Hibernia Pension Fund Lost $6.5 Million on Bank's Stock
Hibernia Corp. disclosed that its employee pension fund took a $6.5 million hit in 1990 as a result of investments in the New Orleans-based company's own common stock.
The formerly high-flying banking company stumbled in 1990, losing $11 million and suffering a 225% increase in problem assets to $215 million, or 4.11% of gross loans. Hibernia common now trades at about $5 a share, compared with a 12-month high of $15.25.
In a July filing with the Securities and Exchange Commission, Hibernia said each of the 2,959 employees participating in the company's pension plan had a portion of their pension funds invested in Hibernia common stock.
Net of regular contributions to the fund, Hibernia said, total pension assets declined by 11.4% to $21.8 million in 1990. Company spokesmen did not return phone calls.
Experts say the Hibernia experience is widespread during this recessionary era when stock values have been hammered. And it highlights the question of how far companies should be permitted to go in plowing captive pension funds into their own securities -- even with employees' consent.
"There is evidence that some pension plans have been subjected to undue risk because of insider trustees," said Keith McLeod, an attorney and consultant with Huggins & Associates Inc., Memphis.
"Ideally, captive pension funds with significant investments in the parent company's common stock should be administered by an independent trustee," Mr. McLeod said.
Opposing that view is the American Bankers Association, which is fighting proposed federal legislation that would force many companies to place their pension funds under the control of independent professionals.
The ABA estimates that the U.S. banking industry has two million employees.
"The imposition of a third party to this process would be both disruptive and expensive," said Quigg Porter, senior vice president of Chicago-based Northern Trust Co.