Northern Trust Corp. (NTRS), the third-largest independent U.S. custody bank, will eliminate about 700 jobs to join its biggest rivals Bank of New York Mellon Corp. and State Street Corp. (STT) in cutting costs as record-low interest rates hobble profit.
The move brings cutbacks made or planned by custody banks over the past 13 months to 4,450. BNY Mellon, the largest custody bank, said last year it would eliminate 1,500 positions, and State Street has planned 2,250 job cuts since November 2010.
The Federal Reserve's decision to keep its main lending rate close to zero has eroded margins on lending and investments for custody banks and forced them to waive fees on money-market funds. Volatility in global equity markets, which fell 9.4 percent in 2011 as measured by the MSCI ACWI Index, also hurt profit.
“The banks had been in a growth mode for a while and now all of them have recognized the fact that the environment isn't going to change quickly and they can't continue to sit on the cost burdens related to that growth,” Marty Mosby, a Memphis, Tennessee-based analyst with Guggenheim Securities LLC, said in a telephone interview.
Net income at Northern Trust and BNY Mellon tumbled in the fourth quarter as both companies booked restructuring costs associated with expense-cutting measures.
Net Income Falls
At Northern Trust, net income in the three months ended Dec. 31 decreased 17 percent to $130.2 million, or 53 cents a share, from $157.1 million, or 64 cents, a year earlier. Net income at BNY Mellon fell 26 percent to $505 million, or 42 cents a share, from $679 million or 54 cents, a year earlier, the New York-based firm said today in a statement.
New custody business and expense cuts helped State Street increase fourth-quarter profit on an operating basis by 4.4 percent to $454 million, or 93 cents a share, from $435 million, or 87 cents a share, a year earlier.
Northern Trust booked a $39.8 million after-tax charge, or 17 cents a share, in the fourth quarter to account for the cost reductions, which are designed to lift pretax income by $250 million by the end of next year, the Chicago-based bank said today in a statement. The restructuring charge includes severance expenses, consulting costs, reductions in office space and software write-offs, the firm said.
Northern Trust Acquisitions
Revenue at Northern Trust rose 7 percent to $955.6 million, driven mainly by an increase in trust, investment and servicing fees. Assets under custody rose to $3.88 trillion from $3.71 trillion a year earlier, helped by Northern Trust's takeover of Bank of Ireland Plc's securities-servicing unit in June for 60 million euros ($76.8 million), and the $100 million acquisition of Chicago-based hedge-fund asset servicer Omnium LLC from
Citadel LLC in July.
BNY Mellon, led by Gerald Hassell since his predecessor, Robert P. Kelly, stepped down at the end of August, booked a charge of $107 million, or 6 cents a share, for operational improvements designed to save as much as $700 million before taxes by 2015.
Analysts had expected the company to report a profit of 52 cents a share, according to the average of nine estimates in a Bloomberg survey.
BNY Mellon's total revenue fell 6 percent to $3.5 billion as both of the bank's main businesses, asset servicing and asset management, reported a drop in fees. The bank cited higher money-market fee waivers, weak international equity markets and a seasonal dip in its depositary receipts business for the decline.
State Street Savings
State Street's revenue rose 13 percent from the fourth quarter of 2010 while expenses declined 0.4 percent. Compensation and employee benefits fell 6.7 percent, a result of the company's decision to eliminate jobs over the past 13 months.
State Street saved about $80 million last year through the job cuts and investments in technology, and will reduce costs by an estimated $170 million this year, Robert Lee, an analyst with Keefe Bruyette & Woods Inc. in New York, wrote in a research note published Jan. 9. The company aims for at least $575 million in annual savings by 2015.
--Bloomberg News--
