GERMANY – Large German companies have the largest pension funding deficits as a percentage of their market capitalisation, according to Deutsche Bank.

“Our analysis indicates that with the exception of BT, the largest pension funding deficits are attached to German companies, with Volkswagen, RWE, Bayer, E.ON, Allianz and DaimlerChrysler showing the biggest funding shortfalls as a percentage of market capitalisation,” Deutsche said in a research note.

VW had the largest funding deficit by this measure of the companies in the EuroStoxx 50 and Stoxx 50 indices, the report states. It puts VW’s net post-employment liability at 125.7% of the firm’s market capitalisation.

Neither Dirk Große-Leege, VW’s head of corporate communications nor brand communications head Hans-Gerd Bode responded to messages seeking comment.

Deutsche analysts Brian Canavan and Paul Withe are also critical of “outdated and illogical” pension accounting rules of US GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). They say the rules “often mean that only a portion of the entire pension funding deficit makes its way onto the balance sheet”.

“Pension accounting is one of the most complex, and under certain GAAPs, illogical; creations of accounting standard setters in recent years.”

But they see “light at the end of the tunnel” in the form of the International Accounting Standards Board’s exposure draft amending IAS19 that was released at the end of April this year.

“We expect (and hope) that Exposure Draft amending IAS19 is just the first step in a major reworking of pension accounting.

“Despite increased volatility, we do support the full recognition of all pension deficits on the balance sheet.” The analysts argue that pension deficits are a real economic liability and that they belong “on the balance sheet alongside debt”.