Northern Trust Corp. has expanded its personal financial services segment and is exploring opportunities to open more branches in the Northeast and to make acquisitions there.
"We have done both and will continue to look at all opportunities," said Steven Fradkin, the Chicago banking company's executive vice president and chief financial officer, in an interview Monday. "If you can find local companies deeply entrenched in that particular market, it makes sense to buy."
The personal financial services arm brings in 50% of Northern Trust's revenue, which was $2.14 billion in 2003, Mr. Fradkin said.
"We are within 30 minutes of 40% of million-dollar households," he said, pointing to Northern Trust's 81 branches in 15 states. "And we have 12% market share of millionaire households."
Such households are growing seven to eight times faster than nonmillionaire households, according to proprietary data from Northern Trust.
Northern Trust, which has temporary space in Boston, is scouting Wilmington, Del., Philadelphia, and Washington and plans to pursue asset management acquisitions in areas such as northern New Jersey, Minneapolis, and Orlando.
Mr. Fradkin said that Northern Trust considers all opportunities in the wealth business and that it has acquired companies of its own size. Northern Trust has $17.8 billion of assets under management and $94.3 billion of assets under custody in the wealth management sector, representing more than 285 families with investable assets of $75 million or more. It had $527 billion of assets under management at the end of the second quarter.
Northern Trust's acquisition strategy is to find companies whose clients could benefit from its wealth management services. Its traditional wealth customers are those with $1 million to $25 million of investable assets. Those with $25 million to $75 million are in its wealth advisory section, and those with more than $75 million are in the wealth management segment of the personal financial services group.
Mr. Fradkin said that Northern Trust's initial strategy was to win high-net-worth clients in Chicago and follow those clients to other markets. "We continued to build in areas like Seattle, Denver, and Milwaukee," he said.
It only recently began pursuing opportunities in the Northeast corridor. "Clearly the wealth was there, but we did not have a physical presence," Mr. Fradkin said.
Heavy competition was another reason Northern Trust held off from moving into the Northeast. That changed when some of those companies merged or decided to focus on other areas of business, which created opportunities for Northern Trust.
Northern Trust opened a branch in Stamford, Conn., in January and in Manhattan in May. Both have been "well received," Mr. Fradkin said. He pointed out that Northern Trust had 5,000 private-client customers in New York before opening the Manhattan branch.
Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets, said, "It appears to us that Northern Trust continues to grow organically with new branch construction in new markets as well as expansions in existing markets."
Expansion can "be a drag on earnings" at first but over time will pay off for Northern Trust, Mr. Cassidy said.
It usually takes a new Northern Trust branch three years to become profitable. "Just because we move closer to your home doesn't mean you will automatically switch to us," Mr. Fradkin said. "It takes time."
The personal financial services arm has been very consistent, and the opening of new offices does not represent a shift in strategy, Mr. Fradkin said. "The vast majority of our growth has been organic."
Philanthropy and event marketing are some of the ways Northern Trust tries to reach the high-net-worth community. For example, in Chicago on Monday night it hosted a screening of the Holocaust movie "Silent Witness."
Mr. Fradkin acknowledged that personal finance is highly competitive but said Northern Trust has an advantage because it is national in scope and has a large variety of services including mortgages, financial consulting, and asset management.
