Two trust banks fought through sluggish equity markets in the second quarter but still managed to report earnings just ahead of analyst expectations.
Bank of New York Co. said Wednesday that its earnings rose 23% from a year earlier, to $371 million, or 48 cents per share.
Northern Trust Corp. posted earnings of $130.8 million, or 59 cents a share. The total was a 97% increase from the second quarter of last year, when the Chicago company had restructuring charges of 14 cents a share.
Results for both banks beat the analysts' average estimate by 1 cent a share.
Securities servicing fees at Bank of New York remained steady; an increase in depositary receipts and corporate trust compensated for a drop-off in execution and clearing services.
During a conference call, Thomas Renyi, Bank of New York's chairman and chief executive, said he expected market volume to pick up at some point.
"There is a tremendous amount of liquidity in the market that is just not being put to work," he said. "That liquidity has shown up in increased money market inflows, more cash in equity funds, and even in Bank of New York's balance sheet, as clients left their money in the bank. At the end of the quarter it had $97.5 billion of assets, up 5% from the end of the first quarter - well ahead of its target of 3% to 4% annual growth.
Mr. Renyi cautioned analysts and investors not to draw too close a comparison between market volumes and revenues.
"There is no single metric, no single driver, that really can predict the overall performance of securities and fiduciary fees," he said. "I know everyone would like a formula, but we've told people not to do that, because it's just too complex of an issue."
Tangible equity fell as the balance sheet inflated and rising interest rates caused unrealized losses in its securities portfolio, but Bank of New York still intends to repurchase stock in the second half.
Steven Fradkin, the $43.3 billion-asset Northern Trust's chief financial officer, said during a conference call that trust fees and foreign exchange trading drove its profits for the second quarter.
He also said a gradual rise in interest rates would help Northern Trust's business lines but could cut into its net interest margin in the short term.
"We have a conservative, liquid, short-duration balance sheet," he said. In the short term, "we are liability sensitive and therefore will see some pressure on our net interest income as rates rise," especially in the third quarter.
Credit quality for both banks remained strong. Bank of New York provided just $10 million for loan losses, compared with $40 million in the same quarter last year.
Northern Trust, which has recaptured $20 million from its reserves over the past two quarters, made no provision at all in the second quarter. On Wednesday, Bank of New York's shares fell 1.8%, while Northern Trust's shares fell 1.4%.
