Magazine article American Banker

3Q RESULTS: Lighter Trading Hinders Results at Custody Banks

Magazine article American Banker

3Q RESULTS: Lighter Trading Hinders Results at Custody Banks

Article excerpt

Byline: Matt Ackermann

Lighter-than-anticipated trading hampered results at custody banks in the third quarter and is tempering expectations of a quick recovery.

Northern Trust Corp., State Street Corp. and Bank of New York Mellon Corp., which avoided the worst of the financial crisis by relying on asset servicing and asset management, fell short of analyst estimates last quarter because of a decline in fee revenue.

"These companies emerged from the stress of the past 18 months a lot quicker than other financial services companies, but this quarter we counted on them to move back to normal, and instead we got a bit of a reality check," said Marty Mosby of First Horizon National Corp.'s FTN Equity Capital Markets. "Thing just aren't moving as fast as we hoped."

The results were surprising, he said, since each increased assets under management and assets under custody. That typically leads to growth, but revenue stalled.

For example, at Northern Trust, which reported third-quarter results Wednesday, assets under custody rose 11% and assets under management increased 9% from a year earlier, but revenue fell 1% to $927.6 million. The Chicago company swung to a third-quarter profit of $187.9 million, or 77 cents per share, compared with a year-earlier loss of $148.3 million, or 66 cents per share, but analysts polled by Thomson Reuters expected earnings of 84 cents a share on $985 million of revenue.

"These companies are just not getting the customer activity that they did a few years ago," Mosby said. "People are investing and holding rather than moving assets around. That type of inertia is a result of people becoming more risk averse. That type of inertia is creating less in transaction fees."

Frederick Waddell, Northern Trust's chief executive, said during a conference call Wednesday that there has been a "mix shift" as investors move assets from equity to fixed-income products, which generate less fee revenue. …

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