Terry Murden: Things on the up for BP, but fate remains same for key players

Published on Thursday 22 July 2010 13:45

ALL things considered it has been a good week for BP. A deal was struck to sell assets that will raise a handy $7 billion (£4.5bn); the leaking well in the Gulf of Mexico was capped, and the Prime Minister was in America fighting the company's corner. On Tuesday it will be the turn of management to show they are the right people to get it back firing on all cylinders.

The second quarter results announcement, normally a date in the diary for revealing more billions in profit and a healthy dividend on which many pension funds have come to depend, will take on a different complexion. It will be a test of chief executive Tony Hayward's ability to convince his critics that he deserves to remain in post.

Failure could spell disaster of another kind. The company's survival as an independent company depends on how management can show they are finally on top of the crisis in the Gulf of Mexico and can avoid another accident on this scale. To a degree, Hayward will speak for the whole oil and gas industry which has replaced the banking sector as the world's corporate bad boys.

Hayward and his chairman Carl-Henric Svanberg are damaged goods and are not likely to survive beyond the end of the year. Hayward in particular is public enemy number one in America and it is too late for him to salvage his reputation. While his departure is unlikely to be announced on Tuesday, the question is bound to be asked.

But for now he and the rest of the board are in a position to show some humility and right some wrongs. On Tuesday they will announce their plans for the future as agreed at last week's board meeting, and attention will focus on how the company beyond Hayward intends to repair its relationship with America.

It will be the first statement from the board since 16 June when it was forced into suspending dividend payments for the rest of the year and agreed to pay $20bn into a fund to compensate the victims of the Gulf spill. BP has developed a habit of self-harm, from Lord Browne's abrupt resignation as chief executive over his private life to the departure of non-executive director Sir Tom McKillop, who was shamed in the banking crisis. Yet none of its previous crises compares with the Gulf spill that has enraged a nation that happens to be its biggest customer.

The board has responded appropriately to the crisis in recent weeks, but the slowness of its initial response has been compounded by a perceived lack of industry knowledge among the non-executive board members and by the absence of anyone with real influence in Washington.

A change at the top and some new blood among the non-executive team cannot come soon enough.After stress tests, let banks fail

THE bank stress tests exercise produced few surprises but did prompt a number of questions.

Interested parties will now pore over the details to see if they can find the answers.

Seven among 91 European banks failed the tests and these weaklings will have to find 3 billion to shore up their balance sheets so that they can join the rest in being prepared for another economic meltdown. As an exercise in transparency the tests served a useful purpose in giving some measure of the strength and stability of Europe's banks. They have created a benchmark for capital ratios that should provide a level of security for investors.

The biggest question hung over how tough the tests proved to be, and in particular why the banks were not stress tested against a national government, such as Greece, defaulting on its debts. It is that sort of scenario that worries the markets.

The tests followed a similar exercise in the US, though comparisons are not entirely appropriate. In the US there is only one government to satisfy and it is not likely to default.

In Europe there is a multiplicity of national banking rules and regimes. At the very least, the exercise should have helped the European Central Bank and the markets improve their knowledge of the EU banking sector and in particular where some of the gremlins reside.

The process should not stop here. The next step should be to ensure that any banks that operate outside the limits now established are allowed to fail. It is time for governments to let the market sort out the wheat from the chaff.