Northern Trust Corp Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Steven Chubak - Wolfe Research - Analyst : Hi, good morning and thanks so much for taking my questions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 1:00PM, NTRS.OQ - Q1 2025 Northern Trust Corp Earnings Call

Question: Steven Chubak - Wolfe Research - Analyst : So the -- I wanted to start on a question on the deposit beta certainly, the NII guidance and the modest upward revision is certainly encouraging. The cumulative beta of 86% so far this easing cycle, it certainly surprised positively, especially relative to the 72% beta we saw during the period of Fed tightening. I was hoping you could speak to what deposit beta assumption is underpinning that guidance. Just trying to gauge what sort of deposit betas we can underwrite sustainably if we get for additional cuts consistent with the forward curve?

Question: Steven Chubak - Wolfe Research - Analyst : That's great. And for my follow-up, just on the fee outlook and the impact on expenses, just given you're going to have to absorb some of the negative marks related to month and quarter lag pricing, both in the servicing side as well as in the wealth business. Dave, it sounds like you were reaffirming the 5% or better expense guide but wanted to better understand how much flex you have if those fee pressures intensify, and we don't necessarily see an inflection or recovery in equity markets over the course of the year?

Question: Steven Chubak - Wolfe Research - Analyst : Very helpful Color. Thanks so much for taking my questions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 1:00PM, NTRS.OQ - Q1 2025 Northern Trust Corp Earnings Call

Question: Betsy Graseck - Morgan Stanley - Analyst : Hi, good morning.

Question: Betsy Graseck - Morgan Stanley - Analyst : Mike, during your prepared remarks, you mentioned that you had some capital markets activity that was pretty hot towards the end of the quarter and then it led into April. Could you talk a little bit about what type of capital markets activity you're referring to there? And has it continued into April meaning now? Thank you.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Got it. And then a follow-up question is on the Family Office Solutions, which launched this quarter. Is that right? Did I get that right?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. So can you talk a little bit about your plans for this new what should we call it, sleeve offering, segment? I mean, you've long had this capability set, but by putting it together in this way, it would be helpful to understand what -- how you see the drivers from here in terms of rebranding within your current client set versus attracting new customers? And is this something that you would be taking beyond the US?Thank you.

Question: Betsy Graseck - Morgan Stanley - Analyst : Thank you.

Question: Ken Usdin - Autonomous Research - Analyst : Hey guys, good morning. Nice to see the little incremental buyback. Just wondering and now even with an even higher CET1 ratio at 12.9%. I know you had previously talked about doing greater than the 78% total capital return you did last year. Can you talk about your comfort with that? Or just given the environment and where capital still is going, could you still move that up forward more and get more back to shareholders? Thanks.

Question: Ken Usdin - Autonomous Research - Analyst : Makes sense. Great. And a follow-up on the expense side. So expenses to trust fees being around 118, about flat year-over-year. I know you have the long-term goal, 105, 110, and I know there's a direction of travel that you're aspiring for. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 1:00PM, NTRS.OQ - Q1 2025 Northern Trust Corp Earnings Call But given Stephen's prior comments about the market headwinds that you're facing, do you expect to see directional improvement there as we move forward? And I guess there's a push and pull with as you already mentioned, you're trying to get the expense growth rate lower. So just how do we just think about that? Thanks.

Question: Ken Usdin - Autonomous Research - Analyst : Got it, thank you, Dave.

Question: Mike Mayo - Wells Fargo Securities - Analyst : Hi. Just some clarification on your other answers. So family office solutions, you have global family office, that's one-fifth of your wealth revenues. So family office solutions, what do you imagine as the total addressable market? How much of that of your current family office revenues? Is that today -- what geographies are you targeting? Are you hiring people for that? Because it seems like you certainly talk a lot about this, especially relative to its size in terms of revenue contribution. So if you could just flesh that out a little bit more. Thanks.

Question: Mike Mayo - Wells Fargo Securities - Analyst : So family office solutions, Northern would kind of be the CFO on behalf of the family as opposed to the existing family office.

Question: Mike Mayo - Wells Fargo Securities - Analyst : Okay. Got it. And the other question relates to -- relates to the question about capital. I mean you have so much CET1, it went up so much more again, you're so far above your minimum. On the one hand, I think a lot of your stakeholders like that, you survived the great depression. You were 1 or 2 big banks that didn't cut the dividend during the global financial crisis. You like that perception trust and resiliency. I get it. On the other hand, it's hard to know where that line is between having enough for that resiliency and having so much that you have some trapped capital. So what are your thoughts about acquisitions or accelerating the buyback? I know that's already come up? Or -- and what kind of deregulatory benefits are that you could potentially get under the new regime? Thanks.

Question: Mike Mayo - Wells Fargo Securities - Analyst : All right, thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 1:00PM, NTRS.OQ - Q1 2025 Northern Trust Corp Earnings Call

Question: Ebrahim Poonawala - Bank of America - Analyst : Good morning. I just wanted to follow up, I guess, on the expense front. I think if you go back when you took over as CFO, we had the sort of leadership changes, you talked about the focus in terms of creating a fee over and the focus on vendor contracts, on just moving business heads to manage some of these things. Just give us a sense of any proof points on what you achieved or seen so far? I know it's early days. But as we think about the expense flex and the operating leverage in the business that may come through over the next year or 2 it would help us inform how much we can rely on expenses. So I would love to hear things that have been achieved in the last sort of 6, 7 months since these changes occurred. And -- and what's the runway here in terms of what inning are in, in terms of identifying productivity opportunities? Thank you.

Question: Ebrahim Poonawala - Bank of America - Analyst : That's good color, Mike. And maybe one, Dave heard your guidance on NII. Just remind us in terms of sensitivity to rate cuts, how we should think about that going forward? -- rapid rate cuts. Is that a negative? How are you just going about managing the balance sheet from an ALCO perspective? Thank you.

Question: Ebrahim Poonawala - Bank of America - Analyst : Good. Thank you.

Question: Glenn Schorr - Evercore ISI - Analyst : Hi, thanks and talk about some of the alternative. Good morning. Maybe talk about some of the alternative -- maybe talk about some of the alternative initiatives you have in motion. Let's talk maybe asset and wealth management first. In terms of delivering a more complete set of solutions. I'm curious if you -- what you could tell us on what's in motion in terms of both proprietary and third-party product that you might be onboarding, what signposts we might be looking to see throughout this year? Appreciate it.

Question: Glenn Schorr - Evercore ISI - Analyst : Great. Maybe I'll continue the team and just ask a follow-up on the servicing side. In your prepared remarks, you talked about the semi-liquid funds important focus and doing like half you said or a little more than half of what's going on in the UK, US is obviously a huge market for semi liquids. I'm just curious if that technology backbone that you're having success with in the UK is literally the same thing or can be tweaked to go after the US market and if that's a clear plan. Appreciate it.

Question: Glenn Schorr - Evercore ISI - Analyst : Alright, thank you.

Question: Gerard Cassidy - RBC - Analyst : Morning Dave, morning Mike. Can you guys share with us it might be difficult to do this, but how can you calibrate the fee revenues for asset values versus volume. So if the global asset values were to continue to decline this year, how much can that be offset on your revenues with increased volumes?

Question: Gerard Cassidy - RBC - Analyst : Very good. And then as a follow-up, a broader macro question, there's obviously change coming on the regulatory front. We've seen as recently as Friday MPR come out from the Fed on the stress capital buffer. Can you guys give us your views on the Basel III end game, what changes might -- or what it might mean for Northern Trust, also this talk about excluding government securities from the supplementary leverage ratio. If you wrap it all together, how are you guys looking at it and how it might impact the way you run your business going forward?

Question: Glenn Schorr - Evercore ISI - Analyst : Very good, thank you.

Question: David Smith - Truist Securities - Analyst : Good morning. Can you speak some more about how the current market volatility impacts new business on the one hand and client attrition on the other? Are clients less likely to make big moves in terms of custodian or manager during times like this. And just lastly, do these trends look different in asset servicing versus wealth right now? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 1:00PM, NTRS.OQ - Q1 2025 Northern Trust Corp Earnings Call

Question: David Smith - Truist Securities - Analyst : And then as a follow-up, you've seen some nice acceleration in expenses over the past few quarters, but it also does seem like your organic flows backing out market impacts or lagging peers at the same time. What gives you the confidence that you're making all the necessary investments in growth at the same time that you're working to bring expenses down?

Question: David Smith - Truist Securities - Analyst : Thank you.

Question: Jim Mitchell - Seaport Global Securities - Analyst : Hey, good morning. Maybe just a couple of follow-ups on wealth. In the family office solutions business, Obviously, some ultra high net worth clients are moving from the more traditional relationship to a family office. Is that more of an effort to make that relationship stickier? Or is there also a material revenue pickup as they convert?

Question: Jim Mitchell - Seaport Global Securities - Analyst : Right. That makes sense. And then maybe just bigger picture, that's obviously been a place while generally, you've pivoted to try to drive organic growth improvements. You've highlighted a few examples of success across alts et cetera. So how do you -- how are you feeling better or worse on sort of the organic growth acceleration that you're trying to get? And if you have any intermediate targets on where you can get that organic growth to in wealth.

Question: Jim Mitchell - Seaport Global Securities - Analyst : Okay, thanks for the call.

Question: Vivek Juneja - JPMorgan - Analyst : Hi, thanks. Just want a clarification on your fees in both servicing and asset management. Dave, I heard you say you've added a lot of services. And then you also mentioned in your release about the lagged effect that you always have from asset values. Obviously, fourth quarter asset values did well. But when I look at your servicing and asset management fees, both were down linked quarter. Any color on what drove that down? And how we should think about it given that Q1 was actually down further. So any thoughts on this?

Question: Vivek Juneja - JPMorgan - Analyst : Okay. And then completely different topic. Maybe, Mike, your fee revenues, both servicing and asset management, what percentage is non-US? And as you think about growth, I know Jason in the past, has talked on this call has talked about wanting to add a lot of growth internationally to what are you thinking as you've done your plans in terms of how much of the growth you expect coming from international in next year, next 3 years? Anything on that?

Question: Vivek Juneja - JPMorgan - Analyst : And just a clarification, the 25% to 30%, Mike, were you referring to fee revenues, I'm presuming?

Question: Vivek Juneja - JPMorgan - Analyst : And what would it be for fee revenues?

Question: Vivek Juneja - JPMorgan - Analyst : Okay. Yes, thanks.

Question: Alex Blostein - Goldman Sachs - Analyst : Hey everybody, thanks for squeezing me in here. Just a couple of follow-ups for me. First, maybe on NII, understanding that the environment is obviously quite volatile. I think in your forward guidance, you guys are assuming fairly stable deposits. I'm assuming that's to average in Q1, but maybe give us an update on kind of how things stand far in April, both in terms of the level and the mix just given all the volatility we've seen so far in the second quarter?

Question: Alex Blostein - Goldman Sachs - Analyst : Right. So okay, that makes sense. And then in terms of just the mix as well, could you just kind of help us think about what should we be looking out for when thinking about the mix going forward? The risk-off environment doesn't seem to change the mix rather drastically. It sounds like noninterest deposits is still kind of hanging around the same level in terms of percentages. But what would change that? And what sort of the client segment that will be most responsible, I guess, for that shift? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 1:00PM, NTRS.OQ - Q1 2025 Northern Trust Corp Earnings Call

Question: Alex Blostein - Goldman Sachs - Analyst : Got you. Okay. And then just another quick one on expenses. So I heard you guys in terms of your prepared remarks and the outlook for this year, just given the more uncertain macro backdrop and the effect will be delayed on fees that lower markets might have when you guys. Could you just remind us the percentage of your expense base that flexes directly with lower asset levels. There are some things like sub-advisory or sub-custody fees and things like that, that I think are quite floating. But if you look at your expense base more holistically, what percentage of that is sort of truly variable with the fee revenue?

Question: Alex Blostein - Goldman Sachs - Analyst : Okay. Great. All right, thanks so much.

Question: Gerard Cassidy - RBC - Analyst : Hi guys, just a quick follow up. Just a quick follow-up. Dave, what -- you guys obviously took a nice gain from your Visa position last year. Could you just update us where it stands now on the balance sheet, what the value is and what you're thinking of doing with the remaining shares that you may own?

Question: Gerard Cassidy - RBC - Analyst : Got it. And just -- and maybe a reword the question what's the unrealized gain potential, I guess, was the better question since it's carried at 0 on the balance sheet.

Question: Gerard Cassidy - RBC - Analyst : Great. Okay, super, appreciate that, thank you.