Public Trust, the trustee of last resort, to lose its Crown guarantee next year
By Paul McBeth
June 22 (BusinessDesk) - Public Trust, the state-owned entity duty-bound to act as the trustee of last resort, will lose its Crown guarantee next year, putting it on an equal footing with privately owned supervising firms.
The government will introduce legislation to remove the Crown guarantee, which Finance Minister Steven Joyce and Associate Justice Minister Mark Mitchell say will end the competitive advantage the Public Trust has had with government backing. Existing law requires the government to top up the trustee's common fund if it's insufficient to meet lawful claims on it.
Public Trust is the country's biggest provider of wills, writing about 6,600 a year. It also manages about 4,000 family trusts and more than 400 charitable trusts and its corporate trustee unit has about $45 billion under supervision on behalf of investors.
The financial services supervisor had $474 million of funds under management in the common fund as at June 30, 2016, that qualify for the guarantee. Public Trust had a further $534 million of other funds under management, $2.58 billion of assets under management, and $50.23 billion of funds under supervision.
Last month Fitch Ratings assigned an AA credit rating to Public Trust, one notch below the sovereign rating on the view that "support from the New Zealand government would be forthcoming, if needed", it said at the time. Still, Fitch's analysts said they didn't believe an explicit Crown guarantee "materially increases the state's propensity to support Public Trust, if needed, given the nature of the services provided and status as a Crown entity".
At the time, Fitch said the rating was linked to the Crown's credit rating and would probably follow it higher or lower. The rating agency also said it would probably take a negative action if the entity wasn't required to provide non-commercial services to the government or if it was privatised.
Joyce said the Crown entity's rating showed customers they could be confident that dropping the guarantee won't undermine the business, while Mitchell pointed out that none of Public Trust's competitors were "underpinned by a Crown guarantee."
The guarantee will stay in place until legislation is passed by Parliament, which is expected to be in the second half of next year.
Public Trust would keep its legislated mandate to act as the trustee of last resort under the new law.