Northern Trust stock tripped by earnings report

Posted April 20, 2010 at 12:43 p.m.

By Becky Yerak |
Northern Trust Corp.’s shares were down 6 percent in midday trading
after first-quarter profits fell short of expectations. The company was
challenged by low interest rates and experienced higher non-interest
expenses, including compensation and employee benefits.

The Chicago-based financial services firm, which caters to wealthy
individuals and institutions, had first-quarter earnings of 64 cents a
share, 8 cents lower than analysts’ consensus. A year earlier, it earned
61 cents a share.

Interest rates were so low that Northern Trust ended up waiving clients’ fees for its money-market funds. The fees waived totaled $16 million.

But Frederick Waddell, Northern chief executive, sounded an optimistic tone.

“Signs of economic recovery, growth in our client base and our strong balance sheet and capital levels position Northern Trust for long-term growth,” he said in a statement.

But at Northern’s annual shareholder meeting Tuesday, Waddell said it will be difficult for the economy to mount a robust recovery until more jobs are created and until the federal government shows that it’s serious about reducing the deficit.

But “I don’t think things are getting worse,” he said, predicting that the economy will be better a year from now.

He noted that Northern’s stock, now at $54.86, was up 1 percent in 2009, lagging a 6 percent appreciation for its peer group. He said the company’s performance is better for the period from June 2007 to March 31, 2010, down only 14 percent while the peer group is down 54 percent.

Assets under management rose 24 percent to $647.3 billion, and assets under custody rose 31 percent to $3.7 trillion.

The trust, investment and other servicing fees from corporate and institutional customers rose 44 percent from a year earlier, to $297.3 million. Such fees from its personal service unit were $217.8 million, up 7 percent.

New customers Northern Trust has landed include Nestle, Sprint Nextel and Driehaus Capital Management, whose mutual funds Northern has taken on.

Northern’s banking operations, whose assets fell 3 percent to $75 billion, remain “well-capitalized.”

Northern, which participated in the U.S. Treasury’s Troubled Asset Relief Program late in 2008 but which recently repaid the nearly $1.6 billion it borrowed, noted that its residential mortgages averaged $10.8 billion in the quarter, up 3 percent from a year earlier.

Commercial loans fell 22 percent, to $6.4 billion. During a conference call Tuesday morning, Northern said large corporate borrowers were using credit markets instead of bank credit lines.

There’s “not a lot of loan demand,” Waddell said after his company’s shareholder meeting.

Full-time workers stood at 12,500, up 2 percent from a year earlier. About a third live and work outside the United States.

The first quarter of 2010 was the best first quarter it has seen in new business for its personal financial services segment since it began tracking the growth in the 1990s. But evidence of an economic recovery in the company’s personal financial services unit were uneven, depending on the market, the company said in a conference call.

In recent months Northern has said it’s taking a closer look at acquisitions, as it has plenty of capital and other firms are rethinking their business models.

But Waddell reiterated that Northern hasn’t abandoned its strategy of growing on its own.

Net income was $157.2 million, down from $161.8 million in the prior year quarter.


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