Pensions – worth revisiting

■ Unrecognised IAS19 deficit of £6bn: Over the last two years, the combined IAS19 pension deficit at Barclays, LBG and RBS has risen from £500m to £10bn.

■ Implications for equity: Barclays and Lloyds smooth losses through the “corridor” approach. If they recognised them in full, like HSBC and RBS, 2009E TNAV would have been 6% lower at both, on our estimates;

■ Implications for capital: Full IAS19 recognition with no filter (cf. BIS proposals) would lead to a 70bps fall in Barclays equity tier 1 ratio and a 50bps fall in LBG equity tier 1 ratio respectively, on our estimates. This is not something we had factored into our previous Basel 3 impact assessment;

■ Investors should make the adjustment: It aids comparability, and in the next few weeks we expect the IASB to propose the abolition of the “corridor”;

■ Deficits sensitive to macro-conditions: If long-term rates rise, deficits will fall. But further tightening in corporate bond spreads would offset this. Overall, AA yields actually fell modestly in Q1. The ASB also wants firms to use risk-free discount rates which would be very negative for IAS19 deficits

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