(Update) Britain’s markets tipped down in late Thursday trade as oil giant BP (BP.L) agreed to pay £2.8 billion ($4.5 billion) in criminal damages, the largest penalty in history, for the Deepwater Horizon oil spill in the Gulf of Mexico.
Two workers will also face manslaughter charges related to the 2010 spill in which 11 workers died, and the company is expected to plead guilty to obstruction for lying to Congress about the size of the leak.
Shares slipped 0.35p, or 0.08%, to 425p at the close of Thursday trade. The company had earmarked £24 billion ($38.1 billion) to cover damages, and will be able to pay the fine over five years.
Britain’s FTSE 100 lost 0.8% or 43 points, to 5,679 and the Mid-250 index gave up 0.4%, or 51 points, to 11,667.
More grim news awaited the eurozone as the region fell back into recession for the first time in three years as gross domestic product shrank 0.1% in the third quarter.
Economies in the Netherlands, Austria, Spain and Portugal all contracted. Germany’s economy also slowed to 0.2% growth in the three months to September, down from 0.3% in the previous quarter, showing the bloc’s largest economy is also being hit by the sovereign debt crisis.
BP wavers on falling FTSE as investors await US fines
08.41: Investors found no incentive to end their selling spree on Thursday morning, dragging European stock markets lower.
Sitting in the middle of today’s FTSE 100 movers, shares in BP wavered as long-suffering investors steeled themselves for resolution of the criminal investigation into the 2010 Gulf of Mexico disaster.
Fiscal cliff and geopolitical uncertainty
Concerns over the ability of politicians in the US to avoid a fiscal cliff continued to weigh on markets, after president Barack Obama, in his first press conference since re-election, held to his position that marginal tax rates will have to rise to tackle the nation's deficits.
Renewed concerns over conflict in the Middle East gave investors more reason to temper any enthusiasm.
Asian shares mostly fell after Xi Jinping was, as expected, named as the new leader of the communist party of China as part of a seven strong leadership team that has been reduced from the previous nine.
China watchers were concerned that fewer reformist candidates had been elected to the powerful Politburo Standing Committee than had been hoped, with some labelling it a ‘conservative victory’.
However, others noted that the conclusion of the Party’s once-in-a-decade leadership would at least provide certainty for investors, while reforms – which stalled in the run up to the Party congress when stability was more desired than ever – can now speed up.
They pointed to Xi’s acceptance speech in which he focused on the need for reforms to reduce the corruption which is said to be rife among China’s political classes.
Britain’s FTSE 100 dropped by 0.5% in early trade to 5,691, with similar declines across other European markets.
Weighing on UK sentiment in particular was a warning from Moody’s that the UK’s AAA credit rating faces a downgrade within the next four months if the economy dips sharply again.
‘Despite the UK's clear political commitment to fiscal consolidation, the weaker macroeconomic environment will create headwinds for revenue growth and increase the risk that the country's debt metrics will not stabilise within the next three to four years,’ said Moody’s in its annual UK credit report.
Miners and banks lead sell-off
Miners, banks and insurance companies hustled for places at the bottom of London’s benchmark index, with Resolution the biggest faller, down 3.9% to 230p. Randgold (RRS.L) fell by 2.6% to 6,400p, while Fresnillo (FRES.L) was off by 1.5% to 1,905p.
Banks Lloyds (LLOY.L), Barclays (BARC.L) and Royal Bank of Scotland (RBS.L) fell by around 1.5% to 45p, 234p and 274p respectively, as usual hit especially hard by the weak sentiment. Bank investors also learnt that the banker remuneration is back in the headlines; according to a report in the Financial Times the FSA’s Andrew Bailey has warned the banks that this year’s bonuses must reflect the mis-selling and market manipulation scandals that have damaged the sector over the past year.
BP faces fine
Investors were poised for news from BP after the energy giant announced that it was in advanced discussions with the US authorities over claims against the company for its role in the Deepwater Horizon incident from which its shares still haven’t recovered.
Several news reports quoted sources saying that the fine would amount to the largest criminal penalty in US history. Investors will at least welcome the certainty of the fine being announced however, adding to relief after BP recently struck a deal to offload its stake in TNK-BP.
Gordon Gray, an analyst at Canaccord Genuity, noted that a deal would not cover a string of other federal, state and private claims. He said: 'We think a figure for total settlement costs of $15-20bn – as mentioned in the press recently - would be taken positively by the market, as it would allow BP to move forward with much greater clarity. However, it does not look like that clarity will be forthcoming yet, as some of the key issues look set to remain unresolved.'
Shares in BP were down 0.6% to 423p.