Nomura Securities on Trust Banks: Headwinds & Tailwinds in Trust Bank Land Trust Banks 3Q Wrap

Nomura Securities on Trust Banks: Headwinds & Tailwinds in Trust Bank Land Trust Banks 3Q Wrap

Nomura analyst, Glenn Schorr, said, "Decent Quarter, Given the Environment Trust banks’ 3Q11 results held up reasonably well given the backdrop of falling AUC/AUM and an even lower rate environment. It seems like the group as a whole kept expenses in check during the weak revenue quarter, especially on comp which helped the bottom line. Deposits and related interest-earning assets were up again and companies managed the liability side as well, leading to net interest income growth in absolute terms, though NIM compression fears remain. Sec lending was down 25% on average coming off the seasonally strong second quarter, but FX (+5% on average) was an offsetting bright spot amidst high volatility. Capital ratios remain strong across the group and dividend yields remain okay. There were some buybacks and they want to do more, though we temper our expectations here for next quarter as some are out of bullets."

Northern Trust (Nasdaq: NTRS) Wrap-up: Solid quarter for NTRS, considering the backdrop as revenues were up sequentially on higher interest income, FX, and lower securities losses. Expenses were controlled and the company continued to repurchase shares (though we see little/no room under the current capital plan to do more). Northern was an outlier among the trust banks this quarter, posting a 2 bps increase in NIM (thanks to non-interest bearing deposit flows and funding mix change). But keep in mind, NTRS may face stiffer headwinds next quarter relative to peers, given Northern’s lag pricing in parts of the business price since AUC/AUM both declined (-6%) this quarter.

Bank of New York (NYSE: BK) Wrap-up: Also a reasonable quarter for BK as revenues & AUCA/AUM were stable enough and expenses were controlled. Large deposit & balance sheet growth offset a decline in NIM, so NII rose and helped offset the market-induced fee decline (5.5%). FX and Issuer Services were both up 20% q/q and tame credit led to a $22mm reserve release. All in, BK generated a lot of capital, but paid out 87% between the divi and 20mm share buyback – good thing, yet interesting considering its 6.6% B3 Tier 1 Common ratio (but they do have 250 bps in hand in the securities portfolio)."

Valuation: Staying Neutral on Trust Banks...Schorr said, "STT remains our favored trust bank."

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Vox Royalty agrees to buy two Australian royalties for A$3.4M
• Nomadar partners with New Hera to link African athletes to US, Europe
• FDA grants fast track status to Rein Therapeutics drug for lung fibrosis