Northern Trust Profit Rises 1.7% as Market Boosts Assets

Northern Trust Corp., the third-biggest independent U.S. custody bank, said first-quarter profit rose 1.7 percent as stock-market gains boosted the value of assets the company oversees.

Net income increased to $164 million, or 67 cents per diluted share, from $161.2 million, or 66 cents a share, a year earlier, the Chicago-based company said today in a statement. Results missed the 72-cent average estimate of 16 analysts surveyed by Bloomberg.

“We have a better macro backdrop with higher market levels this quarter, and we saw good organic growth across all three” of the largest publicly listed custody banks, Brian Bedell, a New York-based analyst at ISI Group Inc., said in an interview before results were released.

The custody banks, under pressure to improve profitability hurt by record-low interest rates, are benefiting as global equity markets climb for the second straight year. Northern Trust, led by Chairman and Chief Executive Officer Frederick H. Waddell, followed larger rivals Bank of New York Mellon Corp. and State Street Corp. with job cuts in 2012 that, combined with technology initiatives, are designed to increase annual pretax income by $250 million by the end of this year.

Assets under custody rose 9.3 percent from a year earlier to $5.02 trillion, helped by a 14 percent gain by the Standard & Poor’s 500 Index of U.S. stocks, including reinvested dividends, in the same period. The amount of money Northern Trust invests for clients rose 13 percent to $810.2 million.

Rate Impact

Revenue increased 1.1 percent as custody and investment management fees rose 9.6 percent. Net interest income declined 12 percent to $226.1 million “primarily due to a continued decline in the net interest margin and lower average earning assets,” the company said in the statement.

Low rates hurt custody banks by reducing the return they make on lending and on their own investments. The U.S. Federal Reserve has held its benchmark interest rate at zero to 0.25 percent since December 2008 in an attempt to stimulate borrowing and economic growth.

Northern Trust recorded a $12.4 million write-off of “certain fee receivables resulting from the correction of an accrual methodology,” the company said in the statement. Restructuring, acquisition and integration-related charges totaled $1.8 million. The two items reduced earnings per share by 4 cents, the company said.

Custody banks keep records, track performance and lend securities for institutional investors, including mutual funds, pension funds and hedge funds. Northern Trust also manages investments for individuals and institutions.

Results were announced before the start of regular U.S. trading. Northern Trust gained 7.3 percent this year through yesterday, compared with a 15 percent advance by the Standard & Poor’s 20-company index of asset managers and custody banks.

BNY Mellon is scheduled to released earnings tomorrow, followed by State Street on April 19.

(Northern Trust is scheduled to hold a conference call for investors at 10 a.m. New York time. The call can be accessed at http://www.northerntrust/financialreleases.)

Before it's here, it's on the Bloomberg Terminal.