We are reiterating our Neutral recommendation on
Northern Trust Corporation
) based on the company's focus on continuing profit improvement
initiatives and initiation of new businesses with the addition of
both personal and institutional clients and assets. However,
third-quarter 2012 earnings lagged the Zacks Consensus Estimate
by a penny.
Overall, results were adversely impacted by lower top line,
partially offset by decline in non-interest expenses. Though the
shrinkage in expenses reflects prudent cost management by the
company, deteriorating credit quality was a negative for the
Against the backdrop of macroeconomic headwinds such as very low
interest rates and a slow global economic recovery, Northern
Trust focused on initiating new businesses in the third quarter
of 2012 with increased aggression. Moreover, the company'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
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.
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 dampened consumer confidence and spending.
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.
Huntington Bancshares Inc.
) is another Zacks #3 Rank in the same industry.
HUNTINGTON BANC (HBAN): Free Stock Analysis
NORTHERN TRUST (NTRS): Free Stock Analysis
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