UK – Latest estimations by Morgan Stanley put deficits of defined benefit schemes for UK FTSE 100 companies at a massive 65 billion pounds as at the end of 2002, compared to estimates in August last year by UBS Warburg of 28 billion pounds.
According to a Morgan Stanley equity research paper: "UK Pensions: Is it just a storm in a teacup?", FTSE 100 pension deficits represent around 6.5% of total market capitalisation – or 65 billion pounds. At the end of 2001, FTSE 100 pension deficits were estimated as being around only 200 million pounds. Poor equity returns and falling interest rates are blamed for the ensuing rapid and severe increase.
British Energy, BAE Systems, Rolls Royce and Sun Alliance are named as being amongst the companies most at risk – based on the combination of the deficit to market capitalisation, given the funding levels, and discount rates used. British Airways, British Telecom, Cable & Wireless, Invensys, Sainsbury, ICI and GKN also have a risk of large increments in funding needs, according to the research.
Those companies least likely to face any change in their cash funding needs as a result of pension deficits are: Corus; Boots; William Morrison; Associated British Foods; and Friends Provident.
The latest research expands on that of UBS Warburg last August which reported 28 billion of the total deficit for UK companies to be accounted for by FTSE 100 companies . UBS similarly named Rolls Royce, BT, Royal & Sun Alliance, BAE Systems, J. Sainsbury, ICI, GKN, and British Airways among the top ten.
Analysts believe that, since the beginning of 2003, the deficit could have risen to as much as 85 billion pounds given falling bond yields and further equity weakness.
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