Public Trust to be corporatised

The government is to corporatise the Public Trust Office in what could be a first step in its privatisation.

The decision to proceed with its restructuring from what is essentially a government department structure to corporatisation was announced yesterday by the Minister in Charge, Tuariki John Delamere, and the Finance Minister, Bill Birch, following recommendations in a review by investment bank Macquarie New Zealand

"Macquarie advised that corporatisation is necessary whether Public Trust is retained in Crown ownership, is sold or is found to be owned by its beneficiaries," the ministers said.

Existing ownership rights are still to be decided by the Court of Appeal in a hearing set down for February. The High Court ruled in August that the Public Trust's $84 million in reserves are owned by the government and are not subject to any private interest.

While the Macquarie study found that there was no public policy rationale for continued state ownership, it also concluded that the Public Trust was not in suitable shape to be sold because work begun in June 1998 to boost financial performance to commercially acceptable levels had still to achieve revenue growth and cost reduction objectives.

Macquarie said discussions with potential bidders had demonstrated that a trade sale would attract considerable interest from Australian financial service providers.

But some prior preparation, including the fostering of a commercial culture through corporatisation, was necessary to demonstrate the value of the business.

Since 1996, Public Trust's revenue has declined from $103.4 million to $84.4 million, while its pre-tax operating surplus has dropped from $8.2 million to $400,000.

While the Public Trust had a competitive advantage in services of a trustee nature, it was less obvious in other areas where it provides financial services, Macquarie said.

"The current culture in Public Trust is centred around a commitment to service and a caring attitude. While desirable, these attributes need to be balanced with commercial imperatives that focus on creating value."

Public Trust's traditional strength lies in the writing of wills where it is the largest player with about 15 per cent of the market and more than 250,000 wills in storage. Macquarie said that charging for wills would have a significant impact on financial performance.