By Chibuike Oguh
(Reuters) -The shares of Northern Trust (NASDAQ:NTRS) jumped by more than 14% on Wednesday after the asset and wealth manager reported a smaller-than-expected drop in second quarter net interest income underpinned by higher interest rates and slower deposit losses.
Investors had been worried about the trajectory of Northern Trust's net interest income (NII) after peer State Street Corp (NYSE:STT) posted last week an 18% year-on-year rise but a huge 10% quarter-on-quarter decline in NII, sending its shares down 12% on Friday.
State Street had also warned of a further decline of 12-18% on NII on a sequential basis, as consumers move money in search of higher yields. NII measures the difference between what banks earn on loans and pay on deposits.
Northern Trust said its net interest income of $524.6 million was 12% higher than the $469.8 million from a year earlier but 4% lower from the prior quarter. That result was largely in line with the average analyst estimate of $523.4 million, per Refinitiv. Analysts were, however, expecting a bigger drop in Northern Trust's quarter-on-quarter NII just like State Street.
Goldman Sachs (NYSE:GS) analysts, led by Alexander Blostein, said Northern Trust's NII was a "relatively good result" even though it had "largely peaked" and it will help to calm "post-STT [State Street] fears."
Northern Trust's shares were trading at $82.14, on track for its biggest one-day percentage gain since March 2020. The stock, which is down about 8% year-to-date, is now at its highest level since April.
Northern Trust's profit fell 17% to $323.7 million, translating to $1.56 per share, compared with $388.3 million or $1.86 per share from a year earlier. The decline in profit was largely due to the booking of one-time charges from higher severance-related expenses and an investment write-off.
Total revenue fell 1% to $1.77 billion in the quarter as Northern Trust generated fewer fees from its custodial, investment, and wealth management businesses.
Northern Trust said its total assets under custody increased 5% to $14.48 trillion, while total asset management also rose 5% to $1.37 trillion.
Assets under custody refers to investments or securities held and tracked by a financial institution for a fee.