Insured Losses may reach $1.5 Billion in Gulf Oil Spill, Class Action Lawsuits have begun
According to Transatlantic Holdings Inc, the expanding oil spill in the Gulf of Mexico, caused by a leaking BP Plc well, may cost the insurance industry as much as $1.5 billion in claims.
Deepwater Horizon drilling rig exploded and sunk last week, the disaster left 11 of the 126 crew dead. According to the U.S. Coast Guard, the oil spill, which originated about 130 miles (210 kilometers) southeast of New Orleans, is 600 miles in circumference and is leaking about 5,000 barrels a day, which is about twice the land area of Maryland.
BP, the leading oil producer in the Gulf of Mexico, had leased the platform from Transocean Ltd. BP will shoulder the costs related to the spill, which the U.S. government has acknowledged an event of “national significance”, the Obama administration said.
Class action lawsuit
While the oil continues to spill in to the Gulf of Mexico, one of the first lawyers to commence a class action lawsuit was Daniel Becnel Jr., who also has several cases pending against Toyota. The suit Cooper v. BP plc was filed on behalf of Louisiana shrimpers, fishermen, and commercial boaters who maintain the oil spill is affecting their source of revenue. There is every indication that the number of plaintiffs will increase as the oil slick spreads. The lawsuit claims that the defendants “knew of the dangers associated with deep water drilling and failed to take appropriate measures to prevent damage.” In total, ten law firms representing plaintiffs were listed on the initial complaint.
The defendants include BP, which holds the lease authorizing drilling at the site of the accident, and Transocean Ltd., which owned and operated the Deepwater Horizon drilling rig. The lawsuit also named Halliburton Energy Services Inc. and Cameron International Corp. Halliburton was providing cementing operations of the well and well cap, the suit alleges that Halliburton was negligent in executing that work, increasing pressure at the well, and contributing to the fire. Cameron supplied the equipment that should have prevented the blow-out but allegedly failed to operate when the explosion occurred.
Yesterday, U.S. shares of BP, which is one of Europe’s biggest oil companies, plummeted 8.3 percent to $52.56. Halliburton, the globe’s second-largest oilfield contractor, dropped 5.3 percent to $31.60. Transocean, the world’s largest offshore oil driller, fell 7.5 percent to $78.51.
Cameron International Corp., the second-largest U.S. maker of oilfield equipment, declined 13 percent to $38.70, and Anadarko Petroleum Corp. plunged 4.1 percent to $67.33.
Cameron’s gear has been used on the Deepwater Horizon rig. Anadarko is a 25 percent non-operating partner in the well.
SEC charges Goldman Sachs with alleged fraud
The U.S. Securities and Exchange Commission (SEC) has accused Goldman Sachs of defrauding investors.
According to Robert Peston, BBC Business Editor “ The narrative of what transpired, as set out by the SEC, is quite the financial thriller ”
The SEC says Goldman failed to disclose “vital information” to investors that one of its clients, Paulson & Co, helped choose which securities were packaged into the mortgage portfolio. Bankers devised progressively more complex ways to repackage and distribute subprime mortgages.
Instead of bundling mortgage bonds, it put together insurance contracts called credit-default swaps which were tied to the health of those loans, and sold them to investors. The result was an artificial collaterized debt obligation (CDO).
Early in 2008 99% of the mortgage bonds had been downgraded by Standard & Poors and investors ended up losing $1 billion while Paulson pocketed $1 billion.
Goldman was not the only investment bank that worked with Paulson on such transactions. Deutsche Bank did too. And Paulson wasn’t the lone hedge fund on the hunt for ways to bet against the housing market.
But the SEC maintains that Goldman did not disclose to investors that Paulson, one of the world’s largest hedge funds, had bet that the value of the securities would fall.
The SEC said: “Unbeknownst to investors, Paulson… which was posed to benefit if the [securities] defaulted, played a significant role in selecting which [securities] should make up the portfolio.”
“In sum, Goldman Sachs arranged a transaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests,” said the Commission.
The SEC alleges that investors in the mortgage securities, packaged into a vehicle called Abacus, lost more than $1bn (£650m) in the US housing collapse.
The two investors that lost the most money, German bank IKB and ACA Capital Management.
Goldman, considered the world’s most prestigious investment bank, had escaped relatively unscathed from the global financial meltdown.
This is the first time regulators have acted against a Wall Street deal that allegedly helped investors take advantage of the US housing market collapse.
Reputational Risk
Goldman has denied the SEC’s accusations and said that the company would “vigorously” defend its reputation.
As news spread that the SEC was pursuing fraud charges against Goldman and one of its London-based vice presidents, Fabrice Tourre, shares in the company tumbled 12% at the end of last week.
Responsible Investor News Alert; People Moves
http://www.responsible-investor.com/home/article/ri_people_moves/
Fiona Baxter, a former senior researcher at consulting firm Innovest, has set up her own ESG research venture called Corporate Research Consultants . The new company will provide research to institutions, governments and corporations as well as to financial planners, advisors and individual investors. The company’s first ESG Workshop is set to take place in Toronto this spring.
CSRwire Press Release
http://www.csrwire.com/press/press_release/29295-Innovest-alumnus-launches-new-ESG-research-venture-
Who is to blame for Greek financial woes?
The Greek government announced Wednesday that it would reduce its skyrocketing deficit by approximately $6.6 billion U.S. by increasing taxes and reducing spending. The austerity program may provide Greece with some room to maneuver, whose economy edged closer to the brink in its critical debt crisis for several weeks.
Governments in Europe and North America are anxious to discover if banks, hedge funds, currency traders and ratings agencies played a role in destabilizing Greece and the European Union currency while the Greek government wrestled with their debt. It is believed that banks and hedge funds that trade in CDS – credit default swaps a type of derivative – that has allowed investors to make easy bets against Greece, may have contributed to its woes along with currency traders who gambled against the euro. The credit ratings agencies are also under attack for exercising too much power over the country’s financial future.
While there is no question that Greece’s significant borrowing is the cause of its problems, governments are analyzing whether diverse forms of trading intensified the situation. On Wednesday, the U.S. Justice Department was investigating whether several hedge funds conspired in an attempt to force the value of the euro to drop.
Nevertheless, governments are also analyzing the CDS market. These derivatives insure bonds against default. As a default risk rises, the price of the insurance increases accordingly. Consequently, they can effect a country’s or a company’s credit risk.
The European Union has begun an investigation of the CDS market and will be looking for answers from regulators and participants at a meeting on Friday in Brussels. Germany has initiated its own probe of the market by requesting details from a U.S. clearing and settlement firm. It is also anticipated that the European Union will advocate stringent controls on the CDS market within the Group of 20 nations.
Is ESG Research finally going Mainstream?
March 3, 2010 – MSCI (Morgan Stanley Capital International) announced yesterday that it is acquiring RiskMetrics a Proxy and ESG research company who put itself up for sale this year. RiskMetrics bought out ESG research and analysis leaders Innovest Strategic Value Advisors and KLD last year. In November 2009, Thomson Reuters procured ASSET4 AG, a Swiss-based resource of Environmental, Social Responsibility and Governance (ESG) information. To quote Asset4’s website the deal “represents a step forward in the integration of ESG data into mainstream financial analysis and underscores Thomson Reuters commitment to meet the evolving needs of the global financial community”.
Last weeks meeting of the SEC Investor Advisory Committee‘s program included an ESG Disclosure Work Plan and Proxy Voting Transparency. While the SEC directive that was announced last month which proposed disclosure correlated to climate change does not propose new regulations, it does make clear existing directives requiring companies to divulge material risks as they pertain to climate change including effects from recent government regulations and international accords capping carbon emission.
There is no doubt that ESG is finally being taken seriously in disclosure and corporate analysis and we can look forward to new models for integration with financial analysis being developed not only for institutions but mainstream investors alike.
Welcome!
This is the first post to our new blog at Corporate Research Consultants. The blog will be used to bring time sensitive Environment, Social & Governance information and in most cases will be updated daily. Our Newsletter will now become a monthly summary of international environmental, social, and governance issues and their integration into mainstream financial investments and corporate decisions.
BP shares hit a seven-month low today as clean-up costs from the oil spill escalate.
As anxiety escalates concerning the financial cost of cleaning up the enormous oil spill off the coast of Louisiana, BP shares hit a seven-month low today. The failure of a blowout preventer has severely damaged BP’s tarnished image and wiped out more than $20 billion of the company’s stock market value, according to the Times Online.
BP engineers are working on at least three options in an effort to stop the flow of oil that is currently estimated to be leaking about 25,000 barrels a day. Workers are still trying to trigger the blowout preventer, and are also considering covering the wellhead with a huge steel cap to contain the leak. The company has begun drilling a second well near the site of the leak in an effort to stem the flow of oil but that will take two to three months to complete at a cost of about $100 million. In the mean time the oil keeps gushing.
BP has admitted full responsibility for cleaning up the spill. However, it has refused to accept blame for the accident, since the failed equipment that caused the explosion was owned and operated by drilling firm Transocean.
The first seabirds covered in oil have washed ashore in Louisiana, and there are concerns that the oil slick will affect endangered sea turtles, alligators and bottlenose dolphins.
BP has a patchy record dating back to 2003, consequently the Oil giant has been fined by the US Department of Justice for environmental crimes and committing fraud.