By Ross Kerber
BOSTON, July 31 (Reuters) - Asset managers have become stock market darlings this year, but Northern Trust, which is part manager and part record keeper, has so far missed out on the sector's strong rally.
Chicago-based Northern Trust's dual role has shielded its stock from the market's biggest drops since last fall, but analysts and investors say it has also held the stock back when rivals were marching ahead.
Since January the stock has risen 12 percent, far below the gains of pure asset managers like Legg Mason Inc, up 26 percent, and T Rowe Price Group, up 30 percent.
It also lags behind a major custody rival, State Street Corp, which has gained 23 percent this year after falling sharply, though it is ahead of the Bank of New York Mellon Corp, whose stock has dropped 4 percent on concerns about its profitability.
Some investors and analysts blame the company's more tepid gains on a mix of factors including a 4 percent decline in second-quarter revenue due to lower fee income when the company earned less during the financial crisis. Still, the company posted a 46 percent profit increase for the second quarter compared with a year ago, helped by lower costs.
Some investors said they don't dislike Northern Trust. They just want to own its rivals, too. Christopher Lowe, who manages the $30 million AIC American Advantage fund for AIC Ltd in Canada, said he sold a third of his Northern Trust holdings to put the money into State Street Bank of New York Mellon.
'Northern Trust's business model has held up far better than any other business model in the last six months,' Lowe told Reuters. 'Disaffected clients of other companies are the basis of this company's growth.'
Calyon Securities analyst Mike Mayo gives the stock a rare 'underperform,' and lowered his 2009 earnings estimates on the company to $2.90 from $3.30 a share after its latest earnings results.
The change, Mayo wrote in a note to clients, reflects 'continued margin weakness and modest declines in some fee areas, such as foreign exchange and securities lending, as well as ongoing credit costs.'
Northern Trust's client base includes wealthy individuals and global institutions. Like other managers, Northern Trust's total assets fell from a year ago but rose from the first quarter. Assets under custody were $3.2 trillion as of June 30, down 19 percent from a year ago but up 13 percent from March 31.
Assets under management, traditionally a more profitable area than custody, were $558.9 billion, down 26 percent from a year ago but up 7 percent from March 31. Northern's rivals each have a lot more assets under management.
The movements were similar to other financial stocks whose holdings were whipsawed by the stock market's wild ride. During the financial crisis, Northern Trust Chief Executive Frederick H. Waddell made some major moves, including laying off 450 employees, or about 4 percent of the company's workforce, in December.
He also borrowed $1.6 billion under the U.S. government's Troubled Asset Relief Program, then found himself pilloried by the media and politicians after the company threw lavish parties for clients and employees during a pro golf tournament in Los Angeles.
(A bank spokesman said the events were part of its regular marketing activities, and in June it repaid the government's money).
Still, Waddell has hung in, and the stock has enthusiastic supporters as well.
Eric Jostrom, co-chairman and chief investment officer of Ipswich Investment Management Co in Ipswich, Massachusetts, who owns about 45,000 shares of the company, bought Northern Trust shares four years ago to diversify his holdings that included more traditional asset manager Eaton Vance Corp.
Jostrom praised Northern Trust's recent expansion into Northeastern cities, which included new offices in New York City, Boston and Stamford, Connecticut.
Also, Northern Trust's custody business means that its overall level of assets is less volatile than pure fund companies, he said.
'Their execution has been unbelievably successful,' he said.
(Reporting by Ross Kerber; Editing by Richard Chang) Keywords: NORTHERNTRUST/ (Ross.Kerber@ThomsonReuters.com; +1-617-856-4341; Ross.Kerber.Reuters.com@Reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
BOSTON, July 31 (Reuters) - Asset managers have become stock market darlings this year, but Northern Trust, which is part manager and part record keeper, has so far missed out on the sector's strong rally.
Chicago-based Northern Trust's dual role has shielded its stock from the market's biggest drops since last fall, but analysts and investors say it has also held the stock back when rivals were marching ahead.
Since January the stock has risen 12 percent, far below the gains of pure asset managers like Legg Mason Inc, up 26 percent, and T Rowe Price Group, up 30 percent.
It also lags behind a major custody rival, State Street Corp, which has gained 23 percent this year after falling sharply, though it is ahead of the Bank of New York Mellon Corp, whose stock has dropped 4 percent on concerns about its profitability.
Some investors and analysts blame the company's more tepid gains on a mix of factors including a 4 percent decline in second-quarter revenue due to lower fee income when the company earned less during the financial crisis. Still, the company posted a 46 percent profit increase for the second quarter compared with a year ago, helped by lower costs.
Some investors said they don't dislike Northern Trust. They just want to own its rivals, too. Christopher Lowe, who manages the $30 million AIC American Advantage fund for AIC Ltd in Canada, said he sold a third of his Northern Trust holdings to put the money into State Street Bank of New York Mellon.
'Northern Trust's business model has held up far better than any other business model in the last six months,' Lowe told Reuters. 'Disaffected clients of other companies are the basis of this company's growth.'
Calyon Securities analyst Mike Mayo gives the stock a rare 'underperform,' and lowered his 2009 earnings estimates on the company to $2.90 from $3.30 a share after its latest earnings results.
The change, Mayo wrote in a note to clients, reflects 'continued margin weakness and modest declines in some fee areas, such as foreign exchange and securities lending, as well as ongoing credit costs.'
Northern Trust's client base includes wealthy individuals and global institutions. Like other managers, Northern Trust's total assets fell from a year ago but rose from the first quarter. Assets under custody were $3.2 trillion as of June 30, down 19 percent from a year ago but up 13 percent from March 31.
Assets under management, traditionally a more profitable area than custody, were $558.9 billion, down 26 percent from a year ago but up 7 percent from March 31. Northern's rivals each have a lot more assets under management.
The movements were similar to other financial stocks whose holdings were whipsawed by the stock market's wild ride. During the financial crisis, Northern Trust Chief Executive Frederick H. Waddell made some major moves, including laying off 450 employees, or about 4 percent of the company's workforce, in December.
He also borrowed $1.6 billion under the U.S. government's Troubled Asset Relief Program, then found himself pilloried by the media and politicians after the company threw lavish parties for clients and employees during a pro golf tournament in Los Angeles.
(A bank spokesman said the events were part of its regular marketing activities, and in June it repaid the government's money).
Still, Waddell has hung in, and the stock has enthusiastic supporters as well.
Eric Jostrom, co-chairman and chief investment officer of Ipswich Investment Management Co in Ipswich, Massachusetts, who owns about 45,000 shares of the company, bought Northern Trust shares four years ago to diversify his holdings that included more traditional asset manager Eaton Vance Corp.
Jostrom praised Northern Trust's recent expansion into Northeastern cities, which included new offices in New York City, Boston and Stamford, Connecticut.
Also, Northern Trust's custody business means that its overall level of assets is less volatile than pure fund companies, he said.
'Their execution has been unbelievably successful,' he said.
(Reporting by Ross Kerber; Editing by Richard Chang) Keywords: NORTHERNTRUST/ (Ross.Kerber@ThomsonReuters.com; +1-617-856-4341; Ross.Kerber.Reuters.com@Reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.