UPDATE:Among Custody Banks, Northern Trust, State Street Stumble
April 20 2010 - 4:07PM
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.
Northern Trust's Boston-based competitor, State Street Corp.
(STT), marked another custody bank to post lackluster earnings on
Tuesday. A third large custody bank, Bank of New York Mellon Corp.
(BK), turned in better results than its two competitors.
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 some 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.
Stock in Northern Trust fell 6.2%, to $54.76. State Street
shares were down 5.2%, to $44.77.
The 120-year-old Northern Trust 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."
Earnings at Bank of New York Mellon rose 74% on improved fee
revenue and investment gains.
Enduringly low interest rates have weighed on earnings at
custody banks, which typically make more money when rates rise and
the yield curve steepens.
Despite the low-rate market environment, BNY Mellon continued to
grow its revenues, this time modestly, up 1% over last quarter, to
$3.3 billion. The bank also set aside $164 million, or ten cents a
share, for future litigation costs.
BNY Mellon stock was recently flat, at $32.17.
-By Marshall Eckblad and Jodi Xu, Dow Jones Newswires;
212-416-2156; marshall.eckblad@dowjones.com
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