Magazine article American Banker

Partly Cloudy Forecasts for Trust, Custody Banks

Magazine article American Banker

Partly Cloudy Forecasts for Trust, Custody Banks

Article excerpt

Two analysts gave somewhat divided 2007 outlooks on the largest U.S. trust and custody banks.

Andrew Marquardt of Fox-Pitt, Kelton Inc. wrote in note sent to clients Monday that softer top-line revenue seen in third-quarter reports could augur slower growth in the coming year. Mr. Marquardt expects overall 2007 earnings growth of 9% at the trust banks he covers, versus the 16% he projects for this year.

Bank of New York Co. Inc., Mellon Financial Corp., Northern Trust Corp., and State Street Corp. beat his third-quarter estimate by an average of 2%, Mr. Marquardt wrote. But they generally relied on cost control and stable margins to offset lower top-line revenue growth, his report said.

However, Mr. Marquardt raised his rating on Northern Trust to "outperform" from "in line," writing that its better-than-expected top-line growth in the third quarter made it stand out. The Chicago company "is among the best in wealth and private-client banking, attractive global businesses, and above-average operating margins," he wrote.

Brian Bedell of Merrill Lynch & Co. was generally more optimistic about trust banks as a group, writing in a Monday note that he still had a "fairly solid outlook" on the sector.

However, Mr. Bedell reduced his 2007 estimate for Investors Financial Services Corp. by 25 cents, to $2.25 a share. Higher costs tied to the Boston company's plan to improve its processing, sales, and marketing operations were the main reason for the cut, the note said.

Mr. Marquardt wrote that executives at the companies he covers had "a more cautious tone" during third-quarter calls. …

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