Financial Northern Trust
Trust announced the purchase of
Deutsche Bank’s global passive equity
and fixed-income businesses. In
November, it snapped up Legacy South
– a wealth-management firm that serves
affluent Southerners and boasts $300
million in assets under management –
thereby expanding operations into the
Atlanta market.
And Northern Trust is in the middle of
investing upwards of $870 million corporate-wide on technology development.
The bulk of this investment will bolster
its Corporate and Institutional Services
(C&IS) as a leading global custodian for
1,300 pension funds, endowments and
money managers. Northern Trust has
been named ‘U.K. Custodian of the Year’
for the last three years by Professional
Pensions magazine, a U.K. publication.
Challenging environment
William Osborn, chairman and CEO of
Northern Trust Corporation, argues that
the corporate glass is half full, although
he does not deny that the institution is
operating in a more challenging investment environment.
But he remains upbeat over the
company’s prospects, particularly for
personal financial services and the
bank’s private banking section, which
In these
difficult
times,
Northern
Trust’s
business
and its
customer
base are still
growing,
chairman
and CEO
William
Osborn
explains
to Paul
Sweeney.
NORTHERN
TRUST
THRIVES
ON
PERSONAL
SERVICE
20 NASDAQ MAR/APR 2003
caters to customers with at least $1
million in ‘investible’ or liquid assets. Of
the bank’s 175,000 clients, moreover,
some 2,500 have placed $10 million each
in Northern Trust’s asset management
accounts. “Most of our clients have held
up reasonably well,” Osborn says.
Despite the fact that the S&P 500
Index was down 23.3 percent for the
year, Northern Trust remained profitable, although not at levels experienced in the boom years of the 1990s.
Net income for the year was down
8 percent to $447.1 million, compared to
the $487.5 million earned in 2001. Still,
most analysts agree that Northern Trust
continues to be well managed. For
example, even as it added more clients,
total expenses rose by just 2 percent
during the year.
Kyle Cerminara, a financial services
industry analyst at T. Rowe Price
(NASDAQ: TROW), is most impressed
by the steps Northern has been taking
during the economic downturn. “This
has been a great time to make acquisitions at reasonable prices,” he notes. “I
think Northern Trust is really well positioned for a market upturn.”
That is precisely the company’s
strategy, notes Osborn. “I would view our
long-term positioning as very positive,”
▲
Photography: Ralf Finn Hestoft
I
n the midst of slumping stock markets
and leaner times for everyone in
the money-management business,
Chicago-based
Northern
Trust
Corporation (NASDAQ: NTRS) is stealing
a march on its competitors. Northern
Trust – the $40 billion-asset institution
renowned for its famously attentive
customer service and upmarket clientele
– is making acquisitions, building up
product lines and expanding its reach
into key markets.
Since its founding in 1889, Northern
Trust Corporation has been working hard
to keep clients’ trusts. Its flagship operation, The Northern Trust Company,
provides banking and trust services to
the affluent as well as financial institutions and corporations from more than
80 offices, primarily in Illinois and
Florida, but also in about a dozen other
states and overseas.
The bank is a leading personal trust
manager in the U.S. and is a master of
trust services, catering to corporate
pension plans and institutional clients.
Northern Trust Global Investments oversees its portfolio management, investment research and other investment
products, including the company’s
proprietary mutual funds.
In September last year, Northern
p22
CEO Osborn: “Maybe we’re a
throwback, but we have offices where
people answer your phone calls and you
don’t get lost with a recording.”
Financial Northern Trust
When marketing becomes an event
Where do America’s top authors go after
they’ve won the Pulitzer Prize? That’s an
easy one: often they go to Northern
Trust. At least that is what the novelist
Richard Russo and historian David M.
Kennedy did. These prize-winning
authors are just two of the top-ranked
U.S. writers who have been featured at
Northern Trust’s lecture programs, a
‘meet-the-author’ series that remains
among the best-known and most
successful of Northern’s 1,500 annual
cultural and philanthropic offerings.
While Northern Trust frequently runs
display advertisements touting its
products and services in magazines –
usually with testimonials from
prominent citizens that they ‘Trust
Northern’ – event-marketing remains
the financial institution’s key strategy
for signing new customers. “The main
purpose of the events is to build name
recognition and add to our goodwill,”
says senior vice president Nick Keseric,
a marketing executive. The events, he
adds, “create stronger ties with
community leaders and persons of
influence, such as accountants, lawyers,
financial planners and business leaders”.
Event-marketing has been an ideal
way to make inroads quickly when
Northern opens an office in an unfamiliar
community, asserts Mark Stevens,
president of Personal Financial Services.
“When we go into a new marketplace
where we don’t have name recognition,
we are able to provide non-bank reasons
for people to come into our halls. So we
position the bank by supporting local
institutions and build one-on-one ties in
our target market.”
In the last year, in addition to authors’
lectures, Northern sponsored several
‘traveling exhibits’, which went to as
many as half of the institution’s 82 offices
in 12 states. These included a
photographic display of the haunting
11 September attacks on the World Trade
Center and a pictorial of First Lady
Jacqueline Kennedy’s White House years.
Northern Trust does not disclose
statistical information on how many
clients sign up after an event. But there
is plenty of anecdotal evidence that the
program works. Just three years after
setting up shop in the St. Louis suburb
of Clayton, Mo., reports Stevens, a
customer marveled at how quickly the
financial institution had put down roots
in the area and established itself. “He
said it was ‘remarkable’ that ‘in such a
short period of time, this was the place
to be’,” Stevens adds.
he asserts. “There are high barriers to
entry, we have great people and a great
clientele. As the market stabilizes, we
will do well.”
A case in point is the acquisition of
Deutsche Bank’s passive equity business.
Northern Trust Global Investments
(NTGI) picked up an additional 180
clients with Deutsche’s $70 billion in
assets under management. This raises
NTGI’s pro forma assets under management to $376 billion, propelling Northern
Trust into the rank of the top ten U.S.
investment managers. Moreover, the
influx of index funds raises its passive
assets under management to some $120
billion, making it the third-largest institutional index fund manager in the U.S.
The enlarged passive equity business
also gives the firm more clout in its
investment capabilities. It operates 54
mutual funds with $45 billion in assets.
But the firm has been diversifying – two
years ago it added the Florida investment
firm Carl Domino Associates, known for
its large cap-value investment style –
while offering sophisticated investors
such alternative investment vehicles as
hedge funds and private equity.
The Deutsche Bank addition to its
passive equity funds also fits logically
with C&IS’s securities lending operations.
In addition to earning cash management,
settlement and processing fees, Northern
Trust leverages the assets under administration with securities lending and
foreign exchange operations, and divides
the profits with its clients.
C&IS, which has offices in London,
Hong Kong, Singapore and New York
among other cities, and $1.3 trillion in
Graphics: Julian Saul
GLOBAL PRESENCE, LOCAL SERVICE
Countries in which
Northern Trust has
a presence. Since
1996, it has added
27 countries:
1996
70
2002
97
Source: Northern Trust
22 NASDAQ MAR/APR 2003
Date: January 2003
WORLD-CLASS ASSET MANAGER
Assets under management (in $ billions)*
350
325.6
300
319.9
292.1
302.5
250
232.9
200
196.6
150
130.3
100
50
0
105.5
69.6
77.1
82.3
1992
1993
1994
1995
1996
1997
1998
1999
2000
Source: Northern Trust *As at 31 December
2001
2002
Date: January 2003
GROWING ASSETS: 1997 – 2002
Assets under management as of 31 December 1997 ($196.6 billion) and 31 December 2002 ($302.5 billion)
Other
$2.6 billion
Short duration
$78.9 billion
Equities
$71 billion
Fixed income
$44.1 billion
Equities
$87 billion
Other
$3.5 billion
Short duration
$141 billion
Fixed income
$71 billion
Source: Northern Trust
Date: January 2003
“There are high barriers to entry, we have
great people and a great clientele. As the
market stabilizes, we’ll do well” CEO William Osborn
assets under administration, continues
to add clients from around the globe.
The mutual fund Summit Investment
Partners, Rice University and the insurance firm USAA were among institutions
selecting the bank as custodian for parts
of their investment funds during 2002.
Business crossover
It is a hallmark at Northern that most
businesses are intertwined. It was no
accident, for example, that it was selected
in 2002 as custodian for $170 million in
assets held by the newly organized
Gordon and Betty Moore Foundation.
Gordon Moore, a co-founder of Intel
(NASDAQ: INTC), was already a client
with Northern, which managed the
assets of his charitable remainder trust.
“There’s a tight linkage with all our
businesses,” says C&IS president Peter
Rossiter. “All of us collaborate.” Most
frequently, personal financial services
(PFS) is the port of entry. Called
Northern’s ‘crown jewel’ by Wall Street
research analysts, PFS has 82 offices in
12 states. Northern claims that it is
within a 30-minute drive of 30 percent
of the U.S.’s millionaire population –
and that it will be enlarging that number
to between 40 and 50 percent during the
next three years. It plans to open 17 new
offices by 2005.
The strength of PFS, says its president, Mark Stevens, is that its panoply of
private bankers, trust administrators,
commercial lenders, portfolio managers
and brokers “think and function as a
team, know each other and know that
they need to serve the client”. So
personal is the service, says T. Rowe
Price analyst Cerminara, that Northern’s
bankers will walk a customer’s dog.
“Maybe we’re a throwback,” Osborn
says, “but we have offices where people
answer your phone calls and you don’t
get lost with a recording.”
Northern Trust also strives hard to do
business ethically at a time when many
competitors have been tainted by
conflicts of interest and corporate scandals. Investors and analysts are taking
note. “Northern Trust’s name has kept its
luster,” says Thomas Finucane, a banking
industry analyst at State Street Research.
“Everyone here approaches the business with integrity,” asserts Osborn. “It’s
all part of putting the customer first.” N
Paul Sweeney is a New York-based freelance
journalist who writes regularly for U.S. Banker.
www.northerntrust.com
NASDAQ MAR/APR 2003 23