BP Plc is not RBS – luckily it still has rivals
BP Plc’s (LON:BP) value has fallen as far as RBS (LON:RBS) has, but this is a different sort of crisis. The bank ran out of money but BP still has oil.
More importantly, BP’s rivals remain strong when RBS’s competitors were all in the same sinking ship.
Both were world market leaders as well as major British corporations. Both were built by acquisitions.
The chairman of BP, Peter Sutherland, sat on the RBS board as a non-executive and the chairman of the bank, Tom McKillop, was a part-time director at the oil company. And both suffered serious lapses of risk management.
But while RBS ran out of credit, BP has only run out of credibility. The bank’s reserves disappeared as loans turned sour but the oil company’s reserves are still intact apart from the small proportion leaking into the Gulf of Mexico.
So when the bank ran into trouble in 2008 it needed the commodity that it sells - money. BP does not need more oil and, unlike RBS, it has money to solve its problems.
More to the point, BP is alone in the oil industry in trouble when all RBS’s rivals were suffering similar problems. That means BP’s competitors have the resources to buy energy assets from the troubled company, boosting its balance sheet, or might even mull a full takeover.
RBS had no such saviours: when it needed to raise money, other financial institutions – at home or abroad - were in no place to lend to it or to buy its assets. The planned sale of its insurance subsidiaries for a much-needed £3bn thus fell through and it had to turn to Tesco – unaffected by the financial collapse – to pay £1bn to buy-out its financial services joint-venture.
BP has healthy cashflows from its trading operations, the vast majority of which are unaffected by the leak. And there has been no collapse in the price of oil to dent its revenues. That ought to allow it to pay $20bn into a compensation fund over four years but if it does need more – and the US appetite for bleeding BP is high at present – it can sell assets or, if necessary, sell new shares to oil rivals, sovereign wealth funds or simply conventional investors.
BP’s problem is thus not short-term survival, like RBS’s plight, and it will not need government rescue and have to return to the semi-state ownership that was not unwound until the 1970s and 1980s. Its problem is to convince future partners and governments that it is a fit company to do business with. It may find new opportunities closed to it beyond the US and it could take many years to prove that it has remedied its risk management approach.
