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Royal Mail: A hedge fund that delivers letters

Robert Peston | 15:14 UK time, Thursday, 23 September 2010

Royal Mail is a hedge fund that delivers letters.

Postman

 

Or at least that's what the pension-fund expert John Ralfe argues. He has spotted that Royal Mail's vast pension fund took a massive punt on shares via the derivatives market last year.

The accounts of the Royal Mail Pension Fund show that it had £5.13bn of "economic exposure" to UK and overseas shares via futures contracts as of 31 March this year.

That's up from £2.1bn a year earlier.

Now the pension fund will argue that it has used futures as an efficient way of investing in equities.

And if the equities futures are ignored, the fund has a conservative investment strategy, with 71.5% of assets in bonds or cash.

But the futures bets shouldn't be ignored.

The fund's annual report (as opposed to Royal Mail's) describes this investment in equity futures as a "return-seeking overlay".

And it says that this return-seeking overlay rose from being equivalent to 10.5% of assets to 20.1%.

Some would say that was a big wager on shares. And, of course, it's fabulous that it seems to have paid off.

The return on all the fund's assets (not just derivatives) in 2009-10 was 29%, which more than made up for the previous year's losses and was superior to the performance of many pension funds.

The precise contribution of the futures bets on shares to this return is unclear. But it's reasonable to assume it was positive.

But what if it hadn't paid off?

Here's what will trouble some: there's no mention of the futures investment in Royal Mail's own annual report and accounts.

John Ralfe says that is a worrying omission: the pension fund is a formal liability of Royal Mail, which means that when the fund takes increased risks, so too does Royal Mail.

"These huge off-balance-sheet side-bets should certainly be disclosed in Royal Mail's own accounts," Ralfe asserts.

I understand that Royal Mail's directors were aware of the pension fund's future speculation. And they discussed it with their auditors.

They believe that the potential liability to the group of the derivatives investment going wrong is captured in a general disclaimer in the accounts about uncertainties.

But does the Business Secretary, Vince Cable, know that - in effect - he's the shareholder in a giant hedge fund that happens to be attached to postal service?

Here's the question for him: as Royal Mail prepares for privatisation and for simultaneously putting the bulk of its pension-fund liabilities on to the public sector's balance sheet, should its pension fund be speculating to the tune of £5bn on equity futures?

Comments

  • Comment number 1.

    Invest in equities, it's the way forward.

  • Comment number 2.

    If the officers of a private club took that kind of gamble* and lost, they could be held personally liable and bankrupted, as a court might decide that such behaviour was "reckless". No such sanction applies to these trustees though? There is too much limited liability and impunity at the top.

    CEOs and the like should not be able to destroy their own businesses and other people's jobs, but then get away with retiring to their country estates.

    *suitably scaled down of course,

  • Comment number 3.

    But does the Business Secretary, Vince Cable, know that - in effect - he's the shareholder in a giant hedge fund that happens to be attached to postal service?

    I would wager a bet he does now!

    It's like a disease that seems to have spread, meme like, to every company director. "Get it off the balance sheet... Get it off the balance sheet... Get it off the balance sheet... Get it off the balance sheet... Get it off the balance sheet... "

    Should every auditor and every director be required to attend regular sessions of Gamblers Anon?

  • Comment number 4.

    How does using futures automatically turn an investor into a hedge fund? Obviously it doesn't.

    If RM have failed to follow disclosure guidelines enforced by UK/EU law, then they'll be punished (as should be their auditor). If there is a weakness in the disclosure rules, then punish the body that makes the rules. Fine.

    But calling them a hedge fund is just a cheap tactic to elicit an emotional response because most people consider them to be diabolical bond villian types. It's the opposite of what good business journalism should be. Try provoking thought rather than emotion.

  • Comment number 5.

    Good afternoon Robert.

    Well the sooner it's privatised and brought into the 21st century the better! The pension liability of the Royal Mail (and most public sector workers if we're honest) will bring down future governments if it isn't tackled soon. The credit crunch will look like chump change compared to the public sector tsunami which lies ahead.

    Union spivs. They need to be taken to task and made to actually work for their living. I would like to see their pension schemes closed to new applicants and an attempt made to renegotiate existing schemes. They may strike but there's 3m unemployed and anyone can walk and put something through the letter box (I did when I was 14!).

    Keep up the good work Robert, we'll eradicate the pernicious welfare state bit by bit.

  • Comment number 6.

    Here's the question for him: as Royal Mail prepares for privatisation and for simultaneously putting the bulk of its pension-fund liabilities on to the public sector's balance sheet, should its pension fund be speculating to the tune of £5bn on equity futures?

    Why not? If it goes south, the taxpayer will pick up the tab. Moral Hazard?
    What's that?

  • Comment number 7.

    Before we all reach for the tranquilisers I think we had better compare and contrast what similar pension funds are doing, like my own BT pension fund. I didn't see a little part in the investment portfolio saying 'futures' or 'derivatives' for that matter. And yes, it is a serious omission not to have this exciting adventure in pensions gambling not appear on Royal Mail's books.
    Regards, etc.

  • Comment number 8.

    Brings my mind back to Vince Cables comments about the tax payer providing free insurance to gambling spivs in the banking sector.

    I think someone needs to clearly specify the basis on which the tax payer is involved with this risk.

  • Comment number 9.

    Isn't investing in stocks and shares fairly standard practice for pension funds? And buying futures contracts is just another way of achieving the same thing.

    Most experts claim that, over the long term, stocks and shares out-perform cash and bonds; and a pension fund is a long term investment.

    I don't see the story here.

  • Comment number 10.

    Whats a Union spiv? How does that work?

  • Comment number 11.

    I wouldn't necessarily get too worked up about this. If 70% of the pension fund is in bonds and cash, then the 30% purchase in equity futures is analogous to 30% equity exposure. That's a fairly standard mix of assets for most pension funds. Why they choose to use futures rather than buying outright is probably because they are trying to save money by avoiding paying a manager. I would be worried if it was a levered position but that is highly unlikely. Most pension fund trustees are extremely conservative precisely because of the risk of liability if they move away from the pack and it goes wrong. Remember the trustees do not get the same incentives that bankers do i.e. there are no bonuses for outperformance, they get the same remuneration regardless. They just get fired if they blow the fund up so arguably they will be too conservative. Hence I expect this is just a "cheap" proxy for outright equity exposure

  • Comment number 12.

    @ 1. At 3:47pm on 23 Sep 2010, Roger Knight wrote:


    Still waiting Mr Knight.

  • Comment number 13.

    What have you uncovered here? Why did not the auditors make reference to this enormous financial risk specifically - was it not big enough? Why did the director of finance appear not to want reference in the annual accounts and were all the directors aware of the issue. Were any ministers consulted/informed given the controversy over both the RM's finances and the state of their pension fund. Are pension fund trustees/board jointly and severally liable for negligent actions - futures purchase is speculation almost by definition! Is this something that Crozier knew about and if yes members of ITV's pension fund watch out!

  • Comment number 14.

    9. At 4:34pm on 23 Sep 2010, bobdylan_mcfc wrote:

    I don't see the story here.


    I'm no trader bit is it to do with the leverage ? As I understand it, with futures, the potential for higher rewards or losses is greater with futures that if just buying stock

  • Comment number 15.

    Are we allowed to use snetscotlandcom on this blog

  • Comment number 16.

    "Now the pension fund will argue that it has used futures as an efficient way of investing in equities."

    Of course it will - just as the gambler will tell you that 'he has a system and it's guaranteed to work'

    "And if the equities futures are ignored, the fund has a conservative investment strategy, with 71.5% of assets in bonds or cash."

    Cash, with it's 0.5% return (or less) and bonds which could be bubbling US treasuries - all sounds safe to me.

    "They believe that the potential liability to the group of the derivatives investment going wrong is captured in a general disclaimer in the accounts about uncertainties."

    Is that Caveat Empor?

    Well lets hope the recovery is here soon or the Government will have to pay someone to take this asset off our hands - not so good for the Government balance sheet eh?

  • Comment number 17.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 18.

    4. At 4:05pm on 23 Sep 2010, Dale_Lemma wrote:

    "How does using futures automatically turn an investor into a hedge fund? Obviously it doesn't."

    ...so if they're not using them for hedging - do we assume they're using them for speculation?

    Uh oh....

  • Comment number 19.

    A bit off topic but hope no one minds -

    I don't suppose any of these auditors have heard Manfred Max-Neef speak of biology!

    Vince, if you know about oil, then this shouldn't be anything you don't already know, but it might wake you up.

    'We are simply dramatically stupid. We act systematically against the evidencea we have.... we know exactly what should not be done, yet they do it...they are more fundamentalist now... so the only thing you know that can be sure of is that the next crisis is coming and it will be twice as much as this one.... and for that one there won't be enough money any more. So that will be it....and that is the consequence of systematical human stupidity.'

    http://www.democracynow.org/2010/9/22/chilean_economist_manfred_max_neef_us

  • Comment number 20.

    Does anyone trust Shares any more ?

    Have people so quickly forgotten the massive shortselling, etc, of only a year or so ago ?

    Britain and America have still not addressed the Casino capitalism aspects of their stock markets.

    It would be interesting to hear where the Executives and Directors invest their Pensions. I expect it won't be in Shares !

  • Comment number 21.

    5. At 4:08pm on 23 Sep 2010, Lindsay_from_Hendon

    You really have become the parody of Capitalism - you're doing it no favours with your comments.

    I mean you're not even very original "The credit crunch will look like chump change compared to the public sector tsunami which lies ahead. "

    Public sector tsunami? - I think you're mixing up your crises there, it was a financial tsunami which threatened the worlds economy - or have you conveniently forgotten that?

    I'd love to know where you get yourr ideas from - maybe it's the round window.....or is it the square window.....it must be the triangle window.

    Lets ask little ted...

    Why do you have such a strong opinion on the public sector in the UK when you live in switzerland? Surely it's easy to criticise from afar - even from under that bridge you occupy.

  • Comment number 22.

    6. At 4:12pm on 23 Sep 2010, EvensongFan wrote:

    "Why not? If it goes south, the taxpayer will pick up the tab. Moral Hazard?
    What's that?"

    Gosh - you brought back memories for me - do you remember that? Moral hazard? Now that was a good one, back in the days...before the Government erased it for some members of society at the cost of the majority.

  • Comment number 23.

    Since the Royal Mail and its pension funds are taxpayer liabilities it would not have mattered if the punt had failed. At least someone would have made a bob or two on the transaction.

  • Comment number 24.

    "11. At 4:46pm on 23 Sep 2010, a_sensible_comment wrote:

    I wouldn't necessarily get too worked up about this. If 70% of the pension fund is in bonds and cash, then the 30% purchase in equity futures is analogous to 30% equity exposure. That's a fairly standard mix of assets for most pension funds."

    Not for mine, I have 0% in equities, 0% in bonds and 0% in futures - but I do have a lot of cash at the moment - must be all that QE. Still, I don't give investment advice (or take it) which is why I am prepared for the impending commodity crisis - which isn't happening of course.

    "Why they choose to use futures rather than buying outright is probably because they are trying to save money by avoiding paying a manager."

    ...or to leverage? - or hedge? - or maybe just a punt - I mean anything goes with other peoples money doesn't it?

    "I would be worried if it was a levered position but that is highly unlikely."

    Really? don't know much about futures then, how do you get a position in futures without leverage - pay your margin in full up front? - it kind of defeats the purpose.

    "Most pension fund trustees are extremely conservative precisely because of the risk of liability if they move away from the pack and it goes wrong."

    Sychronosation of failure I call that, that's why "we're all in this together" - and not the reason Georgey porgey claims we are.

    "Remember the trustees do not get the same incentives that bankers do i.e. there are no bonuses for outperformance, they get the same remuneration regardless. They just get fired if they blow the fund up so arguably they will be too conservative. Hence I expect this is just a "cheap" proxy for outright equity exposure"

    ...wheras bankers don't get fired - they just expect the public to pay.

  • Comment number 25.

    9. At 4:34pm on 23 Sep 2010, bobdylan_mcfc wrote:

    "Most experts claim that, over the long term, stocks and shares out-perform cash and bonds; and a pension fund is a long term investment."

    ..anything that starts with 'most experts claim...' is always dubious my friend. They are merely experts because they call themselves such.

    What the 'experts' do is base this claim on historical performance - something they always tell us not to - strange that they should claim the opposite.

    I'd change your experts - maybe a lucky die, or a roulette wheel as a suitable alternative.
    I don't believe equities have outperformed cash in Japan for the last decade or so - but then what do I know, I'm no expert.

  • Comment number 26.

    12. At 4:48pm on 23 Sep 2010, szjon wrote:

    "@ 1. At 3:47pm on 23 Sep 2010, Roger Knight wrote:

    Still waiting Mr Knight. "

    Me too - I'm literally dying to hear the answer from Mr Knight.

  • Comment number 27.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 28.

    Should have bought the gold from Gordo.

  • Comment number 29.

    After the great banking theft of 2008 many funds have been seeking to cover those losses. The banks and financial services, wishing to keep the very instruments that caused the collapse have been willing partners. This is more about financial industry strategy to prevent attempts toward regulation than real world future performance. They like their bubbles and are working on the next one right now. Transparency is another question and is lacking in every sector.

  • Comment number 30.

    Robert, An ad hominem attack on postman Pat short of a few bale outs, as the basis of your straw man argument breaks the house of straw rules.

    As for maliciously portraying PP as a major coming to terms with too much hot curry ,how could you!!!!


    No doubt if things go wrong then postman patsies will be delivering dear Patsie letters to themselves to the effect "you're stuffed" or "your great bales of double or quits fire, will never be the same again ".



    Why just today I followed a trail of grass down the street only to find a much diminished postie tearing at his chaff going "thats the last straw I can,t give or take anymore unless I wish to become anEmail"

  • Comment number 31.

    #12 I'm not giving personal information on a public website. I didn't volunteer this information in the first place, but you have to be a WW11 veteran to respond to WOTW on fascism in his warped world.
    You seem like a reasonable person, although of course I don't know you, so I'll explain why I'm not giving you information, then make your own mind up, if you still have disgust, your choice.
    - If I give you information, where does this stop, when the next troll asks for confirmation, what do I say?
    - There is nothing that I would be prepared to disclose, that isn't publicly available. Your response could be, anyone could say that, what do I provide then.

    I know what I've done in life and what I've seen, that won't be good enough for you so sorry, but that's all I'm prepared to say.

  • Comment number 32.

    29. At 6:20pm on 23 Sep 2010, ghostofsichuan wrote:

    "They like their bubbles and are working on the next one right now. "

    Isn't that the truth, gold bubble, us treasury bubble and soon a commodity bubble (which they'll blame on bad harvests, natural disasters etc.)

    I mean it stands to reason doesn't it? all that money pulled from the stock exchanges in 2007 / 2008 has to end up somewhere.

  • Comment number 33.

    #27, what's your point. That the French Police can't count so there's no revolution in France? How is that relevant? You're trolling again.

  • Comment number 34.

    #26, if I'd have read that post 20 minutes ago, I wouldn't have replied on the Liverpool page. With an offer like that, how could I have been so stupid!! Must be my age.

  • Comment number 35.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 36.

    2. At 3:54pm on 23 Sep 2010, Sasha Clarkson wrote:
    If the officers of a private club took that kind of gamble* and lost
    =====================
    but they won and they must have won big time if 70+% was in bonds and they achieved a 29% return!

  • Comment number 37.

    11. At 4:46pm on 23 Sep 2010, a_sensible_comment wrote:
    Why they choose to use futures rather than buying outright is probably because they are trying to save money by avoiding paying a manager.
    ===================
    I would have thought futures (and other derivatives) require more skilled management, which they obviously had.

  • Comment number 38.

    16. At 5:13pm on 23 Sep 2010, writingsonthewall wrote:
    "Now the pension fund will argue that it has used futures as an efficient way of investing in equities."

    Of course it will - just as the gambler will tell you that 'he has a system and it's guaranteed to work'

    "And if the equities futures are ignored, the fund has a conservative investment strategy, with 71.5% of assets in bonds or cash."

    Cash, with it's 0.5% return (or less) and bonds which could be bubbling US treasuries - all sounds safe to me.
    ==============================
    I suggest that the facts prove them right.
    They achieved a 29% return although 71.5% of assets were only earning 0.5% (your figures)

  • Comment number 39.

    So the pension fund made 29% return on its whole fund by only investing 28.5% (the rest was in cash and bonds earning only 0.5%).

    So the pension fund made a very big profit: the value of the fund at the end of 2009 was £34bn so 29% is £9.86bn. I thought that the hedge funds were robbing the pension funds by selling them derivatives (according to some posters). The the pension fund won £10bn who lost?

  • Comment number 40.

    35. At 7:47pm on 23 Sep 2010, writingsonthewall wrote:
    28. At 5:54pm on 23 Sep 2010, truths33k3r wrote:

    "Should have bought the gold from Gordo."

    Yes, but that bubble won't last forever will it - what will you do then?
    =================
    No it won't so sell gold forward, as BT pension trustees may well be doing as we write

  • Comment number 41.

    13. At 4:54pm on 23 Sep 2010, watriler wrote:
    What have you uncovered here? Why did not the auditors make reference to this enormous financial risk specifically - was it not big enough? Why did the director of finance appear not to want reference in the annual accounts and were all the directors aware of the issue. Were any ministers consulted/informed given the controversy over both the RM's finances and the state of their pension fund. Are pension fund trustees/board jointly and severally liable for negligent actions - futures purchase is speculation almost by definition! Is this something that Crozier knew about and if yes members of ITV's pension fund watch out!
    ================================
    see accounts for BT pension fund here [Unsuitable/Broken URL removed by Moderator]

    They show investments of 6.3% in hedge funds and 11.2% other alternative so no cover up.
    Sorry to let the facts get in the way of the story.

  • Comment number 42.

    But what if it hadn't paid off?
    .........................
    What if know one knows the answer to that questions because the gamble is still 'live' or because yet another gamble is in progress that has not become public knowledge?

    I have been trying to get information from my own pension provider as to its hedge fund activities and without any success as there are no proper accounts issued for most pension funds as they're equally just as much a mystery and systemmic risk as the main banking sector ... as the banks and pension funds are really just 'joined at the hip' behind the scenes.

  • Comment number 43.

    26. At 5:36pm on 23 Sep 2010, writingsonthewall wrote:

    12. At 4:48pm on 23 Sep 2010, szjon wrote:

    "@ 1. At 3:47pm on 23 Sep 2010, Roger Knight wrote:

    Still waiting Mr Knight. "

    Me too - I'm literally dying to hear the answer from Mr Knight.


    I'm sorry to hear that you are literally dying. I have enjoyed our little chats.

  • Comment number 44.

    #41 apologies, I had a senior moment and quoted BT pension fund!

  • Comment number 45.

    So, the Royal Mail Pension fund uses futures. Is there a problem? As Robert Peston is no doubt aware, the Royal Mail pension fund is around £26 billion in size. and the use of futures is an efficient way to get exposure to markets, without having to buy the underlying assets (equities). So a £5 billion 'economic exposure' represents a 20% allocation to equities. Big deal. Local authority pension funds have around 70% allocation to equities. I don't suppose the Royal Mail went into this decision without taking suitable professional investment advice. So what exactly is the problem ...?

  • Comment number 46.

    38. At 8:05pm on 23 Sep 2010, AnotherEngineer wrote:

    "I suggest that the facts prove them right.
    They achieved a 29% return although 71.5% of assets were only earning 0.5% (your figures)"


    ....and tomorrow they could have nothing - didn't the last 3 years teach you anything?

  • Comment number 47.

    But don't you see? That is why these financial whizz-kids get paid so much. They take a risk with other people's money, knowing they would get bailed out if it went wrong. Then if it works they are seen as heros and get an enormous bonus. If it goes wrong they get an enormous pay off, not as much as the bonus, but what is a million between friends?

  • Comment number 48.

    43. At 8:35pm on 23 Sep 2010, Lindsay_from_Hendon wrote:

    "I'm sorry to hear that you are literally dying. I have enjoyed our little chats. "

    Not to worry - you put on those little red shoes and repeat after me, "There is no revolution, there is no revolution, there is no revolution"

    ....and you'll be back in Kansas in no time...

  • Comment number 49.

    19. At 5:16pm on 23 Sep 2010, copperDolomite

    An excellent video.

  • Comment number 50.

    46. At 8:51pm on 23 Sep 2010, writingsonthewall wrote:
    38. At 8:05pm on 23 Sep 2010, AnotherEngineer wrote:

    "I suggest that the facts prove them right.
    They achieved a 29% return although 71.5% of assets were only earning 0.5% (your figures)"


    ....and tomorrow they could have nothing - didn't the last 3 years teach you anything?
    ================================
    You seem to assume that all derivatives will cause you to lose a lot if they go wrong. This can be the case, for example a Contract for Difference, but with options you only lose the amount that you paid for the option - usually a small proportion of the price and can gain a lot if the shares go up.

  • Comment number 51.

    Robert I signed up especially to reply to this as it’s yet another “select” picture which does nothing but try to promote a negative reaction.
    Firstly, I know nothing of Royal Mail Pension fund so had a cursory glance at its last summary report and accounts from the website.
    Pension funds typically invest in a growth/matching asset fashion. That is, growth assets to achieve return (Equity, Property etc) and matching assets to broadly match the payments they make to pensioners (Bonds, Gilts).
    Historically, for immature (or fairly immature) schemes it was typical to invest 70% in equities and 30% in bonds/gilts and switch as appropriate depending on your membership profile. The more you try to make up from return on assets, the less the ER pays (and members).
    Nowadays, Trustees of Schemes have to be a bit more sophisticated to generate returns whilst reducing volatility (this second point is key to the attack you have on their “gamble” with derivatives). If assets do not return what they need to in what you have assumed, then the funding gap needs to be plugged by the Employer and/or the member (incidentally, members contribute at a very modest 6% by the looks of it – not a bad cont rate for a final salary scheme). Royal Mail currently pay 17% so if assets have not performed as they should have come a valuation, they need to pay more (or the scheme has to change or members need to pay more). I am aware that the scheme may have changed recently already but this will have done hee haw to the past service cost.
    The asset split of the Royal mail Scheme invests in a range of assets (high yield bonds, index-linked bonds, cash, corporate bonds and property). The equities element, I suspect, will be a diversified fund seeking to achieve diversification with Swap overlays used to hedge against interest and inflation expectations.
    Such strategies are called LDI – Liability Driven Investment. There are also many risks that liability hedging cannot address but it’s only one aspect of a fund’s investment strategy and should not be considered in isolation. I suspect that had they been invested in “pure” equities with no swap overlays then the deficit position would have been far worse!!
    Many schemes are now employing these strategies so it’s hardly “shocking” news.
    I hope Royal Mail does get punted since its clearly haemorrhaging cash like a burst balloon and if it goes belly up I suspect the tax payer will foot the bill due to the, as yet, untested crown guarantees (a point the Unions should consider as they continue to try and destroy BA).

  • Comment number 52.

    Well done Royal Mail!

  • Comment number 53.

    This is nothing new. General Motors was known years ago as an occupational health and pension provider that derived its income from making cars.
    The reality is of course that final salary pension schemes are an unlimited liability on any companies balance sheet. The Royal Mail should go into administration with a pre packaged buyout and an end to the current pension liabilities. Also the universal delivery of mail should be abandoned for a thrice weekly delivery in rural areas and indeed in some suburban areas.

  • Comment number 54.

    Keith,you sound like you had a messy divorce.

  • Comment number 55.

    Royal Mail's Pension fund raises interesting questions for the Bank of England and monetary policy. If the Government is to maximise its return it would be better if the pension fund was in profit. What that would mean is that the annuity payments required to meet then potential pension liabilities of the fund were less than the value of the fund. However monetary policy is presently designed to destroy the value of all invested funds by destroying the value of money through the simple, yet stupid, expedient of zero interest rates.

    SO, in summary: the Bank of England is destroying the potential value of the Royal Mail by deliberately pursuing a policy of monetary destruction which in turn causes a dramatic and catastrophic inflation in the necessary fund value to meet the contractual liabilities of the Royal Mail's fund. Mervyn is the idiot who will catastrophically damage the return we, as a Nation, should make on selling the Royal Mail - sack him George!

  • Comment number 56.

    #53. Keith wrote:

    "Also the universal delivery of mail should be abandoned for a thrice weekly delivery in rural areas and indeed in some suburban areas."

    Why any deliveries at all? All post should be electronic. If organisations stuck in the dark ages can't get their head's round a fully electronic system they should pay for DHL or Fed Ex etc. to deliver their missives by courier. (HMRC THIS MEANS YOU!!!) It would be a bit of a trial but we could pick up our replacement credit, debit and store cards at the store or bank or even the post office, couldn't we?

    However this would destroy all value in the Royal Mail so perhaps we should wait until after we have sold it!!!!!

  • Comment number 57.

    56. At 10:34pm on 23 Sep 2010, John_from_Hendon

    My mum can't use a computer so she'd be as chuffed as the courts, lawyers etc if she lost her mail.

    My sister-in-law insists she can. Watching her struggle to remember the difference between @ and www is sheer misery. Paint dries faster than her 'remembering' or re-figuring it out.

    Snail mail is going to have to be here for at least a while yet.

  • Comment number 58.

    Incredible...... absolutely incredible.

  • Comment number 59.

    The post office could save enormous operating costs if they were allowed only to deliver to kerbside ,postal portals could be cut into the side of wheely recycle bins [which could also be used as postboxes with unfranked mail collected and forwarded on at the recycling centres.

    Junk mail could be left where it lies as with begging letters from the IRS WHICH WOULD LEAVE ABOUT 10% to be sifted out by the householder.

    Of course there would be no deliveries on rubbish collection day .

  • Comment number 60.

    51. At 9:10pm on 23 Sep 2010, Alex25099 wrote:

    Many schemes are now employing these strategies so it’s hardly “shocking” news.
    I hope Royal Mail does get punted since its clearly haemorrhaging cash like a burst balloon and if it goes belly up I suspect the tax payer will foot the bill due to the, as yet, untested crown guarantees (a point the Unions should consider as they continue to try and destroy BA).
    -------------------------------------------------------------------------
    Good, helpful post.

    If RM is 'clearly haemorrhaging cash like a burst balloon' who is going to buy it?

    If my understanding is correct, RM has a wieldy Board structure {where a lot of the cash is going} and a management who seem to be making a bit of a mess of a beautifully simple one product business. Add some militant union members and the mix for a potential purchaser is unattractive, unless it is an asset stripper.

  • Comment number 61.

    It's always ok to gamble - when it pays off. Have we learned nothing from the finacial crash and subsequent recession? No matter how you dress this up, it's gambling. What would have happened if it had made huge losses? As usual, the ends justifies the means. One comments says that many companies employ this kind of strategy, and that 'it is hardly shocking news'. Well it should be! This is peoples' livelihoods in retirement that is being 'played with'. Where is the security for the workers who have contributed to this pension pot for decades and who could end up with nothing if these 'investments' really went pear shaped?

  • Comment number 62.

    @ 50. At 9:06pm on 23 Sep 2010, AnotherEngineer and other posters

    Looks like some people need to educate themselves on derivatives and the RM's pension situation. Derivatives take many forms but here we are talking about FUTURES and not OPTIONS.

    Regardless of whether they made a profit this time (that we happen to know about, unlike any losses which may currently be in the pipeline as someone sensibly mentioned) or if currently marked to market, is largely irrelevant. The point is that they are using a leveraged product - hence the large possible returns but also large possible losses. How good would it have looked if only 28% of the investments wiped out the whole thing?! If they'd been invested in the underlying equities they'd have different rights, dividends (possibly) and exposure profile.

    As WOTW alluded to, the problems of the last 3 years are largely down to leverage. This illustrates that regardless of RM's trustees trying to re-fill the whole in the pension pot, they were doing it taking a risk which may have resulted in anihilation.

    The problem is compounded when a company is able to keep certain investments off the balance sheet when these happen to hold enough risk to devalue that entire balance sheet seemingly invisibly.

    It would be like valuing your house at the prevailing market rate and not telling anyone the surveyor had found a heightened risk of subsidence!

  • Comment number 63.

    39. At 8:15pm on 23 Sep 2010, AnotherEngineer

    "The the pension fund won £10bn who lost?"

    I presume that must be rhetorical?

    ...also, if they made 29% on the whole fund at year end and the year end fund value was £34bn, they made £7.65bn rather than the £9.86bn you suggest. Sorry to be a pedant.

  • Comment number 64.

    50. At 9:06pm on 23 Sep 2010, AnotherEngineer wrote:

    "You seem to assume that all derivatives will cause you to lose a lot if they go wrong. This can be the case, for example a Contract for Difference, but with options you only lose the amount that you paid for the option - usually a small proportion of the price and can gain a lot if the shares go up."


    ...and you assume that it's not covered in the premuim you pay for an option - thereby reducing the 'gain a lot if the shares go up' - and if the price doesn't move over that premium before it lapses then it's simply money down the drain.

    Please do not tell me my own job, I find it a tiny bit patronising.

  • Comment number 65.

    Does anyone know if pensions are legally only allowed to have long positions in instruments (I think this is the case) and if so, how are derivatives treated if they are off balance sheet? i.e. is a pension fund allowed to short futures?

  • Comment number 66.

    "But what if it hadn't paid off?" asks Robert. Well I think we all know the answer to that one don't we - the fund managers would still have received obscene bonuses, because of course the poor performance wouldn't be their fault, they have unique skills and talents, it would be blamed on "difficult economic conditions", "the global turndown", "unforeseen circumstances" and other such drivel to help them justify their massive remuneration packages.

  • Comment number 67.

    Am not a postal worker, but if postal workers were offered shares first in Royal Mail 'privitisation' if they have a MINIMUM of 5yrs constant and 'in-house' employment, then that is the way forward?

    As a consumer, I have a good experience of my long-serving 'posties' rain or shine, snow, gales and strikes too. So, I would also buy shares in Royal Mail 'privitisation' if they were offered to the public.

    However, if people put in service and dedication and pension contribution by equal measure, in any occupation, then their pension contributions should be returned if not protected - otherwise that's total fraud, and illegal under any UK or EU law surely??

  • Comment number 68.

    Post #65 @ 10:42 on 24 Sept - 'Hugh_Janus'.

    Ouch! Having looked at other posts by 'Hugh_Janus' - I would suggest those are reasons alone for EVERYONE to re-examine their pensions and contributions; plus ENACT your legal right for a pensions up-date performance from your provider who is taking your money every month.

  • Comment number 69.

    #18 WOTW:

    Completely fallacious argument, and I expect better from you. An investor who hedges isn't suddenly called a hedge fund. The irony of the name hedge fund is surely not lost on you.

    I don't think there is a widely agreed definition of hedge fund, but it surely isn't "anyone who uses equity futures".

    Every time you engage in petty attempts at point scoring you detract from the sometimes coherent points you make.

  • Comment number 70.

    Cable: 'I love business, really'

    And Vince tells us that he is concerned about the spivs in business.

    Then he offers the Posties 10% of RM if they let it be privatised.

    Hmmmn ............................................................................

  • Comment number 71.

    "Here's what will trouble some: there's no mention of the futures investment in Royal Mail's own annual report and accounts."

    Well, OK, that's true. However there's no dispute that the futures investment is properly and fully disclosed in the Royal Mail Pension fund's own accounts? (since that's where Mr Ralfe saw the disclosure). So it's hardly a secret. See: http://www.royalmailpensionplan.co.uk/56/plan-report-and-accounts for those who are interested. (page 30, note 10 on derivative contracts).
    As for the disclosures in the Royal Mail's own accounts, Robert Peston is no doubt aware that pension fund liabilities are covered by accounting requirements (Financial Reportin Standard 17) which specify exactly what has to be disclosed, and it is clear that the RM's own accounts meet these requirements in full. See: ftp://ftp.royalmail.com/Downloads/public/ctf/rmg/2009_10_RM_Holdings_Group_Accounts_Final.pdf (pages 87 onwards).

    [Unsuitable/Broken URL removed by Moderator]

 

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