Northern Trust to cut 700 jobs as fourth-quarter profit declines

Northern Trust Corp., the third- largest independent U.S. custody bank, said it will cut about 700 jobs to lower expenses as interest rates near zero erode profit.

The bank booked a $39.8 million after-tax charge, or 17 cents a share, in the fourth quarter to account for the cost reductions, which are designed to lift pretax income by $250 million by the end of next year, Chicago-based Northern Trust said today in a statement. Net income in the three months decreased to $130.2 million, or 53 cents a share, from $157.1 million, or 64 cents, a year earlier.

Expense cuts “could be a positive” depending on how deep they go, Brian Bedell, an analyst with ISI Group Inc. in New York, said in a telephone interview before results were announced. Bedell said he expected investors to react positively to planned cuts if they're expected to save $150 million or more annually by 2015.

Northern Trust has trailed Bank of New York Mellon Corp. and Boston's State Street Corp. in trimming costs to offset the impact of low interest rates, which reduce the returns custody banks earn on investments and the fees for managing money-market funds. BNY Mellon and State Street cut or made plans to eliminate a combined 3,750 jobs in the past 13 months.

Excluding certain items, 21 analysts surveyed by Bloomberg expected average earnings of 68 cents a share.

Two Acquisitions

Assets under custody rose to $3.88 trillion from $3.71 trillion a year earlier, helped by Northern Trust's takeover of Bank of Ireland Plc's securities-servicing unit in June for 60 million euros ($76.8 million), and the $100 million acquisition of Chicago-based hedge-fund asset servicer Omnium LLC from Citadel LLC in July.

Results for Northern Trust were announced before the start of regular U.S. trading. The shares declined 25 percent in the 12 months through yesterday, while the 20-company Standard & Poor's index of asset managers and custody banks fell 21 percent.

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.

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