Magazine article American Banker

Deal, Expensing Seen Pinching Northern Trust

Magazine article American Banker

Deal, Expensing Seen Pinching Northern Trust

Article excerpt

Some analysts who cover Northern Trust Corp. are sounding a note of caution about its ability to increase earnings.

Michael L. Mayo of Prudential Equity Group LLC, downgraded the Chicago company's shares Jan. 6 to "neutral weight" from "overweight."

He also cut 5 cents from his 2006 per-share earnings estimate; he now predicts $2.75. His 2005 estimate remains $2.50, but his 12-month price target is now $47, down from $50.

In a research note Mr. Mayo wrote that additional expenses from plans to expand here and in Europe could hurt earnings in the near term.

Northern Trust announced an agreement Nov. 22 to buy Baring Asset Management Financial Services Group of London, which offers fund administration, custody and trust services, from ING Group NV. The deal is set to close in May.

The Chicago company has said that it is likely to take charges of 10 cents a share in 2005 related to the deal, which would reduce earnings by 5 cents per share, but that the ING unit should add 8 cents to earnings by the end of 2006. Northern Trust will assume no debt in the deal.

Northern Trust, which has $2.4 trillion of assets under custody, also announced plans last year to expand its personal financial services unit by setting up new offices in the Northeast and making acquisitions there.

Mr. Mayo wrote that such expansion typically takes three years to become profitable. In addition the company may need to increase spending as it expands its outsourcing business, he wrote. "To compete in this business may require additional technology investment on top of the existing cost base. …

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