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Nervous Market Responds to BP Dividend Cut

10 June 2010 - News - Editor

Following the pattern of the previous two days, Wall Street experienced a late in the day decline on Wednesday with the Dow Jones industrial average falling 40.73 points, the Standard & Poor's 500 shedding 6.35 points and the Nasdaq Composite Index slipping 11.72 points, ending the day at 9899.25 points, 1055.65 points and 2158.85 points respectively. A major concern for investors, which is believed to have been the primary cause for Wednesday's dismal market performance with energy shares dropping and dragging other sectors down, was the likelihood of BP cutting its dividend in order to fund the cleanup of the oil spill disaster wreaking havoc in the Gulf of Mexico and beyond. There has been speculation on Wall Street that BP’s circumstances are so dire that they may take the route of seeking bankruptcy protection.

Since the rig exploded on April 20, BP shares have fallen 15.8 percent, with its market capitalization being cut in half. The cost of the cleanup is growing, as is pressure from authorities and lawmakers. In addition to having to foot the bill for the cleanup, BP may find itself having to compensate energy companies if the six month moratorium on deepwater drilling resulted in job losses. BP also came under fire for its multi-million dollar advertising spend at a time when it should be attending to settling claims from people whose livelihoods have suffered as a result of the oil spill.

Market reaction to the BP dividend issue is believed to be a reflection of how fragile investor confidence is right now. Federal Reserve Chairman Ben Bernanke had no sooner soothed investor nerves, and boosted markets, with his reassurance that the debt crisis in Europe was unlikely to impact significantly on US markets. He also noted that the US economy is expected to show a growth rate of 3.5 percent. This outlook was bolstered by the Federal Reserve "Beige Book" which noted that the economy was showing signs of recovery throughout the country, which is good news for Wall Street, as well as the broader population.

 


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