Northern Trust is laying off about 500 workers and trimming bonuses and base pay as Chicago's largest locally headquartered bank confronts profitability worries due to low interest rates.
The layoffs, most of which occurred earlier this month, amount to about 2.5% of Northern's workforce. A spokesman declined to say how many of the cutbacks were hitting workers in Chicago, saying they're "global."
In a Jan. 7 email to employees, CEO Michael O'Grady called the decision "extremely difficult," but said, "To create value now, and in the future, we must adapt and improve."
He added that workers who remain would see bonuses, paid in the first quarter, "decrease meaningfully." Base pay increases, he wrote, would be "very modest," and "many" employees would get no pay bump at all.
The quotes from the email and news of the layoffs were first reported by Wolf Street Report, a finance newsletter. The company confirmed the accuracy of the quotes but declined to provide the email.
"Given current market conditions, we are compelled to make a number of difficult staffing decisions. These decisions are designed to ensure our resources are being used in the most prudent manner to meet our clients' needs and execute on our long-term strategic priorities," a Northern Trust spokesman said in an email.
Northern Trust is projected to have earned $1.2 billion in 2020, according to an analyst consensus estimate. That would be a 17% decline from $1.5 billion in 2019. The company had $1.3 trillion in assets under management as of Sept. 30.
Northern is one of three U.S. banks that dominate the business of holding and processing assets for institutional investors. It's also a big player in managing the financials of the nation's wealthiest families and households.
While the stock market's surprisingly positive performance is bullish for Northern, boosting the client assets on which it earns fees, historically low interest rates are an even bigger drag on earnings. The spread on how much Northern earns from its assets versus what it pays for deposits and securities has a significant effect on how much Northern makes from the assets it safeguards or manages, even if they're growing.
"Despite healthy equity markets, our company faces the headwinds of continued lower interest rates, which reduced our earnings in 2020 and will put pressure on our profitability this year," Mr. O'Grady wrote in his email.
In addition, the fees Northern and other trust banks earn for their core business of safeguarding trillions in institutional assets have been under pressure for years now, with little sign that will change.
Northern employed 19,800 people globally at the end of 2019, with 6,400 of those in Chicago.
This story was published by Crain's Chicago Business, a sister publication to Pensions & Investments.
