Banks 'hit by £15bn fall in pension funds'

Britain's banks were hit by a £15bn drop in the value of their pension funds last year due to the grim stock market conditions, according to a damaging analyst note published yesterday.

Fox-Pitt Kelton identified Barclays' pension fund as the most exposed to the fall in equity markets, with £5.7bn of assets having been wiped away in 2002. This could leave the bank with a £1.3bn deficit. Royal Bank of Scotland also suffered a substantial loss, with the pension fund was valued at £4.6bn less than it was in 2001. This could leave RBS facing a £300m deficit in 2004.

Jon Kirk, an analyst at Fox-Pitt, said: "The question is whether a surplus or deficit in the fund ought to be taken into account in the valuation of the company. Pension liabilities are very long-term but then so are company valuations." Fox-Pitt said banks' pension funds were unlikely to plunge into substantial deficits, but may have gone slightly into the red.

But the erosion of their assets, as valued by the incoming FRS 17 accounting method, highlights the likelihood that banks will be warning of the need for further top-up payments into their funds as they report their full-year results over the next three weeks.