EUR 850.00 For Business Accounts Only

Morningstar | Northern Trust's Wealth Management and Custody Businesses Are the Foundations of Its Wide Moat

Northern Trust consists of two moaty segments--a wealth management segment and a custody segment known Corporate & Institutional Services (C&IS). Both businesses are supported by the firm’s asset management capabilities. Northern Trust’s C&IS segment provides custody and ancillary services to assets owners and asset managers. With just over $10 trillion in assets under custody or administration (AUC/A), Northern Trust is smaller than BNY Mellon and State Street that each boast over $30 trillion in AUC/A. While the firm is smaller than some of its competitors, this segment still earns solid returns, and we’d note its segment operating margin is similar to that of its larger competitors. Northern Trust’s wealth management business is focused on serving the needs of ultra-wealthy clients. In particular, the Global Family Office unit caters to clients with $200 million-plus in assets. Within in the United States, Northern Trust’s wealth management operations are well diversified across different regions. We believe that Northern Trust’s sterling reputation, entrenched position, and client inertia help insulate it from competition. Another advantage Northern Trust has is that its ultra-wealthy clients tend to be conservative in asset allocations. Only about 47% of the segment’s AUM is invested in equities with the remainder roughly split evenly between fixed income securities and cash/other assets. Overall, we believe the firm’s expense initiatives have borne fruit. Non-interest expense as a percent of non-interest income had risen sharply after the financial crisis reaching 102% in 2011. Through expense management, this dipped to 93% in 2018. As a result, we expect mid-teens return on tangible equity during the forecast period.