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Analyst Blog

Last week, Northern Trust Corporation (NTRS - Analyst Report) announced that its UK pension fund client base substantially increased in 2010. Also, the company experienced a significant addition in assets under custody.

NTRS’s UK pension fund grew by 15 new clients and its assets under custody increased by $43.9 billion. At current level, NTRS provides custody and associated services to around 34% of the topmost 200 pension funds in UK and 36% of entire UK Local Government Pension Schemes.

In 2009, the company added 10 new UK pension fund clients and $13.0 billion in new assets under custody. On a year-over-year basis, the company has been more successful in terms of building further relationships across the UK pensions industry in 2010.

In 2009, NTRS established Retirement Solutions Practice as the UK pensions market was an important market for the company. Through Retirement Solutions Practice, NTRS facilitates pension fund clients in catering the challenges faced by them in the market. The company makes the clients aware of the regulatory changes and updates on trends and challenges affecting them.

Further, diverse challenges are faced by Local Government Pension Scheme clients compared to UK corporate pension fund clients. Therefore, NTRS continues to offer services and solutions to support these clients’ growth.

NTRS has made investments in businesses to serve its clients in the U.S. and around the world uninterruptedly. In December 2010, NTRS announced the acquisition of Waterline Partners, a top ranked investment advisory firm based in Los Angeles. The company expects Waterline to work in conjunction with the client-focused strategy of NTRS, and strengthen the company’s presence on the west coast of the United States.

We expect increased asset management and servicing fees based on improvements in equity markets and higher volumes to benefit NTRS. However, the Dodd-Frank Act will ring in numerous regulatory changes over the next several years, which might act as a deterrent to the company’s fundamentals. As of March 31, 2011, NTRS had $4.4 trillion in assets under custody and $662.2 billion in assets under management.

NTRScurrently retains its Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. However, the closest peer of NTRS, State Street Corporation (STT - Analyst Report) retains a Zacks #3 Rank (a short-term ‘Hold’ rating).

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