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$20 Billion Gulf Fund, Good for Investors?

A sign warns the public away from the beach on Grand Isle, Louisiana. With oil covering many of the beaches, officials closed them to the public indefinitely on Saturday. Officials now say that it may be impossible to clean the coastal wetlands affected by the massive oil spill that continues gushing in the Gulf of Mexico.
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A sign warns the public away from the beach on Grand Isle, Louisiana. With oil covering many of the beaches, officials closed them to the public indefinitely on Saturday. Officials now say that it may be impossible to clean the coastal wetlands affected by the massive oil spill that continues gushing in the Gulf of Mexico.

Even though BP has tentatively agreed to a $20 billion fund for Gulf oil spill claims, the CEO of Third Avenue Management, David Barse, told CNBC he still has questions, including: Is $20 billion enough, and what standard will be used to distribute those funds?

For that reason, Barse does not recommend buying BP common stock. But if BP uses the debt markets to finance this $20 billion, they would likely have to pay-up a little bit in terms of what a “comparable yield would be for a debt security of a company of that magnitude; and THAT for our credit fund would be interesting,” Barse said.

Barse likens this uncertainty to other value investor attracted investments involved in “sort of similar circumstances, a company called Enron.” Its common stock was “never cheap enough” and “an uncertainty to the very end,” he said.

But he quickly added, “I’m not saying its [Enron] directly comparable to that [BP], but AIG was another one.” Value investors owned AIG, “everyone loved it, but we could never own the common stock, a lot of our peers did.”

Barse’s company has an investment in a Florida real estate business along the Gulf Coast called The St. Joe Company. St. Joe’s business has been impacted by the uncertainty of the BP oil disaster. How do you compensate for the “spill hanging over their heads?," he wonders.

There will be many people who benefit from this, "lawyers, and there will be a lot of people who will never see a recoupment of their loss,” he said.

Related Links:

"The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.

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