Northern Trust Reports SEC Subpoena on Securities Lending

Northern Trust Corp. (NTRS), the third-biggest independent custody bank, said it received a subpoena from the U.S. Securities and Exchange Commission in April related to the bank’s securities lending activities.

“Northern Trust will fully cooperate with the SEC in this investigation,” the Chicago-based company said today in a regulatory filing that disclosed the subpoena.

Northern Trust has previously disclosed that it was sued by a number of customers of its securities lending program, according to the filing. The clients claimed Northern Trust mismanaged collateral posted by borrowers of the securities, causing losses for the lenders, the company said.

The company recorded a $19.2 million expense in the fourth quarter of 2013 to settle two of the lawsuits and as of March 31 had estimated the upper end of its aggregate legal liability for “a limited number of the matters” to be $130 million. Northern Trust didn’t specify whether the entire amount was connected to securities lending litigation.

Doug Holt, a spokesman for Northern Trust, said he couldn’t immediately respond to questions, including whether the subpoena and lawsuits focused on the same issue.

Long-term investors, including mutual funds and pension funds, sometimes seek additional earnings by lending out securities. Borrowers, including hedge funds, may pay a fee and typically post cash as collateral to protect the lender from losses. Lending agents such as Northern Trust invest the cash in low-risk debt securities with the returns going to the lender.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net Sree Vidya Bhaktavatsalam

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