Word: warburgs
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...intrinsic value in escaping the Harvard bubble every now and then and taking work to a larger audience. “I think your teaching is very likely and indeed should be helped by what you learn outside the academic routine,” says John Kenneth Galbraith, Warburg professor of economics emeritus, who at 94 is a living example of a legendary public intellectual, having served as a top adviser to Franklin Roosevelt...
...investors. Short of mass firings, there are two ways for a company to reduce its pension shortfall: set more money aside or earn higher returns on its investments. Forget the second fix; companies already assume rates of return that are plain out of touch. According to a UBS Warburg study, 4 out of 5 companies project average annual returns of 9% or more--returns that are highly unlikely, with pension managers now investing about 40% of assets in bonds. Companies are more likely to lower their expectations, as Citigroup has--to 8% a year from...
...this practice produces some volatile returns over long periods. But this practice produces some gross distortions. Of 355 companies in the S&P 500 that offer a defined-benefit plan, 52 report profits from their pension fund when the fund is actually costing the company, according to UBS Warburg. The study concludes that S&P 500 companies are now $126 billion short of what they need to pay pension benefits in the future. Merrill Lynch expects the S&P shortfall to reach $323 billion by year...
...close this gap, companies will have to divert more money to their pension plans. UBS Warburg analyst David Bianco estimates that pension costs will make S&P 500 earnings 95 lower per share than they would otherwise be this year. Companies with the greatest pension shortfalls are candidates to announce a special charge, which often creams a stock. "It's perilous to assume these issues are already reflected in stock prices," Bianco warns. Pension accounting is so complex, he says, that the underfunding issue isn't fully appreciated...
...worst-situated industries include airlines, autos, construction and heavy equipment. At the end of August, UBS Warburg reports, General Motors had a whopping pension-fund shortfall of $22.2 billion, equal to 83% of the company's market value. Excluding tax benefits, $4 of the first $5 that GM earns per share each year stands to get eaten up by pension obligations. Delta Airlines' shortfall is $3.5 billion, equal to 1 1/2 times its market value. The company is essentially in business to pay retirement benefits--yet it still doesn't make enough...