Life’s a beach (or not) Ah, the holiday season. Dreams of surf, sea, sand – and soggy share prices, or so it must seem to the bewildered shareholders in Thomas Cook. The travel agent’s “amendment to bank facilities” on 21 October lasted just 38 days before the business fell into the arms of its 17 banks, who put up £200m in emergency funding to tide it over until the summer.
Trustees of the Uniq pension scheme have sold its assets and liabilities to Rothesay Life in a deal that ensures that the 20,000 members will not have to rely on the state-founded Pension Protection Fund to make up any shortfall in their retirement benefits, reports the FT, in a deal which ends years of uncertainty that could have resulted in a significant hit to the PPF. The company also used a novel so-called deficit for equity swap that is likely to be a template for other employers whose pension liabilities are worth far more than the company. Under terms of the deal struck with Rothesay Life, which is owned by Goldman Sachs, scheme members will receive benefits that are far lower than they were promised during their working lives, but as good as those provided by the PPF, according to Lane Clark and Peacock, which advised the independent trustee to the scheme. Uniq was once the owner of the UK’s largest dairy companies and many of its pensioners are milkmen who earned modest salaries.
Some highlights from Monday’s FTfm. Chairmen fail in governance dutyChairmen of FTSE 350 companies are failing to take responsibility for corporate governance, with half making no mention of the issue in their annual report statements, according to a review of company reports for the year to the end of March 2011
Some highlights from Monday’s FTfm. UAE may force pensions on expatsThe UAE is hoping to set up a pensions scheme for expatriates who make up more than 90 per cent of its 8m-plus population. The scheme would represent a huge opportunity for international asset managers and local stock exchanges. The pension scheme would replace the current gratuity system under which UAE expatriates are entitled to a lump sum when they finish working.
Some of Britain’s biggest banks have begun quietly ridding themselves of billions of pounds of assets they have found difficult to sell following the financial crisis, the FT reports, moving them off their balance sheets and into staff pension funds. The moves – designed with the dual purpose of clearing unwanted assets from the banks’ own books while at the same time closing pension fund deficits – have been made as exceptional top-up payments into the pension schemes over recent months. HSBC made a £1.76bn exceptional payment into its pension scheme, comprising a portfolio of assets ranging from subordinated debt to asset-backed securities, last December. Lloyds also made a £1bn commitment to its pension fund as part of a £5bn transfer of assets into an intermediary funding vehicle. Lloyds did not respond to requests for information about the arrangement, but pensions experts said the measures were comparable with the HSBC plan.
Invensys, the controls and automation group recently kicked out of the FTSE 100 to make way for Glencore, is a perennial takeover target. But in recent weeks the speculation has centred on the disposal of a major division. This was fuelled by respected blogger Jim Pinto who claimed the majority of Invensys’ rail business was about to be sold to China’s CSR, which has just detailed plans to raise the equivalent of £1bn via a share issue.
Some highlights from Monday’s FTfm. Boutiques grab growing market shareSmall investment boutiques are breaking through the glass ceiling and taking significant market share from the industry’s heavyweights, according to Lipper FMI. Minnows with fewer than 10 funds captured 26 per cent of net inflows into cross-border European funds in the first quarter, up from 9 per cent in 2010.
Some highlights from Monday’s FTfm. Investors fear default in EuropeInstitutional investors increasingly believe Greece and other troubled peripheral European countries will be forced to restructure or default on their debt, translating into a vote of no confidence in the European Union’s efforts to avert a full-blown debt crisis
Some highlights from Monday’s FTfm. DC pension savers head for povertyPeople in such schemes have lost an average £10,000 a year of future retirement income over the past decade and will need to save a third of their salary to make up the shortfall, according to recent research
The Treasury’s plans to increase public sector workers’ pension contributions by an average of 3 percentage points over the next three years could “destroy the local authority pension scheme”, the biggest of the council pension funds is warning, the FT reports. Lord Hutton, the Labour former cabinet minister, is due to produce his final report on public sector pensions in March and is widely expected to recommend a switch from final salary pensions to ones based on average earnings over a career.
Another day, another report of municipal bond outflows from mutual funds. From Reuters on Wednesday: The mass exodus of cash from municipal bonds accelerated to a record outflow of an estimated $5.7 billion in the week ended Jan. 19, data from the Investment Company Institute showed on Wednesday. The redemptions are the most in any week since the ICI, a U.S. mutual fund industry trade group, started tracking weekly investment flows at the start of 2007.
Mad, bad, and dangerous to know — the response from states to the idea of Congress pre-emptively legislating for their bankruptcy. In Monday’s Wall Street Journal, EJ McMahon of the Manhattan Institute adds to the criticism, arguing that it could distract states from the essential task of pension reform.
Marc Ostwald of Monument Securities has a good riff off of the news that Ireland’s national pension fund will indeed be repurposed to buy Irish government bonds: While many will argue that this is just more ‘unsound finance’, but one should not forget that Japan’s Post Office and other Japanese public sector some 52% of the stock of outstanding JGBs. Unsound finance probably, but if it’s OK for Japan, why should it not be OK for Ireland??
There was a nifty little Morgan Stanley note recently which took on all that ‘stocks are dead, long live bonds’ investor sentiment. Nifty, because the bank did note short-term support for a return to equities (buybacks, bond bubble bursts) but remained cautious on long-term trends, further into the decade.
Quantitative Easing v2.0 is almost entirely expected, at this point. But it’s also something else, according to Deutsche Bank. It’s one last chance to avert a real liquidity trap and — intriguingly — to avert a retirement industry crisis.
Here’s an, erm, simple solution to the problem of Ireland’s ballooning deficit and pension funds rocked by ultra-low bond yields; just have them buy Irish bonds: (Reuters) – Ireland’s pension industry is seeking a change to regulations that would allow it to price annuities based in part on Dublin’s government bonds, leading to more purchases of the hard-pressed sovereign’s debt.
More on global demographic time-bombs, this time from Deutsche Bank, which has stumbled upon a potential answer: mass migration from the developing to the developed world. Writing in the latest edition of Deutsche’s Long-Term Asset Study, Jim Reid says that moves to push up retirement ages by a year or two won’t do enough to ease the problem facing public finances in the developed world.
Pensions. Boring, deathly things that people generally try to put off thinking about. Unless when they weight down listed UK companies even more than usual, that is, which – thanks to trends in pensions accounting analysed by Citigroup on Monday — is looking a tad likelier.
RIP RPI? As part of its emergency Budget, the UK government wants to switch public sector pension pay-outs from being based on the Retail Prices Index (RPI), to the Consumer Prices Index (CPI). CPI has generally been lower than its RPI-cousin, so the move could help reduce pension fund deficits (it also probably means lower pay-outs for pension fund contributors, but err, never mind that for now).
Here’s an interesting way to make a good a pension fund deficit – fill it with 2.5 million barrels of maturing Scotch whisky. This novel idea has been dreamt up by Diageo and forms a key part of a 10-year funding plan for the drinks group’s UK Pension Scheme (which at the time of the last the triennial actuarial had a deficit of £862 million).
That’s just one of the helpful suggestions from the securitisation team at Barclays Capital to Greece, which of course is struggling to meet its fiscal shortfall. Others include raising revenues by selling off state assets a la Poland, reducing tax avoidance, cutting wages and increasing the retirement age.