STT State Street Corporation

Northern Trust Corporation (NTRS) is on an acquisition spree. The latest acquisition that the company has agreed to is that of Omnium LLC, a leading hedge fund administrator, from Citadel. The acquisition of Omnium, which has around $70 billion in assets under administration, will enhance Northern Trust’s capabilities and create an industry-leading hedge fund administration platform for institutional investors.

The deal is subject to regulatory approvalsand customary closing conditions, and is expected to close by the third quarter of 2011. Northern would pay at least $100 million for this acquisition and according to its spokesman, the purchase price could go over $100 million as it would correlate with Omnium’s performance.

Omnium will be integrated into Northern Trust’s Corporate & Institutional Services business unit as Northern Trust Hedge Fund Services, LLC. It will provide comprehensive administrative and middle office services including trade processing, valuation, real-time reporting, cash management, accounting, collateral management and investor servicing to hedge funds and large institutional investors.

Northern Trust has made investments in businesses to serve its clients in the U.S. and around the world uninterruptedly. In December 2010, Northern Trust announced the acquisition of Waterline Partners, a top ranked investment advisory firm based in Los Angeles. The company expects Waterline to work in conjunction with the client-focused strategy of Northern Trust, and strengthen the company’s presence on the west coast of the United States.

Further, in February 2011, Northern Trust acquired the fund administration, investment operations outsourcing and custody business of Bank of Ireland Group. We expect Northern Trust to benefit from the synergies anticipated from such acquisitions.

Besides Northern Trust, its rivals such as State Street Corp. (STT) and The Bank of New York Mellon Corporation (BK) have been active acquirers in the past two years.

Recently, BNY Mellon Corp.announced a deal to acquire Chicago-based Talon Asset Management’s wealth management business, which has over $800 million in asset under management. Last year, BNY Mellon had acquired PNC Financial Services Group Inc.’s (PNC) Global Investment Servicing business, Germany's BHF Asset Servicing GmbH, and Toronto-based I3 Advisors. Last year, State Street had acquired Italy’s Intesa Sanpaolo’s Securities Services business and in 2009 it acquired Channel Islands’ based Mourant International Finance.

We expect increased asset management and servicing fees based on improvements in equity markets and higher volumes to benefit Northern Trust. However, the Dodd-Frank Act will ring in numerous regulatory changes over the next several years, which might act as a deterrent to the company’s fundamentals. As of March 31, 2011, Northern Trust had $4.4 trillion in assets under custody and $662.2 billion in assets under management.

Northern Trust currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.

 
BANK OF NY MELL (BK): Free Stock Analysis Report
 
NORTHERN TRUST (NTRS): Free Stock Analysis Report
 
PNC FINL SVC CP (PNC): Free Stock Analysis Report
 
STATE ST CORP (STT): Free Stock Analysis Report
 
Zacks Investment Research