FT Alphaville " Breakup Please Six months ago, the FT's analysis of BP's latest numbers began, Bob Dudley stated that the company had reached a "definite turning point." How right he was. Unfortunately, the turning was down rather than up. The shares are not quite plumbing the ocean floor of the panic which followed the Macondo well disaster, but despite higher oil prices, the slowly clearing fog of litigation and the continuing sales of assets at prices well beyond book values, they have still managed to plunge by 13 percent in the last two months. The fall neatly reflects this week's news of a 13 percent decline in first-quarter profits, while the other oil majors were cleaning up, so to speak. The most charitable description of BP is that it is a company in recovery mode, while us long-suffering shareholders (sic) wait for Dr Dudley's medicine to take effect. A less charitable conclusion would be that the patient has such a chronic sickness that only major surgery will cure it. The parallel that strikes me is with British Gas. In 1993 it managed to drift into three life-threatening crises simultaneously. The war of attrition with its regulator was culminating in a hostile report from the Monopolies Commission, its retail business was somewhere between a laughing stock and Public Enemy No1 (remember Cedric the pig?), while its nascent upstream arm was under sniper fire from the rest of the industry. In came Dick Giordano, a tough, anglophile American businessman. Dudley might note how his fellow American dealt with the crisis. He saw that no single board could concentrate on three such problems at once, yet each was too important to be dealt with by sub-committees. His solution was to break the business up. Today those businesses are Centrica and BG Group, while the third has disappeared (profitably) into National Grid. An investor who bought in on Giordano's arrival would have multiplied his money many times. BP's board faces the continuing (much worse) crisis in the mire that passes for the Americian judicial system. Meanwhile, it has probably lost control of TNK-BP, its vital Russian oil associate, after the bizarre bungle of its proposed joint venture with Rosneft handed the Russian Arctic to Exxon on a plate. BP also seems incapable of making profits from selling the end-product to actual consumers on the forecourt. Yet even after paying handsomely for the Gulf disaster, it remains an extraordinarily rich company. Its exploration expertise is second to none, and it's clear from the prices of the businesses it's sold to pay the Macondo bill that it owns plenty of hidden gems, some of which barely warrant a mention in its vast annual report. Managed for the benefit of all shareholders, TNK-BP would be a fine, long-term asset. At the same time, it's not obvious how BP's upstream knowhow helps it to sell petrol profitably. As everyone knows, breaking up is hard to do, and in any case must wait until the Macondo money-gusher is finally capped. That's the turning point which really matters. It may be that the directors of BP, as they sweep past the uniformed flunkies outside the St James's Square head office, have grasped all this and are secretly preparing plans to break up their behemoth. Well, we can all hope. It's just that on past form, the BP board is probably giving more thought to where to lunch after the meeting than to asking what this once-great company is for. The toast, this Bank Holiday weekend, is to Svend Egil Larsen and Peder Veiby. It's not often that day trader muppets beat the professionals at their own game, but the pair have pulled off the equivalent of beating the bookies who think they can always outwit the punters. Like the bookies, the professionals cry foul when they lose, and back in October 2010 our heroes were convicted of market manipulation by an Oslo court. Their crime was to unpick the trading equations that drove the computer at US broker Timber Hill, allowing them to bet against its electronically-programmed responses to various signals. This week Norway's highest court decided that this was merely what brokers" automated trading systems do all the time, and threw the case out. The good news for muppet investors everywhere, says Larsen, is that opportunities for others to do the same are still there. The good news for the rest of us is that computers may be lightning fast, but they're still stupid enough to continue doing the same thing even when the results don't warrant it. Man Group has built a whole business on computer-driven trading, and it now appears to be unravelling as fast as it grew, as share prices refuse to do as they're told. Its future is bleak. The future for Larsen and Veiby is obvious. They should start their own anti-hedge fund. A full list of Collins" financial interests can be found on this spreadsheet. More Collins commentary at NeilCollinsxxx This entry was posted by Neil Collins on Saturday, May 5th, 2012 at 1:25 and is filed under Uncategorised. Tagged with BG, bp, break-up, British Gas, centrica, computer-driven trading, Egil Larson, Macondo, Neil Coll, Peder Veiby.