He was the favourite so the announcement came as little surprise That is good Markets do not like

Posted by admin · · Jump to comments

He was the favourite, so the announcement came as little surprise That is good Markets do not like being surprised. Barring some extraordinary accident, the appointment will be confirmed by Congress and he will replace Alan Greenspan early next year So far so good. What the markets know of his background is broadly encouraging. He is a serious professional economist who has written extensively about the big idea of central banking in the 1990s, inflation targeting. Ben Bernanke's nomination as the chairman of the US Federal Reserve Board has received about as warm a reception as possible from the financial markets.

Almost everyone else wants to discuss Britain's budget rebate, and who should get what share of it once it is handed back.Originally planned as a two-day event, complete with Tudor banquet stretching long into the night, the organisers have been forced to prune it back to just a day. Only in the public sector, the last bastion of defined benefit pensions, does everyone seem oblivious to who pays the bill of this fast-dying privilege.Hampton Court's damp squibTony Blair wants today's summit of European leaders at Hampton Court to be a forum for discussion on how Europe should meet the challenge of China and globalisation. Pension liabilities are to be treated like other unsecured creditors. They are no longer things to be swept under the carpet as a problem for another day. Is this a good thing? Well perhaps, but forcing companies and their investors to recognise the long-term costs of providing final-salary pensions hardly does anything to encourage them. All appropriate action will be taken to prevent pension liabilities bouncing back on to the Pensions Protection Fund.

This won't of itself halt corporate restructurings and capital payouts in their tracks, but it will make many of them harder to do, and it is bound to limit the amount of value investors and bankers can hope to extract from companies.The Pensions Regulator has made it absolutely plain. Rising markets are in any case beginning to inflate away many of these deficits Given time, they will cease to be a problem in most cases. So I'm not sure the Marconi precedent has quite the significance it is being credited with.What it does show is that the Pensions Regulator is in deadly earnest. Sure enough, it would free management from an irritating distraction, but any chief executive who sits around worrying about his pension deficit when there's a business to be run is an idiot.To crystallise future liabilities by paying a third party to take them on would be an almost reckless misuse of capital. In the Marconi case, there are approximately £3.7bn of liabilities backed by just £2.6bn of assets.Any insurer would struggle to underwrite such a huge liability, but even assuming the capacity exists for such a transaction, Mr Parton would likely be charged a whole lot more than the £2.6bn of assets plus £500m he has in escrow for the privilege.Indeed, it is hard to see why any company would want to pay an insurer the sums that would be demanded for assuming the liability of an entire pension scheme with liabilities stretching perhaps as many as 50 years into the future. Yet I'm not sure that partial sale to a bulk annuity provider is what Mr Parton has in mind.In a bulk annuity transaction, the pension fund pays the insurer a sum of money to assume the liability of servicing members with their pensions. The insurer may have a less exaggerated view of the costs of doing this than the pension fund, but it's an expensive business nonetheless.