Ezekiel 12:25: "The words that I shall speak shall come to pass."

I explained that UK companies could quite easily sort out their pension fund deficits with a series of circular transactions by which they all issue new bonds to each others' pension funds nearly three years ago. Real cash money would have to change hands (otherwise they don't get the corporation tax deduction), but this could be borrowed from the bank in the morning and repaid in the afternoon. As usual, the idea was much derided along the lines of "If it were that simple, why don't they do it?"

Once The Great Deleveraging got underway, I revised the plan to involve companies issuing shares rather than bonds, and I pointed out a few months ago that most of these companies with massive pension fund deficits, primarily privatised utilities, are worker owned co-operatives in economic terms.

One caveat I had always added was that there are limits on the number of shares in the sponsoring employer that a pension fund can hold (post-Maxwell rules), which is why plan would have needed co-operation and co-ordination between several different companies. It appears that even this is falling by the wayside and UK companies are taking the most direct course of action and handing themselves over to their pension funds lock, stock and barrel.

From The Evening Standard:

For several years, people with a slightly warped sense of humour have referred to British Airways as a giant pension fund black hole with small transport business attached. Now it looks likely that they can really describe Uniq as a pension fund that owns a small chilled-food business.

Pending regulatory clearance and shareholder approval, the biggest supplier of sandwiches to Marks & Spencer will issue new shares amounting to 90% of its equity in return for the pension fund wiping out a £436 million deficit. Existing shareholders will end up with just 10% of the equity...

So what can existing shareholders do? The simple answer is not a lot, because even 10% of something is worth more than 100% of nothing. Indeed some analysts reckon that once the pension deficit is sorted Uniq's stock market value should be about £72 million, which is nine times the £8 million it is valued at today. So they won't actually have lost too much.

Here endeth today's lesson.