Northern Trust net falls 17% on record-low rates

Northern Trust Corp., the third- largest U.S. independent custody bank, said third-quarter earnings fell 17 percent, more than analysts had expected, as low interest rates squeezed lending and money-market revenue.

Net income dropped to $155.6 million, or 64 cents a share, from $187.9 million, or 77 cents, a year earlier, the Chicago- based company said today in a statement. Northern Trust was expected to earn 71 cents a share, according to the average estimate of 22 analysts surveyed by Bloomberg.

“Low short-term interest rates have had an ongoing negative impact,” William Morrison, the bank's chief financial officer, said in a conference call.

Northern Trust said in September that record low rates could reduce revenue this year by $300 million compared with historical levels, based on figures from the first half of the this year. The Federal Reserve has held its benchmark lending rate at between zero and 0.25 percent since December 2008, cutting the net interest margin Northern Trust earns on client deposits and forcing it to waive fees on money-market funds.

Northern Trust fell $1.51 or 3.1 percent, to $47.41 at 4 p.m. in Nasdaq Stock Market trading. The stock has lost 9.5 percent this year, while the Standard & Poor's index of custody banks and asset managers is little changed.

Revenue fell 3 percent to $899 million from a year earlier, below the $922 million analysts had estimated, on declines in fees from securities lending and foreign-exchange trading, the company said in the statement. Its net interest margin, or profit spread on investing customer deposits, fell to 1.44 percent from 1.54 percent.

Assets Rise

Custody assets rose 10 percent to $3.9 trillion while investment-management assets increased 8 percent to $657.2 billion. The gains were driven by the best quarter for attracting new business since the fourth quarter of 2007, Morrison said on the conference call.

Northern Trust's largest competitors reported improved third-quarter profit on Oct. 19, helped by acquisitions. Bank of New York Mellon Corp., the world's biggest custody bank, earned $622 million, compared with a loss of $2.46 billion a year earlier. State Street Corp., based in Boston, said operating profit rose 21 percent to $427 million.

Custody banks keep records, track performance and lend securities to institutional investors such as pension plans and hedge funds. Northern Trust also manages mutual funds and institutional accounts.