Bad Loans Rise At Northern Trust; State Street Loses Client Funds
April 20 2010 - 12:09PM
Dow Jones News
Banks that serve wealthy individuals and large institutions
don't usually face troubles with bad loans, but Northern Trust
Corp.'s (NTRS) first quarter was a glaring exception.
The Chicago bank-and-trust, whose stock fell less during the
financial crisis than almost any other U.S. lender, said its levels
of troubled loans and assets rose sharply during the first quarter,
to $365.2 million. The disclosure was a reversal from last quarter,
when the bank's number of souring loans appeared to be tapering. A
year ago, Northern Trust had troubled loans, called nonperforming
assets, of $172.1 million.
The 120-year-old bank nonetheless turned in profits of $157.2
million for the quarter as fees from trust and investment
services--Northern Trust's core business--remained strong, as
compared to year ago. Net income fell 3% over a year ago amid
higher expenses and slower profits tied to enduringly low interest
rates.
But investors were rattled by the state of the Northern Trust's
loan books, which suggest higher losses could be coming in future
quarters.
William Morrison, Northern Trust's chief financial officer, said
during the company's conference call that "half of the increase" in
nonperforming loans "is related to residential real estate." He
said the bank's holdings of real estate collateral from failed
loans grew sharply, "principally related to two commercial real
estate properties."
Shares in Northern Trust were recently down 4.8% to $55.58. The
stock of its competitor State Street Corp. (STT), which on Tuesday
said its lost some business from clients, was recently down 3.6% to
$45.53.
The rise in troubled loans at Northern Trust is a rare stumble
on the bank's relatively smooth journey through the financial
crisis. Northern has consistently turned in a quarterly profit over
the last three years.
But the bank's portfolios of traditional loans could drag on
Northern's performance during the rest of the year. The bank's
levels of properties seized as collateral, known as other real
estate owned properties, rose more than ten-fold over a year ago to
$45.7 million. Northern set aside another $10 million to offset
future losses, but didn't say in a statement which of its loan
classes are likely to drive those losses. Morrison said on the
conference call that the growth of OREO holdings were "principally
related to two commercial real estate properties."
State Street Also Posts Lackluster Earnings
Northern Trust's Boston-based competitor, State Street Corp.,
marked another trust bank to post lackluster earnings on
Tuesday.
State Street earned $495 million in quarterly profits, up 11%
over a year ago. Its revenues of $2.3 billion were up 14.7% over a
year ago.
But the company said some clients had moved assets out of State
Street's management.
State Street also turned in trading revenues of $242 million,
down 10% over last quarter even though big Wall Street banks, like
Bank of America Corp. (BAC) and J.P. Morgan Chase & Co. (JPM),
have recently reported frothy first-quarter revenues from trading
stocks and bonds.
-By Marshall Eckblad and Jodi Xu, Dow Jones Newswires;
212-416-2156; marshall.eckblad@dowjones.com
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