BP is Also Too Big to Fail

Welcome to the FTSE 80. That's what we'd have if a fifth of the companies in the FTSE 100 were eliminated. But the £40bn wiped off the market value of BP is the equivalent of just that: it is the size of 20 Footsie companies.

Since the explosion of the oil company's Gulf of Mexico rig, the fall in its share price is the same as losing the London Stock Exchange, British Airways, Cable & Wireless Worldwide, Thomas Cook and its rival Tui, Whitbread and 14 other companies in the FTSE 100.

That BP can lose so much of its value without fears for its future shows just how large it is: even now, only HSBC and Shell are larger. Yet, when the stockmarket values of Royal Bank of Scotland or Marconi lost similar sums, there was a complete change of management.

True, the fall of more than £40bn in BP's value is only a third of its market capitalisation when it almost wiped out RBS or Marconi. And it looks a gross over-reaction, when cleaning up the Gulf coastline and capping the leak will cost well under half that sum. It is the consequences of upsetting the president of the United States that will affect long-term revenues.

And while Marconi and RBS were brought down by takeovers, any faults in BP's systems are operational rather than financial. Yet even Barack Obama has had to concede that the best people to solve the Gulf problem are BP's own managers. That is partly because it is easier for him to bark at BP for failing to solve the crisis that to install a government team that fails, but it also recognizes that while the Deepwater Horizon rig has turned an environmental disaster into a corporate catastrophe, the oil company's management is coping, even when exploring the edge of its own experience.

There might be ways in which BP could have done better, but its management has risen to the challenge and -- unlike RBS and the other troubled banks -- has the financial resource to resolve its own crisis. If any heads roll, it will be a token sacrifice rather than a clearance of dead wood or a recognition of managerial deficiencies.

Politicians who should know better have made knee-jerk calls for resignations, cuts in the dividend, seizure of assets and bans on future US business, but the fact is that BP, like the London and Wall Street banks, is too big to fail. Too many jobs, too many pensions and too many energy consumers depend on a company of this size for it to be in anyone's interest to damage it.

Any business that can have £40bn wiped off its value and still be the UK's third largest company is too important to meddle with. If it bent to pressure and stopped paying dividends the annual saving would allow it to buy four Footsie companies reducing the index to a FTSE 96.

(Pic: Travelling Steve cc2.0)