Pension figures don't add up

THE resignation of Work and Pensions Secretary Andrew Smith, just as a complex new pensions bill is reaching its final stages in Parliament, is not brilliant timing. It looks like a retreat in the face of the enemy.

The Government has consistently underestimated the acute danger from changes in pensions law, taxation and accounting. All of this has changed the whole shape of the private pensions industry and the way that companies are valued.

Accounting standard FRS17, which requires firms to provide an annual balance sheet figure for pension deficits, contributed to the wholesale retreat from final salary schemes.

Pension deficits have been considered sufficiently important to end the proposed takeover by Permira of WH Smith and to throw a spanner in the works of entrepreneur Philip Green's offer for Marks & Spencer. A new paper from investment bankers JP Morgan suggests that we have not seen anything yet. JP Morgan spots three new dangers on the horizon. They are the International Financial Reporting Standards which come into force next year, Labour's new pensions bill which adds further obligations to company schemes, and changes in life expectancy assumptions.

There are huge numbers involved. JP Morgan estimates the liabilities of the FTSE 100 companies at £333bn at the most recent reporting date, with a pretax profit deficit of £57bn.

The companies most affected by the accounting change in terms of market capitalisation read like a Who's Who of British industry in a table headed by British Airways, BAE Systems, ICI, Rolls-Royce and BT. Measured against net asset value, the weakest links become Hays, Imperial Tobacco and National Grid Transco. On top of this, JP Morgan expects the new pensions law to depress share valuations of those firms with the largest pension schemes.

If all this were not depressing enough JP Morgan also estimates that the companies with the biggest funds - BA, ICI and Royal & SunAlliance - are also those which will be most affected by changes in life expectancy. At BA, for instance, the potential pensions liability could be 458% of the market capitalisation.

The author of the paper, Sarah Deans, warns investors that, as a result of changes, the use of 'price earnings multiples is often inappropriate' in making investments.

Instead, she believes shareholders will need a measure that adjusts the value of the company to recognise unfunded liabilities.

The JP Morgan paper makes for harrowing reading and explains why so many London blue chips have been underperformers in the global market upswing.

ITV pressure

THE cull of the old guard at ITV is proceeding at a far too statesmanlike pace. The departure of Etienne de Villiers, a supporter of former Carlton chairman Michael Green, was predicted at the time of the merger last year and is only now taking place.

Sir Brian Pitman, who at 71 is next in line for retirement, should have gone some time ago.

It was he who first sought to defend the Carlton board against shareholder power when Green's head was demanded, and then happily consented to one of the more generous payoffs in British corporate history.

As for Sir George Russell, who does have broadcasting knowhow, it was probably a mistake to stay on once the chairman's seat was handed to Sir Peter Burt.

But much of this is really window dressing. Having put a banker in charge of the enterprise, in the shape of Burt, what ITV really needs is creative genius.

Charles Allen, despite all his skills as a cost cutter and negotiator with the government, has struggled in the ratings wars. All of the energy being spent on renegotiating licences with Labour might better have been expended on providing people with the programming they want.

The big plus for ITV at present is advertising revenue. How durable that will prove if the slide in ratings is not halted must be seriously questioned.

The continued weakness of the share price points to distrust of Allen's approach.

Caz in no rush

RATHER than have its investors, clients and staff bothered by the riffraff from the fourth estate at today's annual general meeting, Cazenove will provide the market with an update on its future today.

Not much advance is expected on its May statement when it said it was 'benchmarking' the outside offers against going it alone. It will also likely report that the firm is benefiting from improved market conditions.

As for Caz's future, it has taken nearly two centuries to reach this point, so why hurry?