Banks top up pension funds with their illiquid assets
Interesting strategy highlighted by the FT (reg req’d):
Some of Britain’s biggest banks have begun quietly ridding themselves of billions of pounds of assets they have found difficult to sell following the financial crisis, moving them off their balance sheets and into staff pension funds.
Not as bad as it sounds at first, since the pension funds’ liabilities only become due in the very long term, meaning that these assets will probably have matured by then and rendering short-term illiquidity considerations unimportant. Moreover, the transfer is being done at the “impaired book values” and an additional haircut in many cases.
It’s a good transaction since they they get rid of some unfunded pension fund liabilities and unwanted assets with the accompanying capital charges. But how it works out for the pension funds will depend on the solvability rather than the liquidity of these assets, and it seems unlikely anyone has a good handle on that.
