Custody Banks Aren't Flashy, But Their Shares Are
January 24 2018 - 2:54PM
Dow Jones News
By Justin Baer
Wall Street's less glamorous players are suddenly among the
hottest stocks in the financial world.
Shares of custody banks State Street Corp. and Northern Trust
Corp. hit their all-time closing highs this week, and a recent
climb by rival Bank of New York Mellon Corp. shares has put its
record within striking distance.
The three companies have outperformed the benchmark S&P 500
and KBW Bank indexes over the past year.
The custody banks are benefiting from a market rally that is
lifting assets they manage and fees they charge to provide
back-office services to corporate and investment-management
clients. They also say they are attracting new business. BNY Mellon
and State Street both pulled in net new client money during the
fourth quarter.
Many investors passed over these banks in early 2017 in favor of
financial stocks viewed as more direct beneficiaries of any U.S.
tax overhaul, said UBS analyst Brennan Hawken. A market rally
helped turn that around, he said, but investors are also reacting
to years of cost cuts, the promise of bigger payouts to
shareholders and a bet that U.S. regulators may lighten the capital
rules imposed on the largest banks.
"Markets are robust," Mr. Hawken said. "And as interest rates
rise, it benefits them. You also have an improved focus on expense
discipline."
The most recent evidence of a turnaround came Wednesday as
Northern Trust reported that fourth-quarter net income excluding
certain charges jumped to $1.32 a share from $1.22. Revenue climbed
15% to $1.43 billion. The Chicago bank also beat Wall Street
expectations.
Assets under custody totaled $8.05 trillion at year-end, up 20%
from a year earlier, while assets under management rose 23% to $1.2
trillion. The company's fourth-quarter results also benefited from
an acquisition of a UBS servicing business.
Northern Trust's shares have now climbed 29% in the past 12
months.
Earlier this week State Street reported a fourth-quarter profit
of $1.83 a share, excluding charges associated with the U.S. tax
overhaul, up 24% from a year earlier. Revenue rose 8.5% to $2.98
billion. Both profit and revenue figures exceeded the estimates of
analysts polled by S&P Global Market Intelligence.
State Street closed 2017 with a record $33.1 trillion in assets
under custody and administration, while assets at its money-
management arm rose to $2.8 trillion. Its shares are up 43% in the
last year.
BNY Mellon reported last week a profit of 91 cents a share,
excluding gains from the tax measure and certain charges, matching
analysts' average estimates. Revenue totaled about $4 billion,
excluding the impact of the new tax rules, up from $3.8 billion a
year earlier.
Assets under custody jumped to a record $33.3 trillion at the
close of 2017, while assets under management also hit a new high of
$1.9 trillion.
BNY Mellon's shares are up 32% in the past year, nearing its
all-time high of $62.81. The stock hit that mark in November
2000.
Write to Justin Baer at justin.baer@wsj.com
(END) Dow Jones Newswires
January 24, 2018 14:39 ET (19:39 GMT)
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