Magazine article American Banker

Chrysler Selling All Stocks in Its Pension Fund Portfolio

Magazine article American Banker

Chrysler Selling All Stocks in Its Pension Fund Portfolio

Article excerpt

NEW YORK--%CHRYSLER Corp, is in the process of selling all of the stocks in its $1.5 billion pension fund portfolio, sources say, and could sell as much as $750 million in stock and shift the assets into bonds.

The auto company, say Wall Street sources, is in the midst of a program aimed at putting all of tis retirement assets in fixed-income securities as part of an "immunization" program.

Chrysler officials would not comment on the activities.

"We're considering a major asset-mix change," well as that Russell Flynn, manager of pension assets, would say. "It's something we have to let develop."

Obviously, the company doest not want to tip its hand and let other bond investors know that it is in the market openly shopping for bonds and dumping stocks.

Salomon Brothers Inc., Chrysler's broker and adviser, also refused to comment. "We just aren't prepared to discuss the activities of our clients," said a Salomon official. "That is our policy."

However, equity investment management firms for the company's retirement assets confirmed that they were told last week that they were losing their accounts. On July 16 they were told to halt trading in the portfolios they managed for Chrysler. Then yesterday several of the managers confirmed that they no longer were managing the Chrysler accounts.

"It's gone," said one money manager who requested anonymity.

None of the equity managers was told what Chrysler was doing with the dark," another official said. "All I know is that they canned all of their equity managers."

Some market professionals speculated that Chrysler's actions were reponsible for last week's poor stock market. Stock market watchers had been anticipating a summer rally and some openly wondered whether such a large sell program might have put unusual downward pressure on the stock market.

Sources said that Chrysler is "immunizing" its portfolio and that Salomon Brothers is in charge of the immunization program. Salomon, with its top-ranked bond department, has become one of the most widely used trading firms for companies undergoing large pension-asset changes.

Under an immunization program, a pension fund determines its liabilities and invests its assets in fixed-income securities with maturities that will match the anticipated payment stream of benefits. It is similar to buying an annuity from an insurance company. But some corporations have found immunization more attractive because they are, in effect, doing it themselves and saving on the insurance company's premium.

So far, it has mainly been the pension plans of troubled "rust bowl" industrial companies that have taken advantage of bond immunization. Two years ago, for example, International Harvester set aside almost all of its pension fund in a "dedicated" bond fund, a variation of immunization.

Bond immunization is also attractive because it allows the company to automatically eliminate the "past service" liabilities of its pension plan. …

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