Pension deficits will dictate FTSE moves

[TrueBlueTerrier]

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The ability of pension deficits to change the way the market judges a company is astonishing.

Last week BT was in trouble and its shares slumped 9% on Thursday, but this week in contrast, BAE Systems could see its shares rise on a worsening deficit.

At the start of last week, BT executives were blissfully unaware that there was a problem with the company's enormous £34bn pension fund.

Admittedly, the fund was £9bn in the red, but BT had come to what it regarded as a very satisfactory deal with the fund's trustees to resolve the problem.

The company had agreed to make additional annual contributions of £525m for three years before rising to £533m for the next 14 years. But then along came the Pensions Regulator, raising what it regarded as 'substantial concerns' over the deficit plan.

It is understood to be objecting to the time it will take to address the deficit. Fears of a dividend cut sent BT's down 5.4% on the week at 122½p.

More importantly, the regulator has introduced uncertainty. BT believes its solution is correct and it will challenge the regulator, but appeals could take years - more bad news for prospective pensioners and the company.

This week BAE Systems will unveil substantially higher annual profits - up from £1.9bn in 2008 to about £2.2bn - but it will also confirm that its pension deficit has reached £3.1bn, up from £2.2bn a year earlier.

However, in contrast to BT, the share price could jump because buried in the figures will be a £261m pension windfall from one of its US pension funds - coincidentally, just about the size of the fine agreed this month with US and British authorities.

Another company whose pension fund is under scrutiny is ITV. The City will be interested to see how incoming chief executive Adam Crozier will deal with the £650m deficit when he takes over next month.

And inevitably, investors will also be monitoring the ability of British Airways chief Willie Walsh to juggle with a titanic £3.7bn pension deficit and a forthcoming industrial punch-up with his cabin crews.

So lucky then that both men bring to their tasks a huge ability to juggle pension problems with declining market share.

Departing Royal Mail boss Crozier in particular brings a cool demeanour to the problem. When you are dealing with a £10 billion pension deficit and an organisation almost permanently at war with its employees, dealing with ITV's many problems should seem easy.

While the FTSE 100 ended up 1.6% on the week at 5,142.4, this was all about a potential settlement for the Greek economic crisis. But watch the pension deficits for really large price movements.

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[Roy Mayall]

You want to know where our pension fund disappeared to? It turned into banker's bonus's.

[steven100]

Our pensions have nothing to do with bankers bonuses, its all to do with investing our money in profitablity companies and seeing our shares the shares rise. As a rm employee thats us f****** if its the same people who run our company. Once we come out of the recession things will pick up and improve.