Companies going bankrupt/into administration

[raspberry-blower]

The pensions issue arises from defined benefits pensions underwritten by the company. As interest rates go down the pension fund goes into deficit.

That is why many companies no longer offer defined benefits pension funds.

There is far more to it than that, Mr Hemming.

A major shift in demographics has had a profound impact - there are more retirees who are living longer thus are taking more out of the pot. The biggest leeches on these funds though are invariably the ex-CEOs who always get their gold plated pensions and screw the rest of them - even though they more often than not cause the company to go belly up.

I know companies were scaling back on or terminating final salary pensions well before the financial crash of 2008 so this is old hat.

As for your comment on interest rate declines - this leads to an interesting aspect of the Carillion debacle. Pension funds will hoover up any old crud with high yields because they are in such desperate straights. Even though these ventures always end up going bust - it's the throwing nickels in front of a steamroller analogy that Max Keiser refers to. Look at the Carillion Dividend Yield History here - this should have been a monumental red flag for any pension fund manager to get the hell out and take the loses on the chin then. They'll get diddly squat now

[fuzzy]

Did I just read the name Phillip Green in this story??

As in...

http://www.bbc.co.uk/news/business-36879241

[johnhemming2]

There is far more to it than that, Mr Hemming.

What evidence do you have for these.

Pension funds tend to be regulated as to what they do. How do you substantiate your claims that

a) "The biggest leeches on these funds though are invariably the ex-CEO"

b) "Pension funds will hoover up any old crud with high yields because they are in such desperate straights."

I agree that CEOs are often over paid. However, I think they probably have mainly defined contributions pensions nowadays. I don't think they have more of a defined benefit pension than other pensioners although the quantities will be higher if they have a defined benefit pension.

Hence do you have any evidence to justify those statements.

[raspberry-blower]

There is far more to it than that, Mr Hemming.

What evidence do you have for these.

I have previously worked in Fund Management and, many years ago, worked on a well known high street banks' pension fund.

I have seen a lot of this with my own eyes.

For part a of your questions - see Fuzzy's post. There was also the Maxwell case where Robert Maxwell basically funded his extravagant lifestyle by selling off its assets - when he went skinny dipping in the Med virtually all of its pension funds had gone. Yes this did result in a lot of changes but they are certainly not failsafe.

b)
http://uk.businessinsider.com/britain-p ... and-2016-8

The larger the pension scheme the more diverse the investment portfolio becomes. They will invest in things such as property - commercial - as well commodities. I would not be in slightest surprised to hear if they have been investing in cryptocurrencies. This is above and beyond the stocks, shares and gilts that smaller pensions consist of.
The big killer here though is that they all require liquidity to maintain their day-to-day existence. Government bonds - or gilts - have greatly reduced coupons and therefore yielding far less for pension funds to function on. in order to increase the cash flow these pension fund managers will look to high yielding stocks and bonds to generate more cash flow. The problem here is that the risk factor grows significantly which is why they are often referred to as "Junk Bonds" and why I called them "any old crud"

http://uk.businessinsider.com/high-yiel ... rk-2015-12

What evidence do you have that refutes any of this, Mr Hemming?

[johnhemming2]

I was for a while on the committee relating to admittedly a local government pension fund. I have also worked in the area of finance since the 1980s.

Your links don't really substantiate anything beyond my assertion that the reduction in interest rates and particularly gilt interest rates is causing a problem.

Yes Maxwell ripped off the Mirror pensioners. However, there is regulation as to what pension funds are allowed to invest in.

[woodburner]

Does the regulation allow firms to borrow money out of their pension funds?

[PS_RalphW]

I worked for a not-for-profit charitable company, with a lot of assets (property) but a trading loss and debts. It merged with a quango in London, with big promises of re-investment and growth. The quango sold the fixed assets, put the money in their pension fund, and then declared bankruptcy, with the result that our charity was facing liquidation A previous boss put in millions of her own money to buy us out of administration, albeit with the loss of several jobs.

[Potemkin Villager]

There is very little being reported in the media about this that makes a lot of sense or really extends beyond PR and speculation. IMHO this one has a long way and many revelations to run. The catastrophic collapse in share price on a profit warning suggests the share price was probably being propped up by a whole enchilada of Enronesque financial reporting practices.

[kenneal - lagger]

I worked for a not-for-profit charitable company, with a lot of assets (property) but a trading loss and debts. It merged with a quango in London, with big promises of re-investment and growth. The quango sold the fixed assets, put the money in their pension fund, and then declared bankruptcy, with the result that our charity was facing liquidation A previous boss put in millions of her own money to buy us out of administration, albeit with the loss of several jobs.

By anyone's standards, except the City, this is fraud, or just down right theft, and should be stopped and prosecuted. It's similar to the House of Fraser scam from Lord What's His Name. (Can't remember his name at the moment but it will save me from being sued!)

[Potemkin Villager]

I worked for a not-for-profit charitable company, with a lot of assets (property) but a trading loss and debts. It merged with a quango in London, with big promises of re-investment and growth. The quango sold the fixed assets, put the money in their pension fund, and then declared bankruptcy, with the result that our charity was facing liquidation A previous boss put in millions of her own money to buy us out of administration, albeit with the loss of several jobs.

By anyone's standards, except the City, this is fraud, or just down right theft, and should be stopped and prosecuted. It's similar to the House of Fraser scam from Lord What's His Name. (Can't remember his name at the moment but it will save me from being sued!)

Surely you mean Earl Thingy?

[Mark]

Article from 31/03/17

Construction of new Royal hospital delayed again by a YEAR:
http://www.liverpoolecho.co.uk/news/liv ... d-12823229

The construction of the new Royal hospital has been delayed again after workers found “extensive� asbestos on site and several cracks in the new building. Building firm Carillion also blamed bad weather for the hold-up on the £335m new hospital, and have added a year to their estimated completion date. Health bosses now only expect to move into the 13-floor, state-of-the-art hospital, next door to the current site, in summer 2018. Construction should have been finished by the end of this month and the move completed by July, but the building work is expected to continue until next February.

Construction firm Carillion has confirmed several beams were affected by cracks, requiring remedial work which held up the process. A spokeswoman said workers had also found far more asbestos than initially thought on the site of the new 200ft-high building. Aidan Kehoe, chief executive of the Royal Liverpool and Broadgreen University Hospitals, said: “The new Royal will enable us to deliver state-of-the-art healthcare in the best surroundings in the world. “We are planning to move by summer 2018 and our redevelopment team have been working with over 5000 staff to coordinate the biggest move of our workforce’s career.


As I understand, they started building without doing an Asbestos Survey on the site.... seems to me like a very basic (and extremely expensive) error for any Construction Company, never mind one that big.... so, it seems like there was operational as well as financial mismanagement involved....
The losers, as always, will be the people at the bottom of the food chain - the small sub-contractors who won't get paid and individual employees...
Soon enough, the contracts will be picked up by other companies or HMG, as they need to be completed and the world will continue turning.....

Reminds me of a local house builder that went bust a few years ago with £100million debt due to mismanagement. The big cheese went over the horizon with a big pay-off. The other senior managers, FD etc. were then deemed competent by the Receiver and bought the assets for £50million, thus keeping their big salaries, pensions etc.... company renamed and away the merry-go-round went again..... everyone happy, except for the bankrupt sub-contractors and the employees who lost their jobs....

[kenneal - lagger]

We had a contact several decades ago who let us know when Bankruptcy sales were on. They were only advertised to a select few who could then clean up at rock bottom prices. Only the bankrupt person lost out!!

[kenneal - lagger]

Surely you mean Earl Thingy?

The green man?

[raspberry-blower]

Some interesting reading about the current state of play regarding pension funds:

JLT Employee Benefits: FTSE 100 and their pension disclosure

This is up to the end of 2016 and starts of thus:

The total deficit in FTSE 100 pension schemes at 31 December 2016 is estimated to be £87 billion. This is a deterioration of £17 billion from the position 12 months ago.

At a time when the FTSE100 rose - had it declined the loses would have no doubt been worse.

As for liabilities:

In the last 12 months, the total disclosed pension liabilities of the FTSE 100 companies have risen from £586 billion to £681 billion. A total of 16 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell with disclosed pension liabilities of £73 billion. A total of 20 companies have disclosed pension liabilities of less than £100 million, of which 10 companies have no defined benefit pension liabilities

As for bond holdings - well pension funds have nearly doubled their holdings over the past 10 years:

The average pension scheme asset allocation to bonds has increased from 61% to 62%. Ten years ago, the average bond allocation was only 34%.

They are not all investing in Treasury Bonds aka Gilts - quite a percentage is low grade that carries a high risk

Business Insider: There's a $1 trillion bond bubble ready to burst

So how did we get here? Mish believes there are three circumstances that have inflated the bubble:
1.Central bank support allowed zombie companies to stay afloat, carrying over larger debt loads and then adding even more of it on top of unproductive firms.
2.Low-yields in Treasuries forced pension funds and other investors with nominal return targets toward more speculative debt in order to meet those goals. "Investors were herded into lower-quality credit risk for a yield pick-up of a couple hundred basis points," Mish wrote.
3.The heightened demand from these funds for high yields created ease of access for speculative-grade issuers to find a market for their debt. "The proportion of triple C rated issuers in its speculative grade universe (bonds and loans) reached a new record to start 2016; 1,356 out of 3,181 issuers or about 42% of the total," Mish said.

Bottom line is that there will be pension fund failures and when they do fail it will only be then that we will find out which pension fund manager(s) have been acting recklessly.

Mods please feel free to split this into a thread about pensions

[raspberry-blower]

Meanwhile, back to the OT:

Business Insider: Carillion "may be first in a series of crisis in the UK construction industry"

"Shrinking profit margins, a deteriorating skills base, widescale reluctance to embrace technology and increasing issues surrounding build quality mar the industry.

"The myopic focus on turnover, rather than improving margins and removing waste in the supply chain through efficiency and innovation, has now resulted in the collapse of an industry giant.

If the industry doesn’t take this as an opportunity to overhaul itself and grasp a real modernisation agenda, Carillion won’t be the last household name to fall by the wayside.�

PFI contracts on loss leading basis? Check
A bursting housing bubble that has started from London and is now rippling out? Check

A trigger for the next financial crash?
The UK is repeating the same mistakes that were made in Ireland and Spain