Say you're a baby boomer coming into a large inheritance.
Or an entrepreneur benefiting from an initial public offering.
Or perhaps you are just incredibly rich and need some place to bank-a place that caters to millionaires. Who do you call?
William A. Osborn, chairman and chief executive of Northern Trust Corp., hopes it will be his $21.6 billion-asset bank.
There is a whole generation of newly rich created by the run-up in the stock market, and they need a specialized private bank, Mr. Osborn explained in a recent interview. Northern Trust, which has long catered to the old rich, is expanding its offerings to attract the once-scorned nouveau riche.
While executives at other banks can only talk about creating a business catering to wealthy individuals, Northern is the premier player. "They're the prototype private bank," said James M. Schutz, an analyst with ABN Amro Chicago Corp.
Selling banking services to millionaires is Northern's bread-and-butter business. "Our client base has always been a little different than other banks," Mr. Osborn said.
But the company has also profited from providing institutional trust- custodial services to pension plans and other investment pools. If a company wants the money managers on its pension plan to stay away from French equity investments, Northern has a system to monitor such investments-the result of $430 million in technology investments over the past three years.
Northern's strategy is a two-pronged approach and one Mr. Osborn said he is not inclined to change. It's extremely focused, and the growth rate potential is very great, he said. "I don't see us going into other businesses," he said. "We're not going into the credit card business. We're not going to be a big investment bank."
By large bank standards, Northern is relatively small in asset size, but it administers $779 billion in trust assets. It's one of only a handful of U.S. banks that earn more from trust fees than from interest income. The other large bank with similar operations is State Street Boston Corp.
Northern is also one of six companies that dominate the corporate and institutional trust business. Bank of New York Co., Bankers Trust New York Corp., Chase Manhattan Corp., Mellon Bank Corp., and State Street are the others.
Having spent the money on technology and with plans to spend about $150 million a year to maintain a technological edge, Mr. Osborn intends to stay ahead in the highly competitive corporate and institutional trust business.
The way Mr. Osborn sees it, companies not in the top six will be divesting their businesses and Northern will be there to pick up customers. For example, when First Chicago NBD Corp. exited the master trust business in August, it agreed to refer business to Northern, which has picked up $29 billion in custodial trust assets and made $8.3 million in additional fees as of yearend.
But while trust fees of $592.3 million were nearly evenly split between personal and institutional last year, "the personal side has unbelievable momentum right now," Mr. Osborn said.
The 49-year-old Mr. Osborn took over as chief executive in June 1995. He and Barry Hastings, the president and chief operating officer, who is also 49, brought a new intensity to Northern, he said. The new approach will pay off through an ambitious business plan, he added.
"I would definitely characterize Northern as more aggressive" now than it has been previously, Mr. Schutz said. "Osborn is being more aggressive in personal trust. They have decided to grow that franchise, and they're right."
Mr. Osborn downplays the differences between him and his predecessor, former chief executive David W. Fox, who retired two years ago after 40 years at Northern. However, he believes the company, long considered a stuffy, old-line operation, is moving faster on its business plan than in the past.
"Because we're a younger leadership," Mr. Osborn said, "there's a generational thing-a different way things are done. I think there's a little more aggressiveness."
For one thing, a new bank location must become profitable in a shorter amount of time than was expected under the old regime. In general, that means it has to be profitable within three years, rather than 10 years-the amount of time it took Northern's Florida operation to pay off. "Obviously, the patience we have to get the payback is less than it used to be," Mr. Osborn said.
Even three years may sound like a long time in an industry in which acquisitions are expected to add to earnings within the first year. But Northern's approach is very different from those of most other banks.
There are loads of expenses on the front end, which means any new bank locations opened by Northern must fit the high-touch model and be extra- personalized service centers for wealthy clients. "The culture of Northern Trust is extremely important," said Sally Pope Davis, an analyst with Goldman, Sachs & Co.
The company opened six offices in Illinois, Florida, and Arizona and acquired $80 million-asset Bent Tree National Bank, giving it another office in Dallas last year. The company has already opened two new branches in California and one in Florida this year, and continues to look for acquisitions and locations for new offices.
For more than 100 years, Northern has been handling the money of the well-to-do in Chicago. In the 1970s it began to branch out to places like Florida and Arizona. Mr. Osborn plans to move the bank into a number of other places over the next five years-basically, wherever the rich migrate.
One third of the country's wealthiest individuals live in the five states where Northern now has banks, Mr. Osborn noted. Now the challenge is to enter the markets where the other two-thirds live.
Mr. Osborn has said he wants Northern to move into the Northeast. In fact, his predecessor, Mr. Fox, felt similarly. But both chief executives realized the Northeast was saturated with Northern's toughest competitors: Chase, State Street, and Mellon.
To be sure, Northern would be a logical acquisition for any of those banks, but it trades at 16 to 17 times projected 1997 earnings, and would command a very steep price. Moreover, 15% of the company is still owned by descendants of Northern's founder, Byron Laflin Smith, and they are in no hurry to sell.
Mr. Osborn said he doesn't believe Northern needs to merge. An often- repeated rumor is that Northern would be interested in buying U.S. Trust Corp. of New York, which has $3 billion of assets. But Mr. Osborn said acquisitions of small banks and opening offices in new areas has worked well for Northern's private trust strategy.
When Northern goes into new markets-Washington, D.C., Las Vegas, Colorado, and the Pacific Northwest are among those it's expected to enter next-the company need only look at the Florida model for success. The Florida bank earns a return on equity of more than 30% and a return on assets of more than 2%. "Florida continues to be the most profitable $1 billion banking operation in the United States," Mr. Hastings said.
Mr. Osborn said Northern is unique because it staffs each branch with enough specialists to handle local customers. Marketing includes sponsoring parties that Mr. Osborn personally throws in wealthy areas like the affluent Chicago suburb of Winnetka or in Palm Beach, Fla. The bank also sponsors literary societies here in Chicago and in Florida and California.
One division of the company serves super-rich families. The wealth management group is based in Chicago and serves more than 140 families with average assets of more than $100 million per family. With $22.6 billion in trust assets from this business, Northern claims to have 18% of the wealthiest people in the nation as clients.
Mr. Osborn said he spends a third of his time traveling to meet clients. "I know practically every client of this company of any significant size and I know a number of clients that are not as significant in size," he said.
