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Public Trust to lose its Crown guarantee

NZN 22/06/2017 Paul McBeth

Public Trust, the state-owned entity duty-bound to act as the trustee of last resort, will lose its Crown guarantee next year.

This will put 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 6600 a year. It also manages about 4000 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 $534m of other funds under management, $2.58b of assets under management, and $50.23b 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".

Mr Joyce said the Crown entity's rating showed customers they could be confident that dropping the guarantee won't undermine the business, while Mr 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.

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