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updated: 4/16/2013 10:05 AM

Northern Trust profit increases 1.7% As stock gains boost assets

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Bloomberg News

Northern Trust Corp., the third- biggest independent U.S. custody bank, said first-quarter profit rose 1.7 percent as stock-market gains boosted the value of assets the company oversees.

Net income increased to $164 million, or 67 cents per diluted share, from $161.2 million, or 66 cents a share, a year earlier, the Chicago-based company said today in a statement. Results missed the 72-cent average estimate of 16 analysts surveyed by Bloomberg.

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"We have a better macro backdrop with higher market levels this quarter, and we saw good organic growth across all three" of the largest publicly listed custody banks, Brian Bedell, a New York-based analyst at ISI Group Inc., said in an interview before results were released.

The custody banks, under pressure to improve profitability hurt by record-low interest rates, are benefiting as global equity markets climb for the second straight year. Northern Trust, led by Chairman and Chief Executive Officer Frederick H. Waddell, followed larger rivals Bank of New York Mellon Corp. and State Street Corp. with job cuts in 2012 that, combined with technology initiatives, are designed to increase annual pretax income by $250 million by the end of this year.

The Standard & Poor's 500 Index of U.S. stocks returned 14 percent in the 12 months ended March 31, and global stocks, as measured by the MSCI ACWI Index, advanced 11 percent, with reinvested dividends.

Rate Impact

Low rates hurt custody banks by reducing the return they make on lending and on their own investments. The U.S. Federal Reserve has held its benchmark interest rate at zero to 0.25 percent since December 2008 in an attempt to stimulate borrowing and economic growth.

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.

Results were announced before the start of regular U.S. trading. Northern Trust gained 7.3 percent this year through yesterday, compared with a 15 percent advance by the Standard & Poor's 20-company index of asset managers and custody banks.

BNY Mellon is scheduled to released earnings tomorrow, followed by State Street on April 19.

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