On Sep 5, 2013, we maintained our long-term recommendation on
Northern Trust Corporation
) at Neutral based on its well-managed global franchise, strong
capital base and expense reduction initiatives. However,
regulatory issues coupled with fundamental pressures on the
banking sector might act as deterrents to the company's
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Northern Trust reported its second-quarter 2013 earnings of 78
cents per share, lagging the Zacks Consensus Estimate by a
nickel. However, this compared favorably with the prior-year
quarter earnings of 73 cents per share.
Results benefited from top-line growth and a strong capital
position on a year-over-year basis, partially offset by a rise in
operating expenses. However, deteriorating credit quality was the
Northern Trust successfully executed the Driving Performance
initiatives announced at the beginning of 2012, which contributed
about $160 million in pre-tax profit improvements in 2012, split
approximately 40-60 between revenue and expense items and boosted
pre-tax margin by about 375 basis points. Moreover, the company
remains on track to deliver $250 million of pre-tax benefits by
the end of 2013, recording a benefit of $55 million and $65
million in the first two quarters of 2013, respectively.
However, low short-term interest rates along with persistent
narrow spreads at the short end of the yield curve continue to
negatively impact net interest income and money market mutual
fund fees. Therefore, NIM reduced 13 basis points year over year
to 1.13% in the first half of 2013. Though interest rates have
started rising, attributed to lower yields on certain earning
assets and reducing average earnings assets, NIM is expected to
remain under pressure.
For Northern Trust, the Zacks Consensus Estimate for 2013 and
2014 remained stable at $3.05 and $3.47 per share, over the last
7 days. Hence, Northern Trust carries a Zacks Rank #3 (Hold).
Other Major Banks to Consider
Some major regional banks that are worth considering include
) with a Zacks Rank #1 (Strong Buy), while
M&T Bank Corporation
Wells Fargo & Company
) carry a Zacks Rank #2 (Buy).