City: Reality triumphs over hope at BP
Sunday 09 August 1992
Ministers, by contrast, continue to live in a different world, one where hope repeatedly triumphs over reality. 'The important thing is to avoid the danger of talking ourselves into a sense of almost terminal gloom,' said Steven Dorrell, financial secretary to the Treasury, in a vain attempt to gee us all up. Well I for one refuse to take the continuance of deep recession in good spirit. Mr Dorrell also insisted that Sir John was at odds with most independent forecasters and he warned against 'a quick fix at the expense of long-term improvement'. His claims are typical of the Government throughout this recession: unrealistically optimistic and bankrupt of ideas on how to climb out of the hole we are in.
For a long time, most of us went along with the Government. One day soon, the economy will inevitably recover and everything will be all right, most of us thought. But ministers have said it too often for it to be believable any longer. Clearly Barclays does not believe it and nor does the great bulk of British business. The stock market, which sunk to a new low for the year at one point on Friday, certainly does not. And nor does British Petroleum, which has finally been forced to recognise that it has been living way beyond its means for the past couple of years.
For the London market, BP's decision to cut its dividend represents a watershed of considerable proportions. It might have been predictable but it is none the less shocking for all that. For an important British blue chip company, the third largest oil enterprise in the world, to concede it can no longer afford to pay its shareholders what it had led them to expect is by any standards a dreadful admission. To say investors are sore about it is an understatement; they are hopping mad. Already one class action has been filed in the US for misrepresentation. BP must brace itself for many more.
But in truth the company had little option but to adopt the course it has. You can only wait for economic recovery for so long. BP could not carry on borrowing indefinitely to finance its dividend. It has a big enough asset disposal programme on its hands already. To have sold any more in these markets would have meant giving them away. For the City to keep saying - as it does - borrow, sell, cut costs, slash R&D and capital spending, do whatever you have to but above all keep feeding us, is not only unrealistic, it is also greedy. Investors are going to have to reconcile themselves to sharing in some of the pain of this recession. BP's action last week is like the boy removing his finger from the dyke. There are going to be a lot more dividend cuts from big companies before this slump is over.
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