Northern Trust Is a Banking Buy - Barron's

With losses growing and balance sheets crumbling, investors and customers have fled from some of the nation's biggest banks. But according to Barron's Dimitra Defotis, the outlook for Northern Trust (NTRS) is promising and shares could rally 20% in the next year.

Trading around $56, shares are off about 37% from a September high, and Northern Trust accepted around $1.6B of TARP funds, partly to offset losses on securities lending. Even so, the bank's balance sheet is in better shape than most of its peers. Its client base is expanding, helped by some big client wins overseas (about 50% of the bank's revenue is non-U.S., mostly from Europe and major Asian cities). The bank has mostly managed to avoid housing financing, and more than half of its revenue comes from fee income. CEO Frederick Waddell says half the new business comes from existing clients, explaining "you take really good care of them, and they buy more products."

Given current economic conditions, analysts expect a 20% drop in 2009 earnings, but a 12% gain in 2010. Waddell maintains a positive outlook for the company: "Unless you think the world is going to disappear in the next five years, our position as the leading wealth manager in the United States should serve us well as the U.S. market recovers."

Northern Trust, which specializes in trust services for wealth clients and custodial services for institutions, trades for 14 times 2009 estimates and has long commanded a premium compared to other trust banks. The bank's $31B loan portfolio makes up only a small part of the business and investors should take further comfort in knowing just 0.33% of the holdings were non-performing in 2008. Its Tier 1 ratio as of Dec. 31 was a healthy 13.1%.

• Murali Gopal, of Keefe, Bruyette & Woods, recently downgraded Northern Trust to Market Perform but has maintained a $66/share target.

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• Northern Trust: Q4 EPS of $1.39 beats by $0.47. Revenue of $1.15B (+18.2%) vs. $968.2M. (PR)
• Barron's highlighted Northern Trust in January as a standout in the battering banking industry.

Comments

[whisperonth...:]

Admittedly I know nothing about this stock. I really don't know a whole lot about MOST of the stocks in this field. But really, "Northern Trust accepted around $1.6B of TARP funds..."??? What I do know is that the government isn't just passing out checks. The companies getting those checks DID have to ask. So "accepted" is kind of a poor choice of words. "Received" or "requested" would have been more accurate.

Feb 22 08:06 AM

[dave mckay:]

US Bancorp CEO says he was forced to take TARP money. Didn't want to.

Feb 22 11:47 AM

[richandmer:]

For those banks that accepted the tarp money against their wishes, they can always return it - or are there some special restrictions?

Feb 22 01:09 PM

[khaz:]

NTRS was also forced to take TARP funds

Feb 22 05:05 PM