Tuesday PM July 27th, 2010
by: Ed Mayberry, July 27, 2010 3:07:00 pm
The newly named CEO of BP says his top priority is sealing its blown oil well for good and cleaning and restoring the Gulf of Mexico. Bob Dudley said on ABC's Good Morning America he does not expect any more oil to gush into the Gulf as BP moves to permanently plug the well with cement after capping it nearly two weeks ago. Dudley is taking over from Tony Hayward. Dudley, who grew up partly on the Gulf, will be the first American to lead London-based BP. He told ABC he plans to change the company culture and make sure checks and balances are in place to prevent a repeat of the disaster. It started with an April 20th explosion that destroyed the leased oil rig Deepwater Horizon, killing 11 workers.
BP says Tony Hayward will step down as Chief Executive Officer from October 1st. In a statement accompanying its earnings update, BP says the decision was made by “mutual agreement.” BP also reports it has taken a pretax charge of $32.2 billion for the Gulf of Mexico spill, and plans to sell assets for up to $30 billion over the next 18 months. The company says Dudley will be based in London when he takes up his appointment and will hand over his present duties in the United States to Lamar McKay--the chairman and president of BP America. Hayward will remain on the board until November 30th and BP plans to nominate him as a non-executive director of its Russian joint venture TNK-BP.
BP and the other companies involved in the oil spill face fast-multiplying lawsuits likely to spark one of the most drawn-out and expensive legal battles in U.S. history. Legal experts say the fight could easily consume the $20 billion BP set aside for the disaster. One veteran of complex lawsuits says that unless there is a quick settlement that satisfies all sides, it could be 2015 before trials begin and at least 2028 before appeals and other issues are fully resolved. The lawyer, Lela Hollabaugh of Nashville, says it took 20 years to complete all claims from the Exxon Valdez oil disaster in Alaska. So far, at least 300 federal lawsuits have been filed in 12 states against BP and the other three main companies involved.
The head of the U.S. Travel Association is proposing that BP set aside $500 million for a marketing campaign to help draw tourists to the Gulf Coast. Association President and CEO Roger Dow has made the proposal in prepared testimony to a House panel looking at the oil spill's impact on tourism. Dow says in his remarks that a study his group commissioned found the spill could result in lost tourism in coastal areas to the tune of $22.7 billion over three years. He says the $500 million could come from either $20 billion BP has set aside to pay for economic damages or could be added to it. The New Orleans Metropolitan Convention and Visitors Bureau made a similar proposal last month.
The chairman of the Florida Restaurant and Lodging Association is urging Congress to hold the media “accountable” for what he alleges is inaccurate reporting on the Gulf oil spill that has hurt tourism in his state. Keith Overton suggested at a hearing that Congress charge a federal agency with reviewing news reporting. He complained many in media put “ratings ahead of accuracy” and exaggerated the amount of oil that hit Florida beaches. Overton is also chief operating officer of Tradewinds Island Resort in St. Pete Beach, Florida. He did not specify what government could do. Congressional action is limited, given the first amendment's free speech protections. He did get a sympathetic response from Representative Ed Whitfield of Kentucky, who agreed the media focuses on sensationalism.
The European Commission has approved the merger of Continental Airlines and United Airlines, saying it will have only a small effect on the market share of the two carriers on lucrative North Atlantic routes. The European regulatory body says that the combination of the two U.S-based carriers will not give rise to any specific concerns because their passenger and cargo routes between Europe and North America largely overlap. The two airlines have been losing significant amounts of money, first from high fuel prices, then from the recession. United is acquiring Continental through a stock swap deal, and the new airline is to be called United. U.S. regulatory approval for the merger is expected in August, EU officials said.
The parent company of United says two top executives are leaving the company once it combines with Continental. UAL Corporation, based in Chicago, says that United President John Tague and Chief Financial Officer Kathryn Mikells will depart once the deal closes in the fall. Tague joined the company in 2003 while United was in Chapter 11 bankruptcy protection. Mikells joined United in 1994. Continental CEO Jeff Smisek will be president and CEO of the combined company. United Chairman and CEO Glenn Tilton will become non-executive chairman. Continental CFO Zane Rowe will keep that job in the new company.
A monthly consumer survey shows that Americans' confidence in the economy eroded further in July amid job worries. The reading raises concern about the economic recovery and the back-to-school shopping season. The Conference Board, a private research group, says its consumer confidence index slipped to 50.4 in July, down from the revised 54.3 in June. The decline follows a drop of nearly ten points in June. Economists surveyed by Thomson Reuters expected 51.0. The two straight monthly declines follow three months of increases. Economists watch the number closely because consumer spending accounts for about 70 percent of U.S. economic activity and is critical to a strong recovery. A reading above 90 indicates an economy on solid footing.
Home prices rose in May for the second straight month as federal tax incentives pulled more buyers into the market. The Standard & Poor's/Case-Shiller 20-city home price index posted a 1.3 percent increase in May from April. Nineteen of 20 cities showed price gains month over month. Only Las Vegas recorded a price decline. The gains underscore the impact of the government's home-buying tax credits. Buyers rushed to purchase before the credits expired at the end of April. The report also noted that May is typically a strong month for selling homes and that the price gains are unlikely to last through the year. Nationally, prices have risen 5.1 percent from their April 2009 bottom. But they remain 29 percent below their July 2006 peak.
Former San Antonio Spurs and Minnesota Vikings owner Red McCombs is a key investor backing the new U.S. Grand Prix Formula One race to be run in Austin beginning in 2012. A wealthy car dealer, McCombs was introduced at a news conference to unveil the track site for the race that promoters have said will run in Austin for at least ten years. Formula One has said it will be the first track built in the U.S. specifically designed for a Grand Prix event. The German firm Tilke has been hired to design the venue. Tilke has built racetracks in Abu Dhabi, Bahrain, Shanghai and Istanbul among other cities. Formula One hasn't raced in the U.S. since 2007 after an eight-year run at Indianapolis Motor Speedway.
Two of the nation's most prominent labor unions have agreed to settle a bitter, nearly two-year long dispute that led them to raid each others' members. The settlement between the Service Employees International Union and Unite Here would transfer ownership of New York-based Amalgamated Bank--the nation's only union-owned bank--to SEIU if regulators approve the deal. Leaders of both unions say it was time to resolve a fight that had become a distraction in the labor movement. Unite here represents about 250,000 workers in the hotel, restaurant and gaming industries. SEIU has about two million members in the health care and service industries.
Federal officials have delayed a decision on a permit for a $7 billion oil pipeline from Canada to the Gulf of Mexico. The State Department says it's adding 90 days to the comment period for other federal agencies on whether Transcanada's Keystone XL Pipeline is in the national interest. Keystone XL would move oil from Canada through Montana, along the border of North Dakota and South Dakota to Nebraska. The pipeline would then hook up with another pipeline in Kansas and move oil through Oklahoma and Texas. The comment period had been scheduled to end September 15th. It will now extend until 90 days after the State Department has issued an environmental impact statement on the pipeline. The department didn't say when the environmental statement would be finished.
Good times are finally back for the nation's airlines. For travelers, that means it's getting harder to find bargains. The summer travel season is off to a roaring start, fares are up and money is rolling in from fees on things like checked baggage. The six biggest U.S. airlines earned about $1.3 billion in the second quarter, and more profits are expected for the rest of the year. Nevertheless, airlines are still woozy from the one-two punch of record-high fuel prices followed by a recession that caused $22.7 billion in losses for the Big Six in 2008 and 2009. There were plenty of fare sales when the airlines were struggling to fill seats. Now those seats are in demand, so deals are less common and travelers are paying for “extras” such as aisle seats, baggage checking and buying tickets by phone.
The Treasury Department, under fire for not developing a concrete plan for mortgage giants Fannie Mae and Freddie Mac, says it will hold a conference in next month to discuss their future. The administration says it will hold a conference on the future of the mortgage funding system on August 17th at the Treasury Department. The financial overhaul didn't address their future, despite protest from Republicans that it was incomplete without a plan for the two companies. The Obama administration has said it wants to wait until next year to determine their future. So far stabilizing the pair of mortgage buyers has cost taxpayers $145 billion.
The head of the Securities and Exchange Commission says the agency will seek input from businesses and the public before proposing new rules to oversee Wall Street. SEC Chairman Mary Schapiro says the agency will take public comment before adopting its nearly 100 new rules under the financial regulatory law, even though the law does not require it to do so. The law gives the SEC new powers to oversee hedge funds and derivatives. "We need to have a process that does not stifle communication of important information from the public," Schapiro says in remarks at an event hosted by the U.S. Chamber of Commerce.
Valero Energy says it had its first profitable quarter since the first three months of last year, as it made more money refining diesel fuel and other products. America's largest independent oil refiner earned $583 million in the second quarter. That compares with a loss of $254 million for the same quarter last year. Valero Energy Corporation said it had higher margins on diesel fuel and other products like petrochemicals, asphalt and lube oils. Revenue rose 25 percent to $21.8 billion. Analysts had expected revenue of $21.7 billion.