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On Mar 11, 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 fourth-quarter 2012 earnings of 71 cents per share, lagging the Zacks Consensus Estimate by 4 cents. However, this was favorable compared with the prior-year quarter earnings of 67 cents per share.

Quarterly results on a year-over-year basis benefited from top-line growth and decline in operating expenses. Further, improving credit quality and strong capital ratios were the tailwinds for Northern Trust.

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.

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. Though the U.S. economy posted stable to improving economic data during 2012, 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 increased 0.3% to $3.21 per share as 3 out of 16 estimates were revised higher over the last 30 days. For 2014, 4 of the 13 estimates moved north over the same time frame, lifting the Zacks Consensus Estimate by 0.3% to $3.59 per share. With the upswing in the Zacks Consensus Estimates, Northern Trust retains a Zacks Rank #3 (Hold).

Other Major Banks to Consider

Besides Northern Trust, other banks that are worth considering include BankUnited Inc. (BKU - Analyst Report), Fifth Third Bancorp (FITB - Analyst Report) and State Street Corporation (STT - Analyst Report). All the 3 banks retain a Zacks Rank #2 (Buy).

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