Three of the largest custody banks want to add scale internationally as market conditions force them to make cutbacks at home.

Steven Fradkin, Northern Trust Corp.'s chief financial officer, said the Chicago company plans to expand organically in Asia, Europe, the Middle East, and Africa, though it never rules out acquisitions.

"We look at a lot of deals, and the pipeline has never been more robust and the pricing has never been better, but we are a very judicious buyer and our primary mode of growth is the old-fashioned way — one customer at a time," Mr. Fradkin said in an interview last week. "Historically, we have not opted for large-scale transformational deals. We have grown successfully organically and have not needed big deals as a mechanism for growth."

Northern Trust, whose fourth-quarter profit rose 174% from a year earlier, is growing faster abroad because the "U.S. market is a relatively more mature market," he said. "We expect more growth overseas, because asset servicing is really just starting to become an accepted practice globally."

The other members of the top three, Bank of New York Mellon Corp. and State Street Corp., reported lower fourth-quarter earnings. Bank of New York Mellon's fell 95% from a year earlier and State Street's fell 71%.

Robert P. Kelly, Bank of New York Mellon's chairman and chief executive, said at the Citigroup Financial Services Conference last week in New York that he is confident his company is "well positioned to weather challenging times this year and next year as well."

Mr. Kelly said there is room for growth in Europe. In the past six months there were "a lot of things we could have acquired" — many companies in the region are looking to divest their trust and custody businesses — but "we've killed them all," he said.

"Right now we are being conservative and protecting capital," Mr. Kelly said. "We believe things will be cheaper later. … but to date the prices haven't been realistic. We aren't in any rush to buy."

Currently, 32% of Bank of New York Mellon's revenue is generated internationally, the exact same percentage as a year earlier.

Joseph L. Hooley, State Street's president and chief operating officer, said that the Boston company generates more than 35% of its revenue from operations outside of North America. It aims to increase that to 50%, and "over a 10-year time frame I could see that going 60-40 or 70-30 in the other direction," he said in an interview Wednesday.

State Street's preference abroad is to expand organically, Mr. Hooley said, "but looking closely at the markets in Europe and Asia, we will consider acquiring one of the custodian banks there. We are one of the few that is in a position to make a deal."

Mr. Fradkin said Northern Trust generated half of its revenue from international operations in 2007. (It will have its 2008 figure when it publishes its annual report in April, he said.) More than 25% of its employees work outside the United States, and last year it opened its first office in Abu Dahbi and added offices in Australia, China, Bangalore, London, and Dublin. It has clients in 40 countries and offices in 15 outside of the United States.

Analysts said custody banks are trying to be opportunistic while still preserving capital, since each of them received funding from the Treasury Department's Troubled Asset Relief Program to improve their Tier 1 capital ratio.

Mark Fitzgibbon, the head of research at Sandler O'Neill & Partners LP, said he expects Bank of New York Mellon to be more acquisitive than Northern Trust or State Street in the next couple of years. "Bob Kelly has said in the past that there are acquisition opportunities, and he wants to be opportunistic," Mr. Fitzgibbon said.

Mr. Hooley said continued economic expansion, the creation of retirement savings vehicles in Europe and Asia, and the acceptance of outsourcing in international markets are driving international growth. "The non-U.S. markets are still developing," he said. "We see short-term and long-term growth opportunities in Asia and Europe."

Mr. Fradkin said Northern Trust will continue to consider buyout opportunities in the United States. It made one acquisition last year, Lakepoint Investment Partners LLC of Cleveland, a developer of portfolios made from large-cap growth stocks and investment-grade fixed-income securities.

The U.S. high-net-worth market has not dried up, Mr. Fradkin said. "We are developing the most new business in the U.S. with wealthy clients that we have since the peak of the bubble," Mr. Fradkin said. "I know that that sounds counterintuitive, and you'd probably expect that in good markets, but I think it illustrates a real flight to quality. A lot of big names have vanished this year, and big clients are seeing us as a safe haven."

Mr. Fradkin said Northern Trust is targeting "high-net-worth and affluent individuals in the U.S. and the super-high-net-worth outside the United States in 2009 and beyond."

It was not a good 2008 for all of Northern Trust businesses. In January the company closed its exchange-traded fund business, which it launched in May. Mr. Fradkin said the company decided it could not compete with larger, more established ETF providers.

He said the closing of the ETF business is part of a plan Northern Trust announced in December to cut its work force by 3.5%. "The decision to shut this business wasn't one that we took lightly or wanted to do," he said. "In a very difficult environment where you have to manage costs effectively, the outlook we saw near-term for growth was very difficult for the ETF business."

"We want to grow but haven't obsessed with size just for the sake of size," Mr. Fradkin said. "A lot of people think size and scale are the same thing, but we think scale is the ability to use size to have an economic advantage. I think there are a lot of examples where biggest doesn't always mean best. … We are a company that has stuck to its knitting by staying in attractive businesses and managing a low-risk portfolio, and the market has noticed."

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