STT State Street Corporation

Last Friday, Northern Trust Corporation (NTRS) completed the acquisition 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.

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, the company announced the acquisition of Waterline Partners, a top ranked investment advisory firm based in Los Angeles. Northern Trust expects Waterline to work in conjunction with the client-focused strategy of the company and strengthen its presence on the west coast of the United States.

In June 2011, Northern Trust completed the acquisition of Bank of Ireland Securities Services (BoISS) from Bank of Ireland Group for €60 million ($82 million) as announced in February 2011. Through this acquisition, Northern Trust expects to combine the fund administration business with the existing activities in Ireland and provide outstanding consumer service and solutions to clients. The acquisition will improve and expand Northern Trust’s Global Fund Service capabilities, particularly in the fund administration and ETFs.

Moreover, Northern Trust announced the expansion of its services in Australia during the quarter. The company incorporated Unit Registry solutions to improve its fund administration capabilities in Australia. Northern Trust has signed an agreement with Computershare to provide such services combining local expertise with a wide range of worldwide capabilities.

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. completed the acquisition of 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. In the same year, State Street had acquired Italy’s Intesa Sanpaolo’s Securities Services business and in 2009 it acquired Channel Islands’ based Mourant International Finance.

Our Take

Despite the current sluggish environment, the company has made further investments in businesses to continue to serve the clients in the U.S. and around the world.

We expect increased asset management and servicing fees based on improvement in equity markets and higher volumes. The recent acquisitions depict strong financial position of the company. Northern Trust is also poised to benefit from the growth in client network. However, continuing low interest environment and slow recovery in economy, is expected to affect the results in the upcoming quarters. Further, 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.

Northern Trustcurrently retains its Zacks #4 rank, which translates into a short-term “Sell” rating. However, considering the fundamentals, we maintain our long-term ‘Neutral’ recommendation on the stock.

 
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