(October, 8 2013) — If you consider pension deficits to be a barrier for investing in a company, have you considered which regions might be struck off your list?
Investment bank Citi had its analysts examine the leading stocks across three regions and found continental Europe and the US’s largest listed firms were staring down the barrel of the largest pension deficit as a percentage of their market cap.
Both regions had four major companies with pension shortfalls making up at least 50% their market capitalisation (see graphics below)—with the top 20 firms showing at least 10% or more of their overall worth potentially disappearing into a black hole.
The UK, in comparison had lower levels of deficit compared to the value of its listed companies, Citi analysis showed.
The bank pointed out that it is a “crude tool for identifying pension risk” and does not identify the extent to which pension risks have been mitigated, adding that “companies may have special circumstances that affect the nature and risks of the pension liabilities, such as specific regulatory treatment of pensions or employee risk-sharing arrangements.”
Nevertheless, companies appearing on these graphs “have potential material exposure to pension risk that we believe warrants further investigation,” Citi said.
However, analysts from Goldman Sachs Asset Management keep an eye on such firms for another reason—as aiCIO reported last month, once interest rates rise, these deficits will shrink and the companies, which are now relative undervalued, may be worth a look.
Source: Citigroup
Related content: How Pension Deficits Could Boost Your Portfolio & Pressure: The Causes of Corporate Pensions’ Altered Reality—and Future.