Adding pressure to fees is that asset managers that are the trust banks' clients are struggling with fee pressures of their own and the need to cut costs. More are merging, with Morgan Stanley's recently announced acquisition of Boston-based asset manager Eaton Vance capturing attention, as well as news that San Francisco-based Wells Fargo is open to selling its wealth management arm. If a real consolidation trend emerges, servicers like Northern Trust could find themselves losing clients just due to a transaction rather than competition.
These dynamics put pressure on Northern Trust, the smallest of the three trust banks, to accelerate profitable growth or cut costs to improve profitability. Not helping, at least in the short term, is that Northern Trust's other big business — wealth management for the nation's most affluent families and households — isn't growing robustly, either.
Through nine months, wealth management fees in 2020 are up 2% to $1.24 billion from $1.21 billion in the same period last year. In the central region, dominated by Northern's Chicago home base, fees are actually down 2% in that time frame. That includes a third-quarter fee decline in the central region, which should have reflected the stock market's surge in the second quarter.
"We've had to shift our sales and new business strategy as a result (of COVID-19)," Northern CEO Michael O'Grady said on the earnings call. "I'm very optimistic on the long-term prospects for that. ... But there's some bumpiness that we've had this year that we haven't had in previous years."
Ultra-low interest rates will force Northern to waive fees normally charged on its $288 billion in money market funds in order to ensure investors don't lose money on them. That could total $20 million to $25 million in the fourth quarter, Mr. Tyler said.
The good news for Northern Trust? It's big enough to ward off would-be buyers, and its stock valuation compared with its larger rivals is higher. A successful initiative to improve revenues will move the needle more for Northern than it likely would for BNY Mellon or State Street, just due to Northern Trust's smaller size.
But if those revenue ambitions fizzle, the other option is cost-cutting. None of Northern Trust's thousands of Chicago employees want to hear about that.
This story was published by Crain's Chicago Business, a sister publication to Pensions & Investments.