14 Aug 2010

Temporary post - too long to post on my facebook wall - does this make any sense?

Got this as a fwded email - thoughts? My reply was 'This has got republican fingerprints all over it -there is no way making a provision that big can create a positive cashflow from the tax shield it creates.'Maybe I'm wrong - my financial analyst and economics days were a long time ago.

It seems like a miracle that our beloved leader was able to convince BP to establish a $20 billion slush (oops, escrow) fund to compensate those hurt by the ongoing oil plume in the Gulf of Mexico. After all, he had no constitutional power to force them to do so; so had to resort to Chicago-style negotiating. But, let us take a closer look at the effect on BP`s finances: 1. BP will establish a $20 billion fund, but will pay only $7 billion into it during 2010. 2. BP is a British corporation, but has a very large operating entity in the US but only about 30% of it`s income is derived from the US. 3. By Generally Accepted Accounting Principles (GAP), BP must book the entire $20 billion expense in the year accrued. Therefore, they will book a $20 billion expense in 2010, reducing their US tax liability by $7 billion. 4. Our dear leader also convinced this massive corporation to show their concern for the small people by withholding dividends to their shareholders for the last 3 quarters of 2010. This reduces their outward cash flow by about $7.5 billion, including approximately 40% of that amount to US citizens. Assuming that the Bush tax cuts will survive through 2010, the US Treasury will lose another $450 million in taxes on that amount. We won`t even discuss the effect on the US economy. Let us put the results into a table easily understood by the small people (including me): BP Cash Flow: o Escrow funding ($7 billion) o Dividend saving $7.5 billion o Tax savings $7 billion o Net favorable cash flow : $7.5 billion US Treasury Tax Receipts: o BP Corporate income tax .... minus $7.5 billion o BP Shareholders ..... minus $0.45 billion o Net unfavorable tax receipts ..... minus $7.95 billion I guess we really should expect this. After all, our dear leader is the most inexperienced man in ANY room he enters. Now tell me Did the enlightened one Kick Ass, or did he get Sucker Punched? This is just one more reason why a ˜community organizer should NOT be negotiating anything dealing with money and finances! Bottom line: The $20 Billion BP is putting up will create a $7.5 Billion positive cash for BP flow this year. But, Obama actually thinks he really did something special and kicked ass (in his own words). In reality, BP executives are laughing at him and kicked his ass. Oh well whats new with this President anyway??? He is in over his head when he starts dealing with business people.


Anonymous said...


Nick said...

Of course a provision does give you a tax shield - but remember he has only put $7bn into the ESCROW account in cash THIS YEAR.
Sometime next year or beyond BP will have to fund the remaining $13bn out of CASH in order to meet the full $20bn requirement.
Further the $7.5bn dividend "saving" isn't really a saving. BP pay that out of choice. They could do anything they want with that cash.
Analysts really only care about free cash flow which is BEFORE dividend payments.
So really the BP disaster has cost them $20bn less the tax shield on that which is $7bn. So they are $13bn worse off. When they pay that $13bn into ESCROW is fairly moot.

Dom P said...

I assume that is'the Walm' We're gimps for being interested in this sort of sh*t



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