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Northern Trust Corporation’s (NTRS - Analyst Report) has broadened its footprint in the UK pensions arena by adding $26 billion in assets under custody for new UK pension fund clients during 2011. This was driven by 13 significant new client wins. It included $5 billion Lothian pension fund, $7.5 billion Lancashire County Council and $2.4 billion SAUL (Superannuation Arrangements of University of London) Trustee Company.

Despite the challenging economic environment, Northern Trust continued to focus even more aggressively on initiating new businesses in 2011. The launch of innovative data and product solutions suite to support clients’ regulatory requirements was the catalyst behind Northern Trust’s expanding U.K. pension fund business. Specifically, in 2011 the company launched its Institutional Governance Services, which is a part of Northern Trust’s Retirement Solutions Practice.

Notably, Northern Trust offers custody and associated services to around 34% of the top 200 pension funds in the UK and 36% of all UK Local Government Pension Schemes. On behalf of new UK pension fund clients, the company has added over $80 billion in assets under custody in the last three years.

Earnings Recap

In January 2012, Northern Trust reported its fourth quarter 2011 financial results. The company’s earnings of 67 cents per share missed the Zacks Consensus Estimate by a penny. In that quarter, earnings were impacted by restructuring, acquisition, and integration related expenses, though partially offset by a benefit from the reduction of an indemnification liability related to Visa Inc. (V - Analyst Report).

Overall, results were marked by higher net interest income and strong new business. Improved credit quality and increase in average earning assets acted as positives for the company.

Our Take

We expect Northern Trust to experience an increase in asset management and servicing fees based on equity markets improvement and higher volumes. For supporting the new investment activities, management is also taking steps to tackle expense growth.Improved credit quality and increase in average earning assets also serve as positive factors for the stock. However, the Dodd-Frank Act will ring in numerous regulatory changes over the next several years, which eventually might act as deterrents to the company’s growth.

Northern Trust currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.

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