Panic! No wait...don't panic
Robert Peston writes an entertaining, slightly scary, story about BT's pension liabilities.
But is this anything to worry about? Not really. He makes a few points that sound striking, but under closer examination are utterly unsurprising.
...in an economic sense, BT's current and future pensioners own this totemic business.
True, but any business is "owned" both by its creditors and its shareholders. The creditors always have to be paid off first before the shareholders have clear title to the company's assets. And in most large, old companies, pensioners are among the biggest creditors. Look at General Motors, which has just handed over a majority stake in itself to its pensioners (via their union, the UAW).
To put this £8bn chasm in its pension-scheme into an appropriate context, the entire market value of the company is less than £10bn.Also true, but meaningless. The pension deficit - like any other debt that BT has - is already factored into its market value.
If you take out a £300,000 mortgage on a £400,000 house, then the "market value" of your asset is £100,000. You could try to scare yourself by comparing your £300,000 debt to the £100,000 equity, but it wouldn't be very effective unless you're really subject to panic attacks.
The meaningful comparison is to enterprise value, which is much higher than the £10 billion market capitalisation. This is clearly indicated by the fact that the company, in the middle of a recession, generates over £1 billion of cash each year. This money-generating enterprise would be worth at least £20 billion on any sensible valuation.
...if BT were forced to value its pension liabilities on the basis of the yield on gilts...well then the deficit would be well over £20bn
...and if my aunt had balls, she'd be my uncle. There's no reason whatsoever that BT should use gilt yields to discount its pension, as it can earn a much higher return on investment in its trading assets than it could get on gilts.
Having said all that, the story is informative and sheds interesting light on the internal structure of BT's business. It just isn't as big a deal as Robert would like to make us think. But then, news that plays up to the audience's fears and prejudices always gets more eyeballs.