£500m pension shortfall could kill Invensys profit

Invensys, the troubled engineering conglomerate, will this week admit it may have to fund a pension fund shortfall of as much as £500m.

A provision, following the new FRS 17 accounting standard, which requires firms to revalue their pension funds in line with market levels, could wipe out the group's profits this year. The finance director, Kathleen O'Donovan, will make a pension fund statement when the group announces its interim results on Thursday.

The broker HSBC reckons Invensys is among the companies most at risk of having to make a provision for FRS 17. Its pension fund is valued at £3.5bn, £800m more than the company's market capitalisation.

This week BT admitted it had a £4bn shortfall on its fund. If the Invensys fund has a similar structure, its shortfall could be £500m.

It will have to make this up by increased contributions, which it can ill afford. The group has had to reassure the City it was not in breach of covenants on the £3bn it owes its bankers. It has vowed to cut debts by £750m.