BP WATCH: BP's US Shares Close Lower As Lawmakers Grill CEO

By Donna Kardos Yesalavich and Kristina Peterson Of DOW JONES NEWSWIRES NEW YORK (Dow Jones) -- BP PLC's (BP, BP.LN) U.S. shares fell slightly Thursday as BP Chief Executive Tony Hayward faced a grilling by U.S. lawmakers on the oil spill and investors voiced concern over the lack of a monetary cap to BP's ultimate liabilities. BP's American depositary shares closed 0.4% lower at $31.71, erasing part of BP's Wednesday gains, which had come after the oil giant agreed to cut its dividend and set aside $20 billion to help pay for claims resulting from the Gulf of Mexico oil disaster. The stock is now down 6.7% for the week, and its decline since the April 20 explosion of the Deepwater Horizon rig now amounts to about 48%. The cost to insure BP's debt rose marginally through Thursday's hearing but remains lower than earlier in the week. BP options were among the most actively traded Thursday, with more volume in put options, which are considered bearish because they convey the right to sell, then there was in call options, which convey the right to buy. The activity came as U.S. lawmakers blasted BP's chief executive at his first appearance before Congress since the deadly oil-rig explosion. U.S. House Energy and Commerce Committee Chairman Henry Waxman (D, Calif.) told BP Chief Executive Tony Hayward, the sole witness at the hearing, "there is not a single email or document that shows you paid even the slightest attention to the dangers at this well." In addition, Standard & Poor's Ratings Services lowered its rating on BP by two notches, to A, its second downgrade on the oil giant this month, citing higher oil leak estimates and "intense political pressure in the U.S.," its largest market. Meanwhile, there are increasing concerns from analysts and investors about whether the $20 billion the company agreed to put into escrow will be enough. Credit Agricole analysts told clients in a note that is expects BP's total gross liability could be between $35 billion and $40 billion. Bank of America Merrill Lynch and Barclays Capital cut their investment ratings on the stock. Bank of America Merrill Lynch said the outcome of BP's meeting with the White House Wednesday "provides little comfort or clarity," while Barclays noted that the $20 billion figure for the escrow fund "acts as a signal of the company's commitment to 'make good' in the U.S.; hence, we should not see this figure as either a cap or floor with respect to cleanup and economic costs." The lack of a cap on BP's liabilities connected with the oil spill represents "the most worrisome thing I heard" out of BP's meeting at the White House, said Peter Tuz, president of Chase Investment Counsel. Tuz does not currently have any stock or bond holdings in BP. He previously had some BP bonds but sold them shortly after the oil spill. However, USAA Investment Management has held on to its BP stocks and bonds. Some of its stock holdings in BP are in index funds mimicking the FTSE 100 and the MSCI EAFE indexes, where the firm has no choice but to own BP as long as it is in those indexes. But its BP bonds and BP shares it has in value funds are an active choice the firm has made because it considers the stock and bonds to be at attractive valuations for the long term. Still, Wasif Latif, vice president of equity investments at USAA, conceded that BP's stock and bonds are likely to be volatile in the near term. "The $20 billion they set aside, that puts to ease a little bit of the uncertainty, but I think the pressure on BP will continue until they stop the leak," he said. Meanwhile, short interest in BP has been surprisingly low both in the London-listed shares and the American depositary shares, according to data from Data Explorers, which tracks interest in short selling. When investors short a stock, they borrow the shares and sell them, expecting prices to fall. When it does, they buy back the stock at the lower price to make a profit. The percentage of shares outstanding on loan, which reflects traders borrowing shares to short them, did not rise above 1% until Tuesday in London, up from around 0.4% before the oil spill began. Meanwhile, short interest in American depositary shares has been even lower, and has actually gone down since the April 20 explosion, said Will Duff Gordon, director of investment management strategy at Data Explorers. "We've never seen a big, liquid company fall this far with so little short-selling in it," Duff Gordon said, noting Lehman Brothers and Bear Stearns had short interest of around 20% or higher when their stocks were sliding during the financial crisis. Traders may be betting the company can afford its liabilities or may have already reached the bottom of its stock drop, Duff Gordon said. Still, anyone who made a bearish bet early on could have made "one of the shorts of the decade," he added. -By Donna Kardos Yesalavich and Kristina Peterson, Dow Jones Newswires; 212-416-2188; donna.yesalavich@dowjones.com (END) Dow Jones Newswires June 17, 2010 16:52 ET (20:52 GMT)