Stock of Northern Trust Corp., on a roll this year, hit a bump Tuesday in what market observers said was another round of profit taking in a beaten-up banking sector.
The Chicago-based asset management company lost 3% of its value, closing at $56.875, on a day when the American Banker index of the top 225 U.S. banks rose just 0.1 points, to 558.2.
The sudden drop may be due to investors cashing in on the stock's nice run recently. Before trading Tuesday, the stock was up 10% this year, compared with a drop of 21% for the American Banker 225.
Helping boost the stock this year have been general enthusiasm for Northern Trust's business model and a slingshot effect from Charles Schwab & Co.'s announcement in January that it would purchase another asset management business - U.S. Trust Corp. - at a 68% premium.
"They have performed phenomenally this year on their own fundamental merits as well as the heels of the" Schwab-U.S Trust deal, said Susan L. Roth, an analyst at Donaldson, Lufkin & Jenrette Inc. in New York.
Northern Trust, the 33d-largest bank, with $28.7 billion in assets, hardly behaves like a bank. Much of its growth comes from the trust management side of the business. Noninterest income accounted for 70% of its revenue in the fourth quarter. The company's trust assets under management grew a formidable 25%, to $1.5 trillion, from a year earlier.
"What sets them apart is how they go about accumulating assets and how they go about retaining them," said Michael Laliberte, a co-advisor of the Imperial Bank Fund, a portfolio managed by Retirement Planning Co. in Providence, R.I. "This organization focuses on client relationships."
Northern Trust has also benefited from the valuation bestowed on U.S. Trust by Charles Schwab, which announced last month that it would purchase the New York banking company for $2.7 billion. That drove the market to snatch up some shares of Northern.
In an age when large financial institutions are looking to expand business lines - especially ones that offer higher margins - Northern Trust could prove a gem.
Northern Trust would be an "enormous add-on to any banking or brokerage company," Ms. Roth said. "I do not think that Northern is for sale, although you can never rule it out."
Northern Trust also benefits from being seen as a safe haven in these days of a mature economic cycle, said Diane Glossman, an analyst at Lehman Brothers in New York. Investors who are jittery over the soundness of portfolios may look favorably on Northern's high concentration of low-risk loans such as jumbo mortgages and credit lines extended to companies to use as working capital, she said.
"To the extent people are worried about the economy and what that suggests for credit quality, Northern Trust is at the high-quality end of the credit spectrum," Ms. Glossman said.