Northern Trust [profile] had a solid fourth quarter and year in 2012. It hopes to have an even better 2013 by seizing on opportunities it perceives in the current uncertain markets.

Company-wide, the firm reported fourth quarter net income per common share of 69 cents, up from 53 cents in the fourth quarter of 2011 and down from 73 cents in the third quarter of 2012. Net income was $167.7 million in the quarter, up 9 percent from $130.2 million in the prior year fourth quarter, and down 6 percent from $178.8 million in the third quarter.

Consolidated revenue of $969.7 million in the current quarter was up $14.1 million, or one percent, from $955.6 million in the prior year quarter. Non-interest income, which represented 76 percent of revenue, increased $51.7 million, or 8 percent, to $735.5 million from the prior year quarter’s $683.8 million, primarily reflecting higher trust, investment and other servicing fees, partially offset by lower foreign exchange trading income.


Reported net income per common share for the full year was $2.81, compared to the prior year’s $2.47 per common share. Net income for 2012 totaled $687.3 million compared to the prior year’s $603.6 million.

If you peruse the earnings call transcripts provided by SeekingAlpha, as well as the company’s earnings materials, you’d note at least three important takeaway points.

They are:

POINT #1: Fee Waivers, Still A Problem, Are Down
POINT #2: The Company Is Watching Regulatory and Market Developments, Closely
POINT #3: Northern Is Ready to Seize Market Opportunities, In Part, With Alt Products


Here are the points in greater detail:

POINT #1: Fee Waivers, Still A Problem, Are Down
The firm’s investment management fees increased 22 percent, reflecting lower waived fees in money market mutual funds, new business and the favorable impact of markets. Money market mutual fund fee waivers, attributable to persistent low short-term interest rates, totaled $5.7 million in the fourth quarter, compared to waived fees of $12.3 million in the prior year quarter.

During the earnings call, Michael O’Grady, chief financial officer and executive vice president had this to say on the subject:

Low short-term rates pressure our net interest margin and result in ongoing fee waivers in connection with our money market mutual funds, although waivers declined in the quarter.

Investment management fees for [Corporate and Institutional Services] were $74 million in the fourth quarter, up 22% year-over-year and 1% sequentially. In the year-over-year comparison, new business and higher markets drove the increase. The sequential quarter increase reflects new business, primarily in index, fixed income and mutual fund management. Waived fees associated with institutional money market mutual funds and impacting C&IS declined from $12 million in last year's fourth quarter to approximately $6 million this quarter and were down about $1 million sequentially. Lower fee waivers primarily reflect higher gross yields achieved in the underlying funds.

POINT #2: The Company Is Watching Regulatory and Market Developments, Closely
During the conference call, O’Grady noted that his company had submitted a comment letter to the contributing to the ongoing debate by the Financial Stability Oversight Committee over money market reforms.

He said that Northern did not believe that the specific reforms suggested by the FSOC were “the answer” for the money market sector, but his company did feel that some developments were in the right “direction,” like the floating NAV, which he said is “something that we think can work for our clients, as well as the managers and providers of this.”

He had this to say about the other potential reforms:

Where there are other components, such as holdbacks, which we just don't think will meet with client expectations for these types of vehicles. So we know it's going to continue to evolve. As we've said before, we're really trying to just make sure we're positioned for whatever the change is because, to the extent that a money market fund becomes less attractive for our clients, we want to make sure we can provide other alternatives for them, like deposits on the balance sheet or like other ultrashort vehicles. We did introduce in the fourth quarter I mentioned the 6 new ETFs.

O’Grady also saw opportunities from ongoing investor uncertainty over the markets, and taxes.

He described the opportunities presented by thse twofactors in this way:

The fourth quarter was also strong for our personal business as we were well-positioned to provide Wealth Management and Asset Management solutions to new and existing clients that address the uncertainties presented by the changing tax and investment environment. Winning mandates such as these from new and existing clients is the primary driver of growth for Northern Trust over time.

POINT #3: Northern Is Ready to Seize Market Opportunities, In Part, With Alt Products
Meeting this year’s opportunities will, in part, involve the use of alts.

During the earnings call, O’Grady said this on the subject:

,…alternatives is an area that is, I would say, a strategic focus for our asset management business. And the primary focus there for our clients is to be able to provide them with a robust set of alternatives within the alternatives space. So the way we've approached it is through both hedge funds of funds and private equity funds of funds primarily. And that business, and I don't have any specific numbers in front of me, but continues to do well. But as you pointed out, we haven't seen an increased level of risk appetite, if you will, on the clients' part that has changed the trajectory in a meaningful way where we're seeing outsized growth in that category. It'll continue to be one of the things that's at the top of the list for NTGI. And I think it's going to have to be a combination of our ability to offer more alternatives for them, and at the same time, the risk appetite of the clients also increasing.

More information on Northern’s fourth quarter results can be found in the SeekingAlphatranscript, as well as the company’s earnings materials.  

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