Right now, talk of a European debt crisis is centering on the potential of Greek default. Investors are also worried about whether IMF-EU assistance will be enough to save the struggling nation, and whether the crisis will spread to the rest of the PIIGS.
But debt isn’t just a problem for European governments. The private sector is suffering through a large amount of off-balance sheet debts due to pension problems, and it’s causing growth and market-value problems for some of Europe’s biggest industries.
(Need we mention that we have the same problem here?).
Here are the highlights of an excellent presentation on the European debt problem from Goldman Sachs.
Pension solvency is a serious issue for even the best companies in Europe
Source: Goldman Sachs
Returns have gone up, and pension contributions have declined as a result.
Source: Goldman Sachs
But firms still have a tremendous amount of liabilities (pension and other).
Source: Goldman Sachs
In bad times for the market, pensions have far higher expenses, because companies have to cover the gap created by the falling assets.
Source: Goldman Sachs
Greece is unsurprisingly in a bad place. But so are Austria, Italy, Spain, Belgium, and others
Source: Goldman Sachs
Auto companies are in difficult shape, but real estate remains strong.
Source: Goldman Sachs
The larger a company’s pension obligations are, the lower its PE is
Source: Goldman Sachs
Low solvency is seen as the worst pension attribute, with equity allocation not far behind.
Source: Goldman Sachs
Companies with large pension obligations get hit more in a bear market because asset prices typically decline.
Source: Goldman Sachs
Pensions are still choosing to stay away from equities…which means they’ve missed a lot of the recent rally
Source: Goldman Sachs
Having more equities does not make your pension fund under perform.
Source: Goldman Sachs
But private companies in Europe are still doing better than governments. Check out the awful state of European public debt.
See the European debt crisis with your own eyes >
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