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    Northern Trust Corp (NTRS)

    Business Description

    Northern Trust Corporation (NTRS) is a leading provider of wealth management, asset servicing, asset management, and banking solutions, operating globally through its principal subsidiary, The Northern Trust Company, and various other subsidiaries . The company is organized into two main client-focused reporting segments: Asset Servicing and Wealth Management. Northern Trust offers a range of services including custody, fund administration, investment operations outsourcing, trust, investment management, and philanthropic services, primarily targeting institutional investors and high-net-worth individuals .

    1. Asset Servicing - Provides a wide range of services including custody, fund administration, and investment operations outsourcing, primarily to institutional investors such as corporate and public retirement funds, foundations, and sovereign wealth funds.
    2. Wealth Management - Targets high-net-worth individuals and families, offering services such as trust, investment management, custody, and philanthropic services, including customized services through the Global Family Office for ultra-high-net-worth individuals and family offices.

    Q3 2024 Summary

    Initial Price$84.01July 1, 2024
    Final Price$88.72October 1, 2024
    Price Change$4.71
    % Change+5.61%

    What went well

    • Northern Trust's "One Northern Trust" strategy is enhancing collaboration across businesses, aiming to drive higher organic growth rates by providing integrated solutions to clients ** **.
    • The company is investing aggressively at the upper end of the market, particularly in ultra high net worth clients, expecting to achieve better incremental profitability and shareholder value ** **.
    • Northern Trust has achieved significant client wins, such as the expanded relationship with Artemis, providing comprehensive services including execution, custody, fund administration, and more, demonstrating their ability to secure more profitable growth .

    What went wrong

    • The company's stock has lost its premium valuation compared to peers, raising concerns about its business mix, execution, and overall strategy.
    • Significant management turnover, with multiple leadership changes occurring simultaneously, could lead to execution risks and uncertainty in implementing growth strategies.
    • Lack of clear, externally measurable metrics to assess the success of the One Northern Trust strategy makes it difficult for investors to gauge progress and effectiveness.

    Q&A Summary

    1. Expense Growth Outlook
      Q: How will expense growth be managed going forward?
      A: Management acknowledges that expense growth is exceeding targets, currently running above 6% this year. They are committed to driving expense growth down, aiming for a rate below 5% in 2025. Organizational changes, including centralizing operations and focusing on operational efficiencies, are expected to help reduce expenses . Investments in technology and resiliency will continue but may taper off late next year.

    2. Net Interest Income Guidance
      Q: Will NII continue to grow from current levels?
      A: Despite positive NII results this quarter, management anticipates a slight decline in NII in the fourth quarter due to expected rate cuts . NII is expected to be in the range of $550 to $560 million in Q4, slightly down from $569 million this quarter .

    3. Organizational Changes Impact
      Q: How will recent leadership changes affect operations?
      A: The organizational changes align with the strategy to strengthen the foundation, optimize growth, and drive productivity. A new COO role has been created to enhance operational excellence and scalable growth. These changes are expected to improve operational efficiency without significantly increasing expenses .

    4. Capital Return Plans
      Q: Will elevated share buybacks continue?
      A: The company has been stepping up buybacks, supported by a strong capital position with a CET1 ratio of 12.6%. Management expects buybacks to remain elevated but will be thoughtful in their approach, potentially allowing the CET1 ratio to modestly decline as they monetize additional Visa shares over the next year or two .

    5. Wealth Management Growth
      Q: What are the targets for Wealth Management growth?
      A: Management aims for organic growth in Wealth Management of 2.5% to 3%, higher than in recent years . They plan to invest more aggressively at the upper end of the market, leveraging their strengths with ultra-high-net-worth clients .

    6. Asset Sensitivity Position
      Q: Is the balance sheet asset-sensitive?
      A: The company currently has a slight asset sensitivity due to actions taken over the past couple of years. With the securities portfolio shortened, NII will be influenced by changes in interest rates, facing potential headwinds if rates decline .

    7. Deposit Trends and Costs
      Q: How are deposit trends affecting NII?
      A: The underlying nature of deposits has improved, with more attractively priced deposits replacing thinly priced ones. Deposit levels have been stable, and the company did not experience the typical seasonal decline.

    8. Loan Growth Outlook
      Q: What is the outlook for loan growth?
      A: Loan balances decreased this quarter, but management does not see this as a strategic trend. They are not actively trying to grow or shrink the loan book; loan growth will align with growth in the overall client franchise, particularly in Wealth Management.

    9. Hamilton Lane Partnership
      Q: What is the significance of the Hamilton Lane collaboration?
      A: The partnership with Hamilton Lane enhances their asset servicing business by providing better data and analytics on private investments for large institutional clients. This addresses clients' increasing allocations to private markets and alternatives.

    10. One Northern Trust Strategy
      Q: How is the One Northern Trust initiative measured?
      A: Success is measured by increased collaboration across businesses, leading to higher organic growth rates. The strategy involves breaking down silos and delivering comprehensive solutions to clients, ultimately reflected in financial performance.

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Michael G. O’GradyChairman of the Board, CEO, and President2011Michael G. O’Grady joined Northern Trust in 2011. He has served as Chairman of the Board since 2019, as CEO since 2018, and as President since 2017. Previously, he was EVP and President of Corporate & Institutional Services .
    Peter B. CherecwichExecutive Vice President and President of Asset Servicing2007Peter B. Cherecwich joined Northern Trust in 2007. He has served as EVP and President of Asset Servicing since 2017. Previously, he was President of Global Fund Services and COO of Corporate & Institutional Services .
    Daniel E. GambaExecutive Vice President and President of Asset ManagementApril 2023Daniel E. Gamba joined Northern Trust in April 2023. Before joining, he spent over two decades at Blackrock, Inc., serving in various roles including Co-Head of Fundamental Equities .
    Steven L. FradkinExecutive Vice President and President of Wealth Management1985Steven L. Fradkin joined Northern Trust in 1985. He has served as EVP and President of Wealth Management since 2014. Previously, he was President of Corporate & Institutional Services and CFO .
    Mark C. GossettExecutive Vice President and Chief Risk Officer1983Mark C. Gossett joined Northern Trust in 1983. He has served as EVP and Chief Risk Officer since 2020. Previously, he was Chief Credit Officer and Head of Market and Liquidity Risk .
    Jane B. KarpinskiExecutive Vice President and Global Head of Regulatory AffairsDecember 2023Jane B. Karpinski joined Northern Trust in 2006. She has served as EVP since 2016 and was appointed Global Head of Regulatory Affairs in December 2023. Previously, she was Chief Audit Executive .
    John P. LandersSenior Vice President and ControllerDecember 2023John P. Landers joined Northern Trust in 2003. He has served as SVP and Controller since December 2023. Previously, he was Chief Productivity Officer and CFO of Asset Servicing .
    Susan C. LevyExecutive Vice President and General Counsel2014Susan C. Levy joined Northern Trust in 2014. She has served as EVP and General Counsel since then. Previously, she was Corporate Secretary and Managing Partner at Jenner & Block .
    Teresa A. ParkerExecutive Vice President and President of EMEA1982Teresa A. Parker joined Northern Trust in 1982. She has served as EVP and President of EMEA since 2017. Previously, she was COO of Corporate & Institutional Services .
    Thomas A. SouthExecutive Vice President and Chief Information Officer1999Thomas A. South joined Northern Trust in 1999. He has served as EVP and CIO since 2018. Previously, he was Chief Business Architect and COO of Operations & Technology .
    Alexandria TaylorExecutive Vice President and Chief Human Resources OfficerOctober 2022Alexandria Taylor joined Northern Trust in October 2022. Previously, she spent nearly two decades at Bank of America, where she was head of HR for corporate, institutional, and wealth management businesses .
    Jason J. TylerExecutive Vice President and Chief Financial Officer2011Jason J. Tyler joined Northern Trust in 2011. He has served as EVP and CFO since 2020. Previously, he was CFO of Wealth Management and Global Head of Asset Management's Institutional Group .
    Peter B. CherecwichChief Operating OfficerOctober 1, 2024Peter B. Cherecwich became the Chief Operating Officer at Northern Trust on October 1, 2024. He has served in various roles, including President of Asset Servicing .
    Teresa A. ParkerPresident – Asset ServicingOctober 1, 2024Teresa A. Parker became President – Asset Servicing on October 1, 2024. She has served as EVP and President of EMEA since 2017 .
    Steven L. FradkinVice ChairmanOctober 1, 2024Steven L. Fradkin was appointed as Vice Chairman effective October 1, 2024. He has served in various leadership roles, including EVP and President of Wealth Management .
    Jason J. TylerPresident – Wealth ManagementOctober 1, 2024Jason J. Tyler assumed the role of President – Wealth Management on October 1, 2024. He has served as EVP and CFO since 2020 .
    David W. Fox, Jr.Chief Financial OfficerOctober 1, 2024David W. Fox, Jr. became the CFO of Northern Trust Corporation on October 1, 2024. Previously, he was President of the Global Family & Private Investment Offices Group .

    Questions to Ask Management

    1. Given that expense growth is expected to be over 6% in 2024, exceeding your previous target of sub-5%, how do you plan to control expenses in 2025 to meet your commitment of sub-5% expense growth, especially with the recent management changes?
    2. With significant management changes across key positions, including CFO, COO, Head of Wealth, Head of Asset Servicing, and Head of Family Office all changing at the same time, how will the new leadership team drive better organic growth, and what specific strategies will they implement differently from before?
    3. Your stock price has lost its premium versus trust bank peers and trades below some competitors like Morgan Stanley; to what extent do you attribute this to business mix, environment, or execution, and what are your plans to address these challenges to improve shareholder value?
    4. How should investors measure the success of the One Northern Trust strategy, and can you provide specific metrics or KPIs that we can monitor to assess the effectiveness of this initiative compared to your peers using similar programs?
    5. Given the elevated level of capital returns through share buybacks, with about one-third of net income going to dividends and a CET1 ratio at the upper end of 12.5%, is this level of capital return sustainable in the longer term, and how do you plan to balance capital returns with maintaining your capital ratios?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateOctober 2021
    End Date/DurationNo expiration date
    Total additional amount25 million shares
    Remaining authorization amount13,300,150 shares (as of 2024-12-21)
    DetailsManage capital levels and use repurchased shares for general purposes, including stock option and incentive plans

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      1. Operating Expenses: Expected to be up approximately 2% relative to the third quarter .
      2. Net Interest Income (NII): Indicated potential headwinds due to rate cuts, with NII elevated by approximately $10 million to $15 million due to certain items in Q3, which might normalize in Q4 .
      3. Expense Growth for 2025: Commitment to keep expense growth below 5% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024
    • Guidance:
      1. Expenses: Sequential expense growth expected to be up approximately 1% in Q3 . Full-year expense growth expected in the 6% range for the first half .
      2. Net Interest Income (NII): Expected to be flat in Q3, considering seasonal decline in balances .
      3. Fee Revenue: No specific guidance, but a client exit would reduce trust fees by a few million dollars in Q3 .
      4. Operating Leverage: Anticipated fee operating leverage in the second half, with potential total operating leverage in Q4 .
      5. Equipment and Software Expenses: Expected to range between $270 million to $275 million .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024
    • Guidance:
      1. Net Interest Income (NII): Expected 3% to 5% sequential decline in Q2 .
      2. Compensation Expense: Expected to decrease by $35 million to $40 million sequentially in Q2 .
      3. Outside Services: Anticipated to increase by $10 million to $15 million sequentially .
      4. Equipment and Software: Expected to increase by $10 million to $15 million sequentially .
      5. Deposits: Noted potential decrease due to tax payments .
      6. Capital and Share Repurchase: Anticipated upward impact on share repurchase trajectory .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024
    • Guidance:
      1. Net Interest Income (NII): Expected to be in the range of $480 million to $500 million .
      2. Compensation Expense: Base pay adjustments expected to be approximately $65 million in 2024, with a sequential increase of $50 million to $55 million in Q1 .
      3. Operating Expenses: Anticipated 3% increase above 2023 levels .
      4. Net Interest Income Incremental Impact: Expected $30 million incremental per quarter in 2024 .
      5. Expense Growth Rate: Expected to be lower than 4.8% growth rate in 2023 .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Other custodial banks
    • Investment counseling firms
    • Deposit-taking institutions
    • Asset management firms
    • Benefits consultants
    • Trust companies
    • Investment banking firms
    • Insurance companies
    • Financial technology companies, including software providers and data services firms