The MetLife (MET) News Just the Beginning
News from MetLife (MET) After Market Close: Low Interest Rates to Impact Earnings
Expect to hear a lot more about the impact of low interest rates. Not only is it affecting the asset side of the balance sheet, but the liability side as well, as I have been pointing out almost weekly since June.
The run-up in stocks over the past 5 weeks, in fact, has been completely overcome, by the fall in long-term interest rates, with the 10-year treasury bond now yielding near 2.5%, and annuity rates not much higher. By comparison, the median pension plan has a 5.8% discount rate, a 8% long-term investment return assumption and is 57% in stocks, and 38% in fixed income.
Based on data through last Friday, CT Capital currently estimates defined benefit plans for both the median S&P 500 firm and the 1,300 total plans it tracks are underfunded by 31%.
Related articles:
- Bloomberg News: `Silent Heart Attack’ for Pensions Driven by Yields
- GM: Who’s Next? Answer: At Least 1,300 More
- What Investors Don’t Understand About Pension Plans
- Pension Facts: Why The Hit to Earnings and Cash Flow Is Upon Us
- IBM – Again, Pension Underfunding a Leading Indicator
- CNBC Strategy Session – Underfunded Pensions Earnings Bombshell
- With 3-, 5-, and 10-Year Stock Returns Negative: Why Are Pension Funds Assuming 8% Returns?
Disclosure: No positions
Kenneth S. Hackel, CFA
President
CT Capital LLC
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