The paragraph is from the Northern Trust Corporation's First Quarter 2025 Earnings Conference Call. The operator introduces Jennifer Childe, Director of Investor Relations, who welcomes participants and introduces key company executives present on the call, including Michael O’Grady, Chairman and CEO, and others. She mentions that the earnings press release and related documents are available on their website, and the call is being webcast live. A replay will be available until May 21st. There is a disclaimer about the accuracy of the information after the call, and instructions for the Q&A session follow. Michael O’Grady then speaks, welcoming participants and noting the strength and resilience of their business model as demonstrated by the first quarter results.

The paragraph highlights Northern Trust's strong financial performance in the recent quarter, marked by consecutive positive operating leverage and increased EPS, while returning substantial capital to shareholders. The company benefited from robust market activity and volatility, aiding their capital markets activity. Progress under the "One Northern Trust" strategy includes optimizing growth through collaboration across business units and focusing on growth initiatives that align with client needs. Notably, the asset management segment saw strong fundraising in alternatives, with a significant uptick in new business in private markets within asset servicing. The company was also appointed as the global outsourced private capital administration provider for Ignio Infrastructure Partners.

Northern Trust has strengthened its relationship with Alchemy Partners by securing the asset servicing business for a $1 billion special opportunities fund. They are expanding their focus on demiliquid funds and have increased their market share, supporting over half of the UK's long-term asset funds with more in the pipeline. Their wealth management segment launched Family Office Solutions, targeting ultra-high-net-worth clients, and is seeing strong client interest. New business activities are robust, especially in EMEA, enhancing their position as a top administrator of private investment office assets in Europe. The firm is experiencing healthy deposit increases as clients adopt a risk-off approach, leading to significant liquidity inflows. Their asset management offerings, particularly tax-optimized SMAs, are attracting considerable interest, and they plan to expand their ETF platform with eleven new fixed income ETFs.

The paragraph outlines the company's progress in enhancing risk management, productivity, and operational efficiency. They have transitioned to implementing new risk control systems and advanced their technology to create a safer and more efficient environment. Productivity initiatives for 2025 are progressing as planned, allowing for further investment in growth. The company is reengineering their operating model and streamlining processes to enhance efficiency. Despite a challenging macroeconomic and market environment, the company feels well-positioned due to their strong balance sheet, which supports both client needs and strategic goals. Financial highlights for the first quarter of 2025 include a net income of $392 million, earnings per share of $1.90, and a 13% return on average common equity. The company has achieved positive operating leverage for three consecutive quarters and positive trust fee operating leverage for four quarters, excluding notable items.

The paragraph discusses the company's financial performance, highlighting the impact of currency movements on revenue and expenses, which were mostly minor. It notes a year-over-year revenue increase despite a one-day decrease compared to the leap year. Trust investment and servicing fees rose 6%, and net interest income increased 7%. Assets under custody and management saw modest growth. Credit quality remained strong, although other non-interest income declined. Revenue rose 6% year-over-year, with expenses up 4.8%. Earnings per share dropped 16% sequentially but rose 13% from the previous year. The asset servicing business performed well, with transaction volumes and capital markets activities increasing, and assets under custody at $15.8 trillion, a 3% increase from last year. Asset servicing fees totaled $672 million, with custody and fund administration fees up 4%, spurred by strong equity markets and new business.

The paragraph discusses the company's financial performance, highlighting a 7% year-over-year increase in "Other fees" primarily due to growth in front office solutions and higher seasonal benefit payments. Assets under management for asset servicing clients rose to $1.2 trillion, a 7% year-over-year increase. Investment management fees within asset servicing grew by 9% driven by favorable markets and new business activities. In wealth management, assets under management increased to $447 billion, up 6% year-over-year, and trust investment and other servicing fees rose by 8% due to strong equity markets. The balance sheet showed a 3% increase in average earning assets and a net interest income of $574 million, flat with the previous quarter. The net interest margin was slightly down to 1.69%. Average deposits grew by 3% with a shift in interest-bearing deposits and stable deposit betas. Transactional and other contributions returned to normal levels.

In the first quarter, the company reported non-interest expenses of approximately $1.4 billion, marking a 3% sequential increase and 4% increase from the previous year. After excluding notable items, expenses rose 4.8% year over year. Key cost areas included an 8% rise in compensation expenses due to seasonal equity incentive grants, a 3% increase in top expenses linked to hiring and business growth, and a 7% rise in outside services expenses due to modernization efforts, though there was a 3% sequential decline. Equipment and software expenses rose 11% year over year due to depreciation and cloud-related costs. The company's capital levels were strong, with the common equity Tier one ratio increasing to 12.9% and a Tier one leverage ratio of 8%. The quarter ended with $527 million in unrealized pretax loss on available-for-sale securities. The company returned $435 million to shareholders through dividends and stock repurchases, with a payout ratio of 116%. For the full year, operating expense growth is expected to stay below 5%.

The article discusses the company's updated full-year guidance for net interest income (NII) growth, which has been raised from low single-digit to low to mid-single-digit growth due to strong deposit performance and recent growth. This assumes stable deposit levels and mix, with minimal change in non-interest-bearing deposits (NIB) and stable deposit pricing. During a Q&A session, Steven Chubak from Wolfe Research inquired about the deposit beta assumptions supporting this guidance. David Fox responded that deposit betas are stable, with institutional business betas near 100% and wealth management betas between 60% to 70%. Fox also noted the company's focus on deposit pricing strategies, including considerations for tiering and sizing.

In the paragraph, David Fox discusses the company's commitment to keeping expense growth below five percent, even in the face of fee pressures and uncertain equity markets. He emphasizes the company's planning efforts to identify discretionary and nondiscretionary spending, allowing them to adapt to changing market conditions. Fox highlights the flexibility in their business model, mentioning specific areas like consulting, outside services, technology spending, and incentives as levers to manage expenses. He acknowledges currency as both a help and hindrance, impacting revenue and expenses, but remains confident in achieving the target expense growth rate despite these challenges.

Betsy Graseck from Morgan Stanley asks Michael O’Grady about the recent capital markets activity and its continuation into April. O'Grady explains that market volatility typically increases capital markets activities like foreign exchange and brokerage, particularly integrated trading services for asset manager clients. Betsy then inquires about the launch of Family Office Solutions, seeking clarity on its strategic purpose and whether it aims to rebrand for existing clients or attract new ones, and if there are plans for international expansion. O’Grady confirms its launch and plans to discuss how it fits into their offerings.

The paragraph discusses a company's strategy to enhance and expand its services to ultra-high-net-worth clients, specifically those with assets of $100 million and above. The company already has successful family office capabilities and now aims to offer these services on an outsourced basis, providing ultra-high-net-worth clients with bespoke solutions. These services go beyond traditional wealth management and include comprehensive reporting, outsourced bill payment, and OCIO investment services. The goal is to improve service to current ultra-high-net-worth clients and attract new ones. After discussing this strategy, the dialogue shifts to a caller, Ken Houston from Autonomous Research, who comments positively on the company's incremental buyback and inquires about future capital return plans.

In the paragraph, David Fox discusses the company's financial strategy, emphasizing flexibility in uncertain markets and prioritizing shareholder returns. He mentions a high payout rate of earnings and a target capital level range. Fox also addresses expense management challenges and highlights the focus on organic growth in trust fees and expenses, as these are more controllable factors despite market conditions. Ken Houston asks about expected improvements in expenses relative to trust fees, and Fox acknowledges that external factors influence this but reiterates the focus on organic growth as a key control point.

In the paragraph, Ken Houston and Mike Mayo discuss a strategy focused on minimizing costs and maximizing trust fees to improve financial standing, despite market fluctuations. Mike Mayo inquires about the Family Office Solutions business, which forms a fifth of wealth revenues, asking about its market potential, current revenue contribution, target geographies, and staffing plans. Michael O’Grady responds by highlighting the large, addressable ultra-high-net-worth market and notes that the company already serves hundreds of clients in this segment. He refrains from providing a specific revenue percentage but emphasizes opportunities for growth and market share expansion.

The paragraph discusses Northern Trust's approach to expanding its family office services, highlighting the outsourcing model where Northern Trust employees act as relationship "quarterbacks" for ultra-high-net-worth clients. The firm's growth strategy includes hiring additional talent and investing in technology to deliver services in a more customized manner. Mike Mayo notes that Northern Trust's role is akin to being a CFO for the family, and the conversation shifts to Northern Trust's strong capital position, emphasizing its reputation for trust and resilience through past financial crises.

The paragraph features a conversation between Michael O’Grady and Mike Mayo regarding the company's capital strategy. O'Grady acknowledges the challenges of balancing enough capital for resilience without having excess trapped capital. He mentions that while acquisitions aren't a priority, the company is well-positioned for increased stock repurchases, having exceeded 100% in the past quarter. O'Grady emphasizes maintaining a competitive capital level compared to peers, suggesting that any industry-wide capital regulation changes could offer greater flexibility for capital use. The paragraph closes with Ibrahim Poonawala seeking to discuss expense management with Dave, who recently assumed the role of CFO following leadership changes.

In the paragraph, Michael O’Grady discusses the steps taken to enhance efficiency and productivity within the organization, emphasizing an efficient workforce and the exploration of new organizational structures and control strategies. Technological advancements, such as machine learning, natural language processing, and generative AI, are being deployed to further improve productivity, particularly in IT and software development through platforms like GitHub. Although the organization has already seen positive outcomes, these technological implementations are still in the early stages, with further opportunities for digitizing client documentation.

The paragraph discusses efforts to automate and improve efficiency in the asset servicing business by centralizing and standardizing workflows and common processes across the company. It highlights the creation of a COO organization and the shift towards a capability-driven operating model. The aim is to enhance productivity through standardized client platforms and processes like client onboarding and portfolio accounting. In a discussion about financial sensitivity to interest rate cuts, David Fox indicates that the potential rate cuts included in their model minimally impact the company's net interest margin (NIM), with significant compression occurring only at much lower rates.

The paragraph discusses the company's focus on expanding alternative solutions within asset and wealth management. Michael O'Grady highlights the goal of enhancing opportunities for clients by offering a mix of proprietary and third-party funds. Fifty South Capital, the company's alternative investment manager, has been successful in raising funds and aims to double its fundraising capacity this year. Additionally, the wealth management platform plans to increase the number and size of third-party fund offerings to clients.

The paragraph discusses the investment and focus required to provide appropriate client education and tailor alternatives to fit client portfolios. Glenn Shore asks about the applicability of technology used successfully in the UK for semi-liquid funds in the US market. Michael O’Grady explains that while there are similarities, different markets like the UK, Luxembourg, and Ireland have distinct investment structures and require customized approaches. He mentions that the US market requires a different structure but is seeing growth in private capital. The conversation ends with Gerard Cassidy from RBC being introduced for the next question.

The paragraph discusses how fee revenues can be adjusted based on asset values and volume changes, noting that Northern Trust's assets under custody (AUC) and assets under management (AUM) are primarily equity-based. The focus is shifting towards solution-based revenues, making them less dependent on volume changes. The conversation then shifts to regulatory changes, specifically the Basel III endgame and its implications for Northern Trust, particularly in terms of operational risk and capital requirements. The discussion includes potential impacts of excluding government securities from the supplementary leverage ratio.

The paragraph discusses how a refined model for assessing operational risk that is specific to a company's operations is beneficial compared to broader, less accurate approaches. This refined approach is favorable as it doesn't overestimate risk levels. Regarding leverage ratios, particularly for custody banks, having a different calculation for treasuries could increase their capacity, though there is no immediate need for changes. Michael O’Grady highlights that market volatility can affect client decision-making and new business, though significant impacts haven't been observed yet, as it's still early in the period of high volatility. He notes that market conditions can discourage clients from making major changes.

The paragraph discusses the differences in decision-making timelines between institutional and wealth management sectors, noting that institutions typically take longer and are more accustomed to market changes, while wealth management may experience delays due to volatility impacting client decisions. Despite increased expenses and lagging organic growth compared to peers, the organization is confident in its investments for growth, specifically in wealth and asset management. This includes initiatives in alternatives, family office services, and launching new ETFs and tax-managed equity funds to enhance organic growth.

The paragraph discusses the approach to investment and growth in the family office solutions business. The company is not heavily investing in the capability from a financial perspective but is focusing on enhancing technology to scale efficiently. Michael O'Grady explains that the shift of ultra-high-net-worth clients to family office setups is aimed at improving service levels and increasing business wins. This approach meets the growing demand for family offices that act as a central coordinator or "quarterback" for client needs. The segment is noted to be high-touch and expert-driven, making it less scalable, but improving scalability is a goal to foster faster, profitable growth and maintain client retention. Jim Mitchell recognizes this strategy as part of broader efforts to drive organic growth, noting success in alternative investments.

The paragraph features a discussion on the organic growth and strategies of Northern Trust, specifically focusing on wealth management. Michael O’Grady expresses optimism about current initiatives but notes that they are still in early stages, highlighting the personalized nature of the wealth management business compared to institutional business. He emphasizes the importance of executing the "One Northern Trust" strategy, which involves integrating wealth management with asset management, asset servicing, and banking capabilities. Following this, another conversation begins, where Vivek Jainja from JPMorgan seeks clarification on fees in servicing and asset management. David Fox explains the billing lag distribution, attributing fee fluctuations to the timing differences in billing cycles, and giving a breakdown of the quarterly, monthly, and daily aspects of fee calculations.

The paragraph discusses the non-US revenue and growth prospects for a business, with 25-30% of current revenue coming from outside the US. The company sees international growth opportunities in areas like the family office business and asset servicing, particularly in regions like EMEA and APAC. Despite growth in the US, higher rates of growth are being experienced internationally, and this balance of US and non-US business is expected to continue without significant change.

In a discussion involving Vivek Jainja, Michael O’Grady, David Fox, and Alex Goldstein, the focus is on the breakdown of revenues and deposit trends. Michael O’Grady clarifies that the 25-30% figure mentioned relates to total revenues, not just fee revenues, and states that they're unsure about the specific figure for fee revenues without further checking. David Fox notes that trust fees include about 80% in dollars. Alex Goldstein inquires about deposit levels and mix amid a volatile environment. David Fox responds that deposit levels remain stable, with clients adopting a risk-off stance and trusting Northern to handle their deposits. He indicates that this stability informs their forward guidance, and they don't foresee significant changes in deposit levels in the coming months. Alex Goldstein questions how the deposit mix might evolve, but David Fox suggests that the risk-off environment is unlikely to significantly alter the mix.

The paragraph is a discussion between Alex Goldstein and David Fox regarding the stability of non-interest-bearing deposits and the impact of market changes on financial performance. David Fox explains that a significant portion of their securities reprice within ninety days and a large fraction of their deposits and assets are in US dollars. The company has a strategy to protect its position with some arbitrage opportunities and stable deposit betas. When asked about expenses, Fox indicates that less than half a percent of their cost base is variable with fee revenue, meaning the expenses are relatively fixed, despite market fluctuations. He notes that a ten percent change in the market leads to about a three percent change in trust fees and a two percent change in revenues.

In the paragraph, there's a discussion about the financial situation regarding Visa shares held by a company. Gerard Cassidy from RBC asks about the current status of the Visa shares on the balance sheet and any future plans for them. Michael O’Grady explains that the shares are currently listed at zero on the balance sheet due to restrictions and that the company will reevaluate its position if an opportunity to liquidate more shares arises, using the same strategy as before. David Fox adds that there is an unrealized pretax gain potential of about $1.1 billion. Finally, the operator concludes the call.

This summary was generated with AI and may contain some inaccuracies.