Northern Trust Corporation (NASDAQ:NTRS) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Core Fees & Expenses
Alex Blostein – Goldman Sachs: Mike I appreciate your comments around the margins and the fact that you guys are progressing nicely on the cost initiatives. But if I look at I guess the first half of ’13 versus the first half of ’12 just the core fees, relative to core expenses. So when you kind of exclude the noise with write-off et cetera. I see core fee revenues up a little over 2% and expenses ex these one-offs up a little bit more than that? And you got to understand there is a mismatch between I guess the business wins and what the timing of the revenues coming in, and then expenses associated with it, you guys are going through lots of regulatory changes, et cetera. But from our perspective, all we see from kind of the outside looking in is you guys are almost through the cost cutting program, but the core margins haven’t really moved. So, maybe you could kind of provide your thoughts on what incrementally you could do to actually improve the profitability of the business from here and also if you could potentially size maybe some of the revenue (tailwinds) that you could get that are not flowing through the model yet, but the expenses are I think that would be helpful.
Michael G. O’Grady – EVP and CFO: Let me try to answer that out. So, when we look at it as I mentioned, I think you’re ahead there. We’re looking at the growth in our fees and for the first half of 2013 our fees grew about 9%. Now, again, some of that has been benefited by the positive equity markets, but the remainder of that has been through additional growth new business organic growth. At the same time, we’ve grown total expenses basically this year at a little over 1%. So, that type of growth on the fee side relative to what I would consider pretty modest growth on the expense side is the type of productivity where we think we have the ability to control it. Now, outside of the fees, so foreign exchange net interest income, we certainly look to maximize those revenues as well within the environment, but those revenue streams have less in the way of marginal incremental costs associated with them. So, that’s how we’ve been driving these initiatives. Now, even with that said Alex, we have been successful in executing on the driving performance initiatives so far this year. We’ll certainly be running through the tape on those through the end of year, but we plan to continue to look for and add new initiatives that will play through in 2014 and beyond and are already in the process of beginning a number of those initiatives. So, we look at the opportunity to improve the margins and the overall profitability of the business to just continue as we go forward. What we can’t control is interest rates, market volatility et cetera, and yet to the extent that improves, we think that the bottom line will benefit proportionately.
Alex Blostein – Goldman Sachs: So maybe just as a summary, I guess, as a follow-up. Flat markets, flat rates, flat volatility. Given the project spend you have a plan, do margins go up or down next year?
Michael G. O’Grady – EVP and CFO: Our objective would be that they go up, because our objective is we continue to grow the business organically, markets aside, and to not allow our expense growth to exceed that.
Luke Montgomery – Sanford Bernstein: So, I think it was early to see some better trend in FX this quarter, it wasn’t a really surprise either though. It’s still a fairly depressed revenue line by historical standards, and I assume some of the structural challenges that were incited by others, but they perversely been hurting you the most is still an issue. So I was wondering if you had given more consideration to what response you might pursue to mitigate the loss of those standing instruction FX revenues and how you are managing through the changes in client behavior, about how and where they want to execute FX?
Michael G. O’Grady – EVP and CFO: I think you described the situation well, Luke, and this is something that we began to respond to quite a while ago within the business and are beginning to see the benefit of that and what it is primarily is first of all really looking to expand the client base in which we do FX with. As you mentioned traditionally our business has been focused on almost exclusively our custody clients and what we have been attempting to do is expand that to more third party. There are a number of our clients for example in the global fund services business, where we’re their fund administrator. But we may not be their custodian and yet haven’t been doing much in the way of FX with that client base. So when I say third party it’s not necessarily institutions that we don’t have relationships with. It’s just that we haven’t been transacting foreign exchange with them. So that is the primary area that we’ve been focused now. There are some resource requirements around that, which we have been making both in the way of the systems and platform around that which we continue to further enhance what we have and then also with regard to client service. So that if we are going to cover a broader set of clients we need people to do that and those people are onboard and then finally it’s a whole new set of counterparties that we are dealing with. And so we need to make sure that we’ve underwritten the additional counterparties in a way that we are comfortable with. So all of this work well underway and as I mentioned just beginning to see the benefit of it such that in quarter like this the 20% improvement that you saw is almost exclusively from the benefit of the market. But going forward we would expect to also have the benefit from these initiatives on that front.
Luke Montgomery – Sanford Bernstein: I guess while we are on ad valorem revenues a quick question on securities lending I know it’s not as a bigger revenue item for you guys but you do get a nice bump every second quarter from the dividend arbitrage season in Europe. I know recently there has been a lot of talk about eliminating the discriminatory tax treatment that makes those trades possible in the first place, with France leading the way and other countries are expected to follow possibly. So, do you have any insight to how that situation is developing and what’s your current thinking about the continuation of that seasonal benefit going forward?
Michael G. O’Grady – EVP and CFO: Clearly, there are developments on that front and the regulation around that, and we do believe that it could have an impact on the business. There are a number of things that can impact that business, as well as others, but I would say this, we don’t have any particular insight as to the direction. Frankly, we were pleased with the level of activity in the second quarter here as you saw it was up significantly obviously from the previous quarter, but also relatively consistent with where we were a year ago, which in our mind just demonstrate at least from a client perspective the level of engagement and activity we’ve had, has not diminished.