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On May 31, 2013, we reiterated our long-term recommendation on Northern Trust Corporation (NTRS - Analyst Report) at Neutral based on its well-managed global franchise, strong capital base and expense reduction initiatives. However, regulatory issues coupled with fundamental pressures on the banking sector might act as deterrents to the company’s fundamentals.

Why Neutral?

Northern Trust reported its first-quarter 2013 earnings of 71 cents per share, lagging the Zacks Consensus Estimate by a penny. However, this compared favorably with the prior-year quarter earnings of 67 cents per share.

Considering certain non-recurring items, Northern Trust reported net income of $164.0 million or 67 cents per share in the first quarter compared with $161.2 million or 66 cents per share in the prior-year quarter. Results on a year-over-year basis benefited from top-line growth, partially offset by a rise in operating expenses. Further, improving credit quality and strong capital ratios were the tailwinds.

Northern Trust successfully executed the Driving Performance initiatives announced at the beginning of 2012, which contributed about $160 million in pre-tax profit improvements in 2012, split approximately 40–60 between revenue and expense items and boosted pre-tax margin by about 375 basis points. Moreover, the company remains on track to deliver $250 million of pre-tax benefits by the end of 2013, recording a benefit of $55 million in first-quarter 2013.

However, low short-term interest rates along with persistent narrow spreads at the short end of the yield curve continue to negatively impact net interest income and money market mutual fund fees for Northern Trust. Though the U.S. economy posted stable to improving economic data during the quarter, including favorable developments in unemployment and housing, concerns about the outlook for the global economy and continued political uncertainty persist.

For Northern Trust, the Zacks Consensus Estimate for 2013 and 2014 remained stable at $3.20 and $3.60 per share, over the last 7 days. Hence, Northern Trust carries a Zacks Rank #3 (Hold).

Other Major Banks to Consider

Some major regional banks that are worth considering include The PNC Financial Services Group, Inc. (PNC - Analyst Report), JPMorgan Chase & Co. (JPM - Analyst Report) and Comerica Incorporated (CMA - Analyst Report). All the 3 banks hold a Zacks Rank #2 (Buy).

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