We are reiterating our Neutral recommendation on
Northern Trust Corporation
), based on the company's focus on profit improvement initiatives
and initiation of new business with the addition of both personal
and institutional clients and assets. Moreover, the completion of
acquisitions in 2011 furnished Northern Trust with attractive
clients coupled with innovative competencies that will help drive
future new business.
Against the backdrop of macroeconomic headwinds such as very low
interest rates and a slow global economic recovery, Northern Trust
focused on initiating new business in the first quarter of 2012
with increased aggression. The acquisitions of Bank of Ireland
Securities Services and Omnium hedge fund administration business,
which closed in 2011, also contributed to the company's revenue
Moreover, Northern Trust's innovative technology-driven hedge
fund administration capabilities brought to the marketplace via
Northern Trust Hedge Fund Services clearly provides an attractive
proposition to the clients.
With the objective of supporting new investment activities,
management is taking steps to tackle expense growth and reinstate
operating leverage to the company over the upcoming quarters.
Management plans to meet its cost saving targets by streamlining
its processes, increasing technological efficiency and corporate
initiatives including office space consolidation. Moreover,
Northern Trust's profit improvement initiatives are anticipated to
benefit annual pre-tax income by approximately $250.0 million by
the end of 2013.
In April 2012, Northern Trust's first-quarter 2012 earnings of
67 cents per share surpassed the Zacks Consensus Estimate by a
penny. Overall, results were marked by higher non-interest income,
strong new business and improved equity markets. Moreover, decline
in non-interest expenses and improved credit quality were the
positives for the quarter. The fall in net interest income acted as
a headwind for the company.
On the flip side, low short-term interest rates along with
persistent narrow spreads at the short end of the yield curve
continue to adversely affect net interest income and money market
mutual fund fees. Based on the current economic scenario, we expect
the low-interest environment to linger.
Moreover, risks and ongoing concerns regarding the debt crisis
in Europe had a negative impact on the global economic recovery,
which has dampened consumer confidence levels and spending.
Notably, Northern Trust's gross exposure in Portugal, Italy,
Ireland, Greece and Spain, the Eurozone countries, totaled about
$610 million as of March 31, 2012. We believe that continuing
economic challenges in Europe and the related disruptions poses as
risks for Northern Trust's earnings.
We believe that the risk-reward profile of Northern Trust is
currently balanced and hence, we have reiterated our Neutral
recommendation on its shares.
Northern Trust currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. One of Northern Trust's
Huntington Bancshares Inc.
) also retains a Zacks #3 Rank.
HUNTINGTON BANC (HBAN): Free Stock Analysis
NORTHERN TRUST (NTRS): Free Stock Analysis
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