Whatever Brazil’s president Dilma Rousseff may claim, the Samarco dam busting is not really comparable to BP’s catastrophe in the Gulf of Mexico. The loss of life is as tragic, and the misery is widespread, but the clean-up will be cheaper and much easier. However, BP’s experience does give BHP’s chief executive Andrew Mackenzie the opportunity to signal real contrition following the disaster.
BP was eventually forced to suspend dividend payments, not because it couldn’t find the money, but because the sight of rations being dished out to shareholders as usual was just too politically toxic. Had the company acted quickly to stop payments, some of the fury visited on BP from President Obama downwards might have been assuaged.
BHP is joint owner with Brazil’s Vale of the Samarco iron ore mine, and Mr Mackenzie was commendably quick onto the scene, even though there is little a CEO can do on the ground. He can, though, suspend dividend payments until the worst effects of the mud torrent have been countered.
It so happens that Mr Mackenzie is in a spot of bother on the payout anyway. He has promised “progressive” dividends, but it’s quite clear that at today’s metal prices, BHP is not going to earn the current level of distribution, let alone show progress. He’s far from alone here. Very few mners are making enough to support last year’s dividend, and many of his fellow CEOs would be grateful for the cover that a cut would give them to follow.
At £9, a seven-year low, BHP shares yield 9 per cent, pricing in a dividend cut. Besides, shareholders are not really worse off if dividends are not paid, since the money remains in the company, which becomes (theoretically) worth that much more. Like the visits by the CEO, passing the payment is gesture politics, but both send out the same message that the disaster is being taken seriously.
Banking’s challenge: get the money back
In today’s parlance, HBoS wouild be called a “challenger bank”.As the 500-page report into its collapse observes, this cross between a big building society and a small Scottish clearer was, “until quite near to its failure…widely regarded as a success story.” Just as Northern Rock had a powerful impact on the mortgage market, HBOS rewrote the rules on commercial lending, but both ignored the first rule of banking. Any fool can lend money. Lending it profitably to those who will pay it back is much harder.
None of the HBOS three, as Dennis Stevenson, James Crosby and Andy Hornby will now inevitably be dubbed, was a banker. The combine was only seven years old when it failed, brought down when the wholesale money market, on which it was so desperately dependent, snapped shut. If those at the top ever understood that this was a possibility, they did nothing about it.
The regulatory pressure today is to separate the “casino” banking from the less glamorous business of taking in deposits and lending money to good risks. Across the banking sector, this separation may indeed make it less likely that the taxpayer will pay for the next crisis. However, as HBOS has shown all too starkly, it’s perfectly possible to go bust without going anywhere near the casino.
A toxic parcel from DX
It was Friday the 13th, and DX Group had some bad news to deliver. Remember those cheerful results and the bumped-up dividend on September 21? Well, things haven’t gone exactly to plan. We told you the parcels business was “challenging” but it seems we’re failing to meet it. We can’t find the HGV drivers for our parcels, and the divi will have to be bumped down again.
Last week it was Mail UK’s turn. Competition in parcel delivery is intense,.even after last year’s Christmas Eve demise of City Link, but the market’s KO of DX is almost as shocking. The shares, 81p at 10.42am on November 13, were 23p by the close. At 20.5p now the price says the forecast cut dividend of 2.5p won’t be delivered. Numis’s analyst has cut his target from 110p (sic) to 33p and his recommendation from buy to hold. Eternal optimists, these analysts.
This is my FT column from Saturday.