Northern Trust posts higher earnings

Northern Trust Corp. rose as much as 26 percent after it said fourth-quarter profit increased, leading a surge by independent custody banks a day after rival State Street Corp. lost more than half its value.

Northern Trust reported smaller writedowns on investment losses than its rivals and a gain in foreign-exchange revenue. The Chicago-based company advanced $10.29, or 23 percent, to $54.22 at 12:58 p.m. in Nasdaq Stock Market trading. State Street, which an analyst's report said is now an attractive takeover target, and Bank of New York Mellon Corp. also gained.

Northern Trust wrote down $44 million in investment losses on asset-backed debt on its balance sheet. Boston's State Street said its unrealized losses grew by $1.4 billion in off-balance- sheet conduits, pools of long-term debt used as collateral to sell short-term securities. State Street also had $3 billion in new, unrealized losses on its balance and New York-based BNY Mellon wrote down $1.2 billion.

"Northern Trust has always taken a more conservative approach to managing their balance sheet," Mark Fitzgibbon, an analyst at Sandler, O'Neil & Partners LP in New York, said in an interview. "In the past that hurt them, but it's benefiting them to a great degree now."

Custody banks keep records, track performance and lend securities to institutional investors including mutual funds, pensions and hedge funds. The companies also manage mutual funds and accounts for institutions and wealthy individuals.

Record foreign-exchange trading revenue helped Northern Trust's fourth-quarter operating earnings rise 48 percent. State Street yesterday said fourth-quarter net income plunged 71 percent. BNY Mellon reported a 95 percent decline.