Northern Trust Corp. hopes to take advantage of recent trust banking deals to lure high-net-worth and institutional clients away from its rivals, according to Steven L. Fradkin, its chief financial officer.
"There have been some significant disruptions in the personal and institutional markets recently," Mr. Fradkin said Wednesday during the Chicago company's quarterly conference call. "Those disruptions, whether mergers, acquisitions, or shifts in leadership, are opportunities for us to dislodge clients from competitors. This phenomenon is one we wish to capitalize on in years to come." Related Links
This month, State Street Corp. completed its $4.2 billion purchase of Investors Financial Services Corp., Bank of America wrapped up its $3.3 billion acquisition of U.S. Trust Corp. from Mellon Financial Corp., and Bank of New York Co. Inc. and Mellon completed their $16.5 billion deal to create Bank of New York Mellon Corp.
Though it's still early, Mr. Fradkin said Northern Trust is already starting to see some customers exploring their options.
"There tends to be a pattern" when these deals occur, he said. "Clients don't want to move, and it is their intention to stick, and they get assurances, but those are difficult to execute on and execute well on. … As you consolidate, things happen."
Northern Trust will benefit from the "bumps and bruises" associated with the recent deals over the next few years, Mr. Fradkin said, but the "disruptions" did not factor into its second-quarter growth.
Some observers were skeptical about how much business Northern Trust could pick up, particularly among institutional investors.
"We just aren't hearing the same buzz about attrition that we heard when Deutsche sold its institutional business to State Street a couple of years ago," said Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets. "I'm not saying it isn't occurring. I'm just saying it may be happening at a lower-decibel level."
Northern Trust's bigger opportunity may come on the trust side, particularly in response to B of A's acquisition of U.S. Trust, Mr. Cassidy said. "Bank of America is good at commodity, Wal-Mart-like business, but they're not known for their high-touch, personal trust business."
Regardless, he predicted that any business generated from the large deals would not really impact Northern Trust's earnings until "2009 or so."
Mr. Fradkin's projections were in line with that time frame. "Our tone around disruption is long-term," he said. "We don't believe it has been a significant factor to fuel our near-term success, because some of these transactions have just closed."
Growth in fees for private banking and corporate and institutional services drove the second-quarter results, he said. Northern Trust's noninterest income rose 14% from a year earlier, to $673.8 million. Trust, investment, and other fees from corporate and institutional services increased 19%, to $309 million, while fees from personal financial services rose 16%, to $223.7 million.
Net income increased 23.2%, to $206.9 million, or 92 cents a share, beating the average estimate of analysts polled by Thomson Financial by 4 cents.
Revenue rose 11%, to $882.4 million, with fees earned for investment management and other services increasing 18%, to $532.7 million. Assets under management increased 20%, to $766.5 billion, while assets under custody rose 26%, to $4 trillion.
Lori B. Appelbaum, a Goldman Sachs Group Inc. analyst, wrote in a report issued Wednesday that trust banks are delivering strong second-quarter reports; earnings beat expectations at both Northern Trust and State Street.
"Trust banks are benefiting from strong equity markets, robust global asset flows, and big securities lending and FX results," she wrote.
