Northern Trust Corporation (NTRS)

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Northern Trust Corporation (NTRS)

Q3 2009 Earnings Call

October 21, 2009; 12:00 pm ET


Rick Waddell - Chief Executive Officer

Bill Morrison - Chief Financial Officer

Steve Fradkin - President of Corporate & Institutional Services Business Unit

Aileen Blake - Executive Vice President & Controller

Preeti Sullivan - Investor Relations Team

Bev Fleming - Director of Investor Relations


Marty Mosby - FTN Equity Capital

Mike Mayo - CLSA

Nancy Bush - NAB Research LLC

Robert Lee - KBW

Glenn Schorr - UBS

Tom McCrohan - Janney Montgomery Scott

Brian Bedell - ISI Group

James Mitchell - Buckingham Research

Ken Usdin - Bank of America/Merrill Lynch

John Stilmar – SunTrust



Good day everyone and welcome to the Northern Trust Corporation third quarter earnings conference call. Today’s call is being recorded. At this time I would like to turn the conference over to the Director of Investor Relations, Bev Fleming for opening remarks and introductions. Please go ahead.

Bev Fleming

Thank you, Amy. Welcome to Northern Trust Corporation’s third quarter 2009 earnings conference call. Joining me on our call this morning are Rick Waddell, Northern Trust Chief Executive Officer; Bill Morrison, Chief Financial Officer; Steve Fradkin, President of our Corporate & Institutional Services Business Unit and our Chief Financial Officer prior to September 18, Aileen Blake, our Controller; Preeti Sullivan from our Investor Relations Team.

For those of you who did not receive our third quarter earnings press release or financial trends report via email this morning they are both available on our website at www.northerntrust.com. In addition, this October 21 call is being webcast live on www.northerntrust.com. The only authorized rebroadcast of this call is the replay that will be available through October 28.

Northern Trust disclaims any continuing accuracy of the information provided in this call after today. Now, for our Safe Harbor statement; what we say during today’s conference call may include forward-looking statements, which are Northern Trust’s current estimates or expectations of future events or future results.

Actual results of course could differ materially from those indicated by these statements because the realization of those results is subject to many risks and uncertainties. I urge you to read our 2008 Annual Report and our periodic reports to the Securities and Exchange Commission for detailed information about factors that could affect actual results. Thank you again for your time today.

Let me turn the call over to Rick Waddell.

Rick Waddell

Good morning everyone. Let me join Bev in welcoming all of you to Northern Trust’s third quarter 2009 earnings conference call. I’m delighted to be here with you today and to introduce at this form our new Chief Financial Officer, Bill Morrison. Bill really brings to the CFO role a unique set of experiences and business acumen having most recently served and many of you know Bill in his prior role as co president of our Personal Financial Services Business Unit.

Bill’s talents in finance, business leadership over his career in banking give him a really terrific ability to contribute probably to the strategies in the successes of our company. Steve Fradkin is also with us here today. As many of, Steve’s been with the company over 24 years, having served as Northern Trust Chief Financial Officer since 2004 and prior to that, Steve held a variety of leadership roles in our Corporate & Institutional Services Business Unit, which he was named president of on September 18.

He joined us today obviously as we transition the CFO responsibilities to Bill, including this quarterly call. These changes are a real testament in my opinion, to the depth and strength of the executive team that we have at Northern Trust. I know that Bill has met with a number of you already and I know that Steve looks forward to maintaining the relationships in his new role that he has made with many of you in his past role as CFO.

Steve, would you like to say a few words?

Steve Fradkin

Thanks, Rick. I am pleased to be here today as we transition Bill to the CFO role. I’d say that our transition thus far has been very smooth and as Rick said, I look forward to maintaining many of the friendships that I developed with investors during my 10 year CFO. My thanks also go out to many of you for your support over the years and I’m confident that in my new role our paths will continue to cross in the future.

So with that, let me hand the call over to Bill.

Bill Morrison

Thank you, Steve and good morning everyone. It’s my pleasure to be speaking with you today on Northern Trust’s third quarter earnings conference call. I’ve met many of you, but look forward to meeting many more of you in the days ahead. Earlier this morning Northern Trust reported third quarter 2009 net income of $188 million. Reported earnings equaled $0.77 per share included in our third quarter results in both 2009 and 2008 are items related to the 2008 IPO of Visa which impacted all of Visa member banks.

In our press release issued earlier today we’ve provided operating results, which are exclusive of all Visa related items. We believe operating results provide a clear indication of the results and trends in our core businesses. Therefore, our commentary for the remainder of today’s conference call will focus on operating results, which are exclusive only of the Visa related items.

To that end, Northern Trust today reported third quarter 2009 operating net income of $177 million. Operating earnings equaled $0.72 per share. This compares very favorably with our operating performance in the third quarter of last year, when we recorded loss of $0.58 per share primarily due to significant client support related charges, which we elected to take to protect our clients at the peek of the financial crisis.

To assist you in understanding our performance of this quarter, we’ve organized today’s remarks into the following sections. First, I will discuss certain market conditions that impacted our performance in the third quarter. Second, I’ll review our financial performance focusing on those items that most impacted our results and third, I’ll offer a few perspectives on the near term operating environment and the longer term strategic and financial position of Northern Trust. Finally, Rick and Steve, and Bev and I will be happy to answer your questions.

The equity market environment continued to show signs of improvement in the third quarter, but remains at levels meaningfully below one year ago. The S&P 500 was down 9% on September 30, when compared to the prior year, but improved 15% during the third quarter. Some of our trust investment and other servicing fees are earned based on lag market values. So let me review those impacts.

Equity market performance calculated on a one quarter lag basis, which is the methodology used for calculating C&IS custody and PFS wealth management fees, was weak as the S&P 500 declined by 28% year-over-year on a one quarter lag basis. On a sequential quarter basis, however, the one quarter lag markets were up 15%.

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