During most of a long history stretching back to the Gilded Age, Northern Trust Corp. (NTRS) was content to focus on the U.S. One of the nation's premier money managers for wealthy individuals, the Chicago bank has some 20% of the nation's richest families as clients. It's hush-hush about exactly who banks there, though President George W. Bush's tax returns indicate he does.
But when Northern Trust closed a $500 million purchase of the financial-services arm of London's Baring Asset Management (STT) in late March, the bank completed a long transition from quiet Midwestern firm to global player. On Mar. 22, it got approval to open a Beijing office, its first in mainland China. Northern is now the world's ninth-largest money manager and custodian of more than $1 trillion in overseas pension, government, and other institutional funds. "We've evolved from a U.S.-centric organization into a global one with a big domestic business," says Chairman and Chief Executive William A. Osborn.
Northern had little choice but to go global. As its biggest corporate customers, such as IBM and Ford Motor Co., expanded overseas, the bank needed to follow, or risk losing them. Meanwhile, fierce competition with domestic competitors such as State Street (STT), Bank of New York (BK), and JPMorgan Chase (JPM) made going abroad very attractive. With parts of Northern's U.S. business maturing, says Chris Perry of Turner Investment Partners, "international expansion is very important."
Founded in 1889 in a one-room office in the Loop, Northern started by managing money for prosperous farmers and other members of Chicago's growing upper class. Retailer Marshall Field (MAY)and meatpacking magnate Philip D. Armour were early clients. While many banks shuttered their doors during the Depression, Northern flourished, thanks to its longtime cautious philosophy. That conservatism isn't lost on the 56-year-old Osborn, an Indiana native who joined the company in 1970, a year before Northern's stock began trading on NASDAQ, and took the helm in 1995. Indeed, it underscores his strategy as Northern expands abroad.
While some banks have tried to be all things to all customers and stumbled, Northern's international strategy has been more focused. Osborn didn't try to replicate the bank's entire U.S. business. Rather, he targeted institutional and corporate clients and decided to wait before going after the ultra-rich in Europe and Asia, even though managing money for high-net-worth Americans generates about half of its $1.3 billion in trust fees.
So far, the gambit is paying off. At the beginning of the 1990s, Northern's international business barely merited a footnote in the annual report. But after the Baring deal, it will account for roughly one-third of revenue. And it's a big boost to the bottom line, which last year totaled $506 million on $2.3 billion in revenue. Foreign profits are expected to rise 15% a year, compared with 9% to 10% for the domestic operation, over the next three years, according to Mark Fitzgibbon of research firm Sandler O'Neill & Partners.
The Baring purchase will rev up Northern's capabilities in hedge-fund, private-equity, and real estate administration -- three hot growth areas where Northern was lacking. "They've really tried to establish a brand equity that's as strong internationally as it is here in the U.S.," says Jason J. Tyler of Ariel Capital Management.
That reputation may ultimately help get the private banking arm up and running overseas. Still, U.S. banks have had a tough time with wealth management abroad. Authorities in Japan gave Citigroup's (C) private bank the boot last year after a series of regulatory problems. Merrill Lynch & Co. (MER) began expanding its private bank in Europe in the late 1990s but then scaled back because growth was hard to come by. Indeed, some think Northern's private bank won't translate overseas.
Nonetheless, it would be wrong to bet against Northern as it strives to make its mark in the world. Osborn's methodical strategy may sound boring. But it has also been the key to the bank's long-term success. And with a 116-year history, Northern is sticking with what works.
By Adrienne Carter in Chicago