Nervous Market Responds to BP Dividend Cut

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.