Japan Post's mandate may be changed to allow sale of investment

The nation's post offices may be enlisted in efforts to rescue the stock market

The government is considering allowing post offices to sell investment trusts as a way of driving money into equities, thereby ramping up share pricesAt present, investment trusts are sold mainly by securities companies and banks. The nationwide post office network would give investment trust companies a powerful marketing platform to attract individual clients

Post office savings and life insurance funds represent the country's greatest store of individual savings; an estimated 360 trillion yen

Luring just a fraction of these funds into the equities market would provide badly needed liquidity, not to mention the added credibility of the world's largest personal savings institution

"It is a method of contributing to maintaining the financial system by drawing funds into the share market and capitalizing on the reputation of post offices," said one postal service source

The proposal doesn't have everyone's stamp of approval

The postal service's loyal patronage is built on its reputation as a fail-safe haven. All the savings, insurance and bond instruments currently offered by the post office carry government guarantees

Offering equity-related instruments provides an opportunity for higher returns. But some officials worry that it also exposes customers to a greater risk of financial loss

The entry of the postal service into investment trusts is also likely to draw fire from private sector players. Banks have only been allowed to sell investment trusts since December 1998. The competition posed by the post offices' formidable network of branches will increase competition in a sector already fighting to keep customers

As of the end of February, the total net asset value of investment trusts stood at 35.17 trillion yen, setting a record post-bubble low for the third consecutive month. Of this amount, investment trusts with an equity component totalled 16.30 trillion yen

But fears that a free-falling stock market will spark an economic meltdown has made up the minds of many

"When one thinks about the crisis in the share market, there is a need for a speedy revision to legislation by Diet members," says one government source

Allowing post offices to sell investment trusts will require a change to the law

The management plan for Japan Post, which will begin running the three governmental postal services in April, prohibits investment in shares

The new organization will be compelled to strengthen its operational activities. Under the postal liberalization program, the postal service will lose its monopoly rights on some businesses

The postal delivery service, expected to be Japan Post's weakest link, recorded a 16.6 billion yen loss for fiscal 2001, dragged down by a sluggish parcel delivery service, which has only 5.8 percent of the Meanwhile, postal savings services suffered three straight years of loss from fiscal 1998

Sales of investment trusts will open up a new revenue stream in the form of handling fees from the private sector investment companies that run the investment trusts

In the initial phase, it is expected that Japan Post will focus on offering low-risk investment trusts. These products will be lightly weighted in a selection of carefully selected shares

In another nod to caution, the sale of investment trusts will initially be restricted to select post offices, where staff will be trained on advising customers on the associated market risks.