Northern Trust posts loss on money funds, bailouts
Northern Trust Corp. reported a third-quarter loss after the Chicago-based custody bank and asset manager spent $353.2 million to prop up 11 money funds and bail out clients holding frozen auction-rate securities.
The net loss was $129.4 million, or 58 cents a share, compared with net income of $208.3 million, or 93 cents, a year earlier, the company said today in a statement. Per-share profit excluding costs to absorb investor losses was $1.01, less than the average estimate of $1.03 in a Bloomberg survey of 10 analysts.
Larger rivals Bank of New York Mellon Corp. and State Street Corp. have also stepped in to protect customers hurt by financial-market turmoil. BNY Mellon's third-quarter earnings fell 53 percent as it spent $433 million to offset fund losses. State Street said it may set aside as much as $450 million before taxes this quarter to do the same.
The fund expenses ``are obviously the big thing,'' Bradley Vander Ploeg, an analyst at Raymond James Financial Inc. in Chicago, said in an interview before the results were released. Vander Ploeg expected the company to earn $1.05 a share excluding the costs.
Northern Trust's earnings were reduced by $1.59 a share to buffer investors against losses in selected money-market mutual funds, institutional accounts and auction-rate securities.
Revenue rose 5.2 percent to $938.5 million, driven by a record $141.8 million in foreign-exchange trading fees.
The amount of money Northern Trust oversees in custody accounts fell 14 percent to $3.53 trillion. Assets that the company invests for clients declined by the same percentage to $652.4 million. Custody and investment-management fees fell 7 percent to $479.9 million.
A change in the tax treatment of structured leasing transactions resulted in a loss of $12.9 million, or 6 cents a share. The company also lost $10.6 million, or 5 cents a share, on asset-backed securities held in its investment portfolio.
Updating previously reported figures, the company said it spent $197.5 million supporting six registered money-market funds hurt by market illiquidity. Another $105.4 million covered losses by five institutional funds from debt issued by bankrupt Lehman Brothers Holdings Inc.
Auction-Rate Purchase
Northern Trust also paid $50.3 million to purchase auction- rate securities from wealthy clients. The auction-rate market collapsed in February, leaving investors unable to sell.
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.
Northern Trust announced earnings before the start of regular U.S. trading. It has dropped 24 percent this year, compared with the 45 percent decline in the Standard & Poor's Supercomposite Asset Management & Custody Banks Index.