CEO says Northern Trust takeover unlikely

By Becky Yerak
Posted Feb. 8 at 4:41 p.m.

The chief executive of Northern Trust Corp., which has been mentioned as a possible takeover target, said chances are “quite good” that Chicago’s biggest locally headquartered bank will remain independent.

Speaking Tuesday before the CFA Society at the Standard Club in Chicago, CEO Frederick Waddell fielded a question from the audience about whether the company might be an acquisition target. Through much of 2010, its stock underperformed and its key U.S. rivals dwarf Northern  in a major business segment.

Waddell noted that the Chicago-based financial services company has ample capital and sees good long-term growth prospects for its business units. Plus, he noted, Northern’s price-to-earnings ratio, or the company’s price per share divided by its earnings per share, is around 17 or 18, making it pricier than its peers’ ratio of 14 or 15.

“I don’t see a strategic  reason why we’d align ourselves with someone else,” Waddell said. Though a publicly traded company can never say never, “we like our independence,” he added.

Waddell  also told what life at Northern was like as the economy first started showing signs of wear and tear, and, later, as the crisis erupted.

He said the first sign of serious trouble came in early 2007, when HSBC announced a huge charge related to its subprime housing loans.

“I was shocked,” Waddell recounted to the crowd. So he ordered an  “intense risk review” at Northern Trust, despite the company having never been focused on credit cards, subprime debt or investment banking.

Waddell also divulged that, as consumers fled to quality early in the financial crisis, Northern’s  main branch on LaSalle Street was taking in $90 million a day in deposits, up from $2 million typically. He mentioned “lines in the lobby.”

Waddell said the bank bailout program, the Troubled Asset Relief Program, likely helped save the economy. Nearly all big banks, including Northern, were “strongly encouraged” to participate in the program so all banks looked like they were on equal financial footing, Waddell said, echoing comments made to the Tribune in November 2009 by former Northern Chairman William Osborn.

But  “we didn’t want it,” he said.

Northern has since repaid the nearly $1.6 billion it borrowed from the U.S. Treasury, and the government made 14 percent on its investment in Northern,  Waddell told the crowd.

Waddell also doesn’t think financial reform is bad for the industry. “We’ll adapt,” he said.

And he added that new executive compensation rules governing banks won’t cramp Northern’s style, saying they’re not dramatically different than what Northern practices.

He sees merger and acquisition activity in the financial industry  picking up, that “days of free checking are over” and that the mantra of “banks aren’t lending” isn’t entirely accurate.

“There just hasn’t been any bank loan demand,” he said, noting, that he’s seeing signs of an increase though the fallout from the crisis will linger.

“It took a long time to get into this mess,” he said. “It’ll take a long time to get out of it.”

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One comment:

  1. Dave U Feb. 9 at 10:58 a.m.

    Worked at the Northern in the late 70’s and worked alongside Mr. Waddell. He’s a solid professional and the company has always stayed true to its purpose. I hope it remains independent from the institutions seeking growth for growth’s sake, and that it maintains its reputation for a solid, safe, institution. We need more of those.