Is BP the Next Lehman Brothers?

Mark Twain famously said history doesn't always repeat but it sometimes rhymes and Wednesday was rhythmic in a not-so-hot way.

Part of my early morning ritual is to check credit spreads. Yesterday, when I peeked at the overnight action, BP (BP) jumped out and screamed for attention. The spreads, which are a layman's way of measuring default risk, were "blowing out" and this morning we're seeing the exact same thing.

I drew attention to this dynamic, wondering who has the counter-party risk to BP. In a finance-based, derivative-laced global economy, a pelican flapping his oil-soaked wings in the Gulf could have profound implications on the other side of our interconnected world.

Professor Mike Paulenoff, writing in real-time on the Buzz, offered "BP and Transocean (RIG) have created a bit of a Lehman feel to the markets. BP has now plunged to levels not seen since 1996; whether or not BP is heading into bankruptcy is immaterial, because Mr. Market certainly thinks so."



more here: http://finance.yahoo.com/news/Is-BP-the-Next-Lehman-minyanville-2846336471.html?x=0

If Congress lifts the caps on liability, and the feds can avoid the pressures to give BP a solid "Separate Intervening Cause" / "Separate Superseding Cause" defense (i.e., BP had the situation under control and the feds came in and screwed it up) the damages awarded in law suits might push BP into bankruptcy. But, the oil leases that BP holds should satisfy the creditors.

Disregard me -- I am biased as Hell. BP laid me off when they took over SOHIO in 1987.

Lehman was only a broker. They made their money by pinching a little piece off the side of other people's transactions. They really didn't own too much of anything, and what little they owned, they made incredibly ruinous gambles with.

BP owns many, many billions of dollars worth of assets in the form of wells, leases, equipment, etc. The ironic thing is, if we stop offshore drilling, the assets of the oil companies go up in value.

This is just trash talk to drive the prices down, so that the sharpies can come in and make a killing after the uncertainty and bad news is over.

Simple version is Lehman existed simply on paper. Leveraged up 1000x. So as soon as those instruments went south even a few percentage points the company was worthless. Literally not worth anything.

The "Crash" of Lehman was simply investors waking up to that reality.

It simply is impossible for the Gulf oil spill to wipe out a company the size of BP.

It will face losses, massive losses, likely the largest losses in the history of the industry. It also likely will underperform its peers, and have to cut its dividend. However the company has value. Eventually the leak will be stopped, eventually the fines will be paid, and eventually the lawsuits settled.

Unlike Lehman BP still has real assets (oil underground) which keep going up in value and the world is addicted to.