Northern Trust Corp., the third- largest independent U.S. custody bank, fell the most in six months after reporting third-quarter results that missed consensus estimates.
The company said third-quarter net income rose to $187.9 million, as the stock-market rally increased assets managed for clients. The earnings, equal to 77 cents a share, compared with a loss of $148.3 million, or 66 cents a share, a year earlier, when Northern Trust spent $353.2 million to bail out clients who invested in money-market funds and auction-rate securities, the Chicago-based company said today in a statement. Excluding some items, earnings of 72 cents a share missed the 81-cent average estimate of 21 analysts surveyed by Bloomberg.
"I think it's a positive quarter, reflecting the recovery of the stock market that began in the second quarter," Dennis Klaeser, an analyst at Raymond James Financial Inc. in Chicago said in an interview before results were announced. Klaeser expected Northern Trust to earn 73 cents a share.
Northern Trust declined $3.93, or 6.8 percent, to $53.52 at 9:44 a.m. in Nasdaq Stock Market composite trading, the biggest decrease since a 7.8 percent drop on April 20. The stock has risen 3.2 percent this year, compared with a 27 percent increase by Standard & Poor's 15-member index of asset managers and custody banks.
Northern Trust's largest rivals reported mixed results yesterday. Bank of New York Mellon Corp., rose the most in a month after it sold mortgage securities that hurt earnings in the past five quarters. Boston-based State Street Corp. fell the most in five months after cutting its earnings outlook for the full year.
Boost in Fees
All three companies benefited in the third quarter when the average value of the Standard & Poor's 500 Index rose 12 percent from the previous quarter, boosting fees earned for overseeing client assets.
Earnings were boosted 5 cents a share by a $17.8 million pretax benefit from the reduction of an indemnification liability related to the bank's share in credit-card network Visa Inc.
Revenue fell 1.2 percent to $927.6 million. Fees from custody services rose 10 percent to $523.1 million, while foreign exchange income dropped 34 percent to $92.9 million.
Excluding the impact of indemnification charges and benefits related to Visa and client bailouts from a year earlier, expenses rose 9.7 percent. Compensation rose 23 percent to $283.6 million.
Assets under custody rose 1 percent to $3.55 trillion, an increase of 11 percent since June 30. The amount of money the company invests for clients fell 6 percent to $610.5 billion. Those assets grew in the quarter by 9 percent.
Northern Trust spent in the third quarter of 2008 to prop up 11 money funds and buy back auction-rate securities from clients stuck in that market.
Custody banks keep records, track performance and lend securities to institutional investors such as pension plans and hedge funds. Northern Trust also manages mutual funds and institutional accounts.
(Northern Trust is scheduled to hold a conference call for investors at 12 p.m. New York time. The call can be accessed at www.northerntrust.com/financialreleases.)