Northern Trust Corp. disappointed Wall Street by reporting lower than expected fourth quarter earnings Wednesday, as the Chicago-based trust bank saw a big drop-off in profits at its foreign-exchange trading group.
“While we are pleased with our performance and growth in 2012, we are not satisfied with our returns,” Chief Financial Officer Michael Grady told analysts in a conference call. “Our focus is to keep executing on our strategies in 2013.”
Investors weren’t satisfied, either: In New York StockExchange trading Wednesday, Northern shares dropped $3.03, or 5.7 percent, to close at $49.78.
In the latest quarter, Northern Trust had net earnings of $167.7 million, or 69 cents per diluted share, a 29 percent increase from the year-ago quarter’s $130.2 million, or 53 cents per diluted share. Grady said expanding new business activity and higher markets contributed to this growth, but were offset by reduced currency-market volatility that squeezed trading profits.
The net per-share results fell six cents short of the 75 cents analysts surveyed by Yahoo Finance were expecting.
Grady said certain aspects of the macroeconomic environment, such as low interest rates and low volatility, will likely continue. “Given we can’t predict them, our objective is to anticipate them the best we can and execute our strategy,” the executive said.
The less-volatile market conditions took a toll on Northern’s foreign exchange trading operation: in the latest quarter the group’s earnings tumbled 43 percent to $40.8 million. That performance was in line with a rival’s results, also released Wednesday.
Bank of New York Mellon Corp. similarly saw a 39 percent decline in profitability from foreign exchange trades. Nonetheless, Bank of New York’s net income climbed 23 percent to $622 million, or 53 cents a share. Gerald Hassell, the corporation’s CEO, emphasized in a Wednesday conference call the need to “continue managing risk.”
Northern Trust and Bank of New York Mellon have both benefited from higher activity in equity markets and new businesses and have reported increased earnings for the overall year. Northern Trust performance “continued to reflect the solid core trust fee growth amidst a challenging operating environment,” said Frederick Waddell, Northern Trust CEO.
Trust, investment, and other servicing fees, which composes the bulk of Northern’s earnings, grew to $622.6 million from $541.5 million in the year-ago period, a 15 percent increase.
For the full year, Northern Trust had net income of $687.3 million, or $2.81 per share, up from the prior year’s $603.6 million, or $2.47 per share.