By Michael Oneal | Chicago-based Northern Trust Corp. is on the hunt for acquisitions to beef up both its private client and institutional fund administration businesses, Chief Executive Rick Waddell told an investment conference in New York on Thursday.
Having emerged from the financial crisis relatively unscathed, Waddell said, Northern is looking to reinvest $1.8 billion in its business over the next three years by boosting infrastructure and client capabilities. Part of that, he said, may include acquisitions.
Waddell said the Chicago-based banking company is looking at “where could we spend money to acquire new capabilities or expand our footprint geographically.”
“From where we have been historically on (acquisitions) to where we are today,” he added, “we’re obviously much more interested in that. There are many more opportunities available as other financial institutions try to figure out what their business model is (in the wake of the crisis).”
He didn’t name any targets but said Northern is looking to expand its private client business (which managed estates for some of the world’s most wealthy families and individuals) on both the east and west coast. He also said the company would look hard at a fund administrator or asset manager that “could globally help us grow on the institutional side,” where Northern manages funds and provides trust services to large institutional investors.
Waddell pointed out that Northern has hardly been an active buyer in the financial services market historically. Over the past 20 years, it has spent just $800 million on acquisitions and $500 million of that came in 2005 when the bank bought a fund administrator in the U.K.
Waddell took pains as a presenter at Citigroup’s bank’s 2010 Financial Services Conference to contrast Northern’s performance through the financial crisis to much of the rest of the financial sector. He repeatedly emphasized the bank’s conservative investment philosophy (no derivatives, no sub-prime lending) and said that while Northern was criticized in 2007 for not getting more aggressive to boost investment returns in a low-rate environment that stance had paid off when the storm hit.
“We resisted those temptations,” he said. “not because we saw something happening in ‘07 or ‘08 but its just a philosophy…We’re not trying to eke out an extra penny or two in EPS by taking a little bit more credit risk or a little bit more interest rate risk in our portfolio.”
Northern did run into trouble with losses in its securities trading portfolio related to the bankruptcy of Lehman Bros. But those losses remained under control and Waddell pointed out that in its $18.6 billion securities portfolio overall, the bank lost just $36 million last year.
The result, he said, was that Northern was viewed as a safe haven and “we’ve been flooded with new deposits.” The last two years were the best this decade in terms of new deposits gained versus those withdrawn.
“Almost all of those deposits have stayed with us,” Waddell said, “and we’re trying to leverage those relationships (to create new revenues).”
Waddell’s declaration of conservatism and generally upbeat presentation didn’t do much for Northern’s stock. The shares, which have lost more than 5 percent over the last six months while the S&P 500 jumped 10 percent, slipped morning trading to around $53.64 a share.
