Tuesday, July 27, 2010

Palm Beach Post: Florida owns 15 million BP shares; CFO Sink says state should weigh selling

By Michael C. Bender and Pat Beall

Palm Beach Post Staff Writers

Updated: 7:30 p.m. Wednesday, June 16, 2010

Posted: 6:58 p.m. Wednesday, June 16, 2010

Florida's elected chief financial officer said Wednesday that the state should explore selling off its 15 million shares of plunging BP stock, although she stopped short of saying it should definitely dump the holdings.

"It should clearly be on the radar," said Democratic CFO Alex Sink, her party's top candidate for governor.

The state has already lost $21.5 million from selling devalued BP stock in the wake of the ongoing oil spill in the Gulf of Mexico as part of routine trading done by state pension fund managers. Florida owned 21 million shares of BP when the Deepwater Horizon rig exploded on April 20, or about one half percent of the company's outstanding shares.

The shares remaining in the pension fund have lost another $64.8 million in value, or about 40 percent, during the spill. But those losses would only be realized if the state sold the stocks, which account for about one-tenth of a percent of the total pension fund value. The state also owns BP corporate bonds.

While Sink, who once suggested the state buy toxic bank assets from the federal government as an investment opportunity, refused to say Florida should definitely sell BP stock, she did say the fund's trustees should "collaboratively" decide.

A spokesman for the State Board of Administration, which manages the Florida's $114 billion pension fund, said it would be unprecedented for the board's trustees to intervene over a particular investment.

"I don't recall an occasion when they've gotten involved in any specific security," SBA spokesman Dennis McKee said.

Gov. Charlie Crist and Attorney General Bill McCollum, who are SBA trustees along with Sink, both said through spokesmen that they had little interest in forcing a sale of BP stock.

"We'll leave that to the fund managers," Crist spokesman Sterling Ivey said. "They're looking at the best interest for the investments over the long term. It could take several years to make up for those losses."

Two pension systems — the Louisiana Municipal Police Employees Retirement System and the New Orleans City Employees Retirement System — have already filed suit against BP over losses.

After sliding to a near 14-year low of $29.58 Wednesday morning, shares of BP rose slightly to close the day at $31.85. Shares were trading at $62.38 in January.

Meanwhile, investors have been rewarded for holding on to stock from an oil company responsible for a similar spill in 1989.

Exxon's stock has increased ten-fold since its Valdez tanker spilled 11 million gallons of oil of the Alaska shoreline, while the broader stock market has only tripled in value during the same time, according to MoneyWatch.com.

But the MoneyWatch report noted that stock for Exxon, now Exxon Mobil, suffered no discernible hit after its spill.

The drop in BP stock value was compounded for shareholders Wednesday when the oil giant announced it would not pay dividends on its stock for the rest of the year.

The company also announced it would put $20 billion into escrow to pay for damages from the spill.

While Florida SBA trustees have never ordered pension fund managers to buy or sell a specific stock, the state has put parameters on investment practices.

Fund managers are prohibited from investing in certain companies with business operations in Sudan and Iran. The Lawton Chiles Endowment Fund, created with settlement money from the state's lawsuit against tobacco companies, is prohibited from investing in tobacco companies.

Many consider Florida's pension fund among the top state-run pension funds in the country.

In 2008, the fund was estimated to be worth 106 percent of its future payouts. Today, it's worth about 89 percent of its obligations.

"Anything over 80 is good," McKee said. "All the experts say we're one of the top four or five funds in the U.S."

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