|
|
|||
|
|||
|
|
Will Pension Funds Change Their Ways? MoneyNews
(Headlines - scroll down for full stories)
They may be forced to. The Financial Accounting Standards Board (FASB) is proposing massive changes to how pension funds report their obligations. The changes may result in many companies reporting "a lot more debt than was obvious" and "are likely to be so large that they wipe out the net worth of the company (in some cases)" says The New York Times. Instead of burying pension values in footnotes, the new rules would require companies to report them in their balance sheet. Currently, companies spread out their pension obligations over many years. The new rules would require companies to calculate their values right away.
Story Continues Below
In addition, the proposed rule changes asks companies to record pension fund values on the same day as other corporate obligations are assessed. Under current rules, corporations have three months to calculate pension values - making it easy for companies to manipulate their value as markets fluctuate. '"Old industrial, old economy companies with heavily unionized work forces" would be affected most sharply by the new rule,' said Bear Stearns accounting analyst Janet Pegg to the Times. Pegg and other Bear Stearns analysts authored a report showing that General Motors, Ford, Verizon, BellSouth, and General Electric would be the most affected by the proposed changes, says the paper. The Bear Stearns report shows that Ford's balance sheet would add on $20 billion in obligations. Ford's current net worth is $14 billion. Embattled General Motors would have to report about $37 billion more in pension fund obligations. That's a whopping 2 and a half times the company's reported net worth of $14.6 billion. The New York Times article reports one bright spot in the pension fund world: Warren Buffet's Berkshire Hathaway. The proposed FASB rules would mean that Berkshire Hathaway's pension fund would have a smaller shortfall than it currently reports. The Times cites Berkshire Hathaway's conservative approach to its pension funds - resulting in a less volatile portfolio and reasonable assumptions on investment returns. The company is not likely to make a big adjustment for earlier losses, says the Times. Editor's Note:
2. Savings Rate Still Negative As millions of baby boomers near retirement, the personal savings rate stayed at a negative 0.5% for the second month in a row in February. Americans' savings rate has been negative or zero for 11 consecutive months. That's a dismal indicator for the 77 million baby boomers readying themselves for retirement. A falling savings rate can indicate weakness in consumer credit quality, or an impending decrease in consumer borrowing ability. The savings rate is a percent of disposable income, which grew just 0.2% in the month. Overall consumer spending, which accounts for more than 2/3rds of economic activity, slowed in February to its weakest pace in six months. Spending rose by a scant 0.1%, according to the Commerce Department. Service spending was up 0.9% due to higher spending on heating and electricity in February. Spending on goods fell, reflecting lower auto and retail sales. Personal incomes increased 0.3% in February, the smallest gain in three months. According to the AP, the increase was due to federal government pay raises and cost-of-living adjustments for Social Security recipients. Economists had expected a 0.4% jump. Editor's Note:
3. GMAC Sale Imminent? General Motors is reportedly talking to an investment group led by Cerebrus Capital Management about selling the group a 51% stake in its lending division, GMAC. The Wall Street Journal reported the possible deal on Thursday, saying that an announcement may come as early as Monday. The Journal reports that the two parties have agreed on broad brushstrokes - with a tentative offer of $11 billion or more for majority control of GMAC. GM wants to sell the majority stake in GMAC in order to generate cash for the automaker and improve the credit rating for GMAC, which sunk to junk status as parent company GM reported billions in losses. Two days ago, Moody's downgraded GM's credit rating and Standard & Poor's put GM on negative watch, signaling that the company's credit rating could be downgraded once again.
This news comes on the heels of GM's admitted worry that it may not be able to sell a stake in GMAC - the automaker announced that it needed to revise three years worth of earnings reports at GMAC. GM also announced that it is in talks to sell its stake in Isuzu Motors. The market value is in the neighborhood of $340 million. GM's board has not yet given its approval for either deal.
Editor's Note:
4. Mortgage Rates Top 6.35% Freddie Mac reported on Thursday that the average 30-year fixed mortgage was 6.35% this week, up from 6.32% last week. A 15-year fixed mortgage averaged 6%, up from 5.97% last week. It's a sign that long-term rates are now moving higher as the Fed lifts rates. Short-term rates have been moving higher relative to long-term rates recently. And the trend continued. The rate on a one-year adjustable-rate mortgage rose 10 basis points to 5.51% this week. And the rate on a five-year hybrid mortgage rose to 6.02% from 5.96% last week, making a 15-year fixed rate more attractive than this option. Last year, 30-year mortgages averaged 6.04%. 15-year mortgage rates were 5.58%. One-year adjustable-rate mortgages averaged 4.33% and five-year hybrid mortgages were 5.43%. Usually, rates on adjustable-rate mortgages are lower than on fixed-rate mortgages. That's because the risk of an adjustable-rate mortgage is higher than a fixed-rate, and lenders offer lower rates to entice buyers. In recent months, however, the spread between adjustable and fixed rates has closed. For example, one year ago, the spread between a 30-year fixed mortgage and a one-year adjustable mortgage stood at 171 basis points. Today, the gap between the two mortgage options is just 81 basis points. Another example, the spread between the 15-year fixed mortgage and the five-year hybrid was 15 basis points a year ago. Today, though, the five-year hybrid rate is higher than the 15-year fixed by 2 basis points. Homebuyers were using the lower interest rates on adjustable-rate mortgages in order to afford more house for the money. The lower rate on the adjustable allowed homeowners to pay a lower monthly mortgage payment. Now, however, that option is not available for homebuyers. This is yet another sign that the current housing slump will likely turn into a crash this year. Editor's Note:
Editor's Notes:
|
|
|||||||||||||||||||||||||
Print Page 
Forward Page 
|
| All Rights Reserved © 2008 NewsMax.Com |