to receive another dressing down for the same crime."

David Buik, an analyst at BGC Partners in London, said BP's reputation in Britain had not plunged to the depths it has in the United States. "No one blinks at the gas station when filling up -- BP, Shell, it doesn't matter," he said.

Shareholders, he said, had confidence in chief executive Tony Hayward's management. "To say the BP management is not doing all it can is not fair -- maybe it's not enough, but they seem to be doing everything they can," Buik said.

BP employs about 80,000 people worldwide, with slightly more than 10,000 in Britain. The employees in Britain are "shocked and horrified, just like everyone else" by the disaster, though few are taking seriously the swirling rumors of a takeover or breakup, Buik said.

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