Northern Trust CEO Mike O’Grady on Wednesday dismissed reports that the bank had met with other institutions to discuss a potential sale.
“Contrary to recent speculation, during my tenure as CEO, we have never entertained discussions regarding the sale of the company with any financial institution, nor do we intend to,” O'Grady told analysts on a call following Northern Trust’s second-quarter earnings report.
“We believe that strategy of independence is what will produce the best returns for our shareholders ultimately,” he said.
The Wall Street Journal reported that Chicago-based Northern Trust had been approached by BNY to discuss a potential merger in June. Goldman Sachs also approached the firm earlier this year, according to Semafor.
“Is there any scenario in which you think M&A would make sense from a shareholder return perspective? Or do you think the uniqueness of the Northern franchise, the scale in the custody business, all of that kind of makes just M&A unattractive strategically?” Bank of America analyst Ebrahim Poonawala asked following O’Grady’s commitment to independence.
O’Grady said the bank is “completely focused” on executing its strategy, and that independence will “produce the best returns for our shareholders ultimately.” The bank has $18.1 trillion in assets under management or custody as of June 30.
“We've heard from a lot of our clients … who have said, ‘We chose Northern Trust because it's a different value proposition. It's one where you are focused on trying to provide a higher level of client service, where you do have very targeted expertise in just certain segments of the market where you compete.’ We believe that that differentiated value proposition is the one that's going to create the most value,” O’Grady said.
“We're an organic growth company,” he added. “But if at times, there's something that would be attractive for us on the inorganic front to improve that value proposition, we would consider doing it, obviously, with very high standards.”
Sen Elizabeth Warren, D-MA, warned BNY CEO Robin Vince this week that buying Northern Trust would be “presumptively illegal” based on BNY’s size, “raising serious antitrust concerns and presenting risks to financial stability given the firms’ dominance in important markets that serve as the plumbing of the financial system.”
“Should this potential merger move forward, the combined entity’s estimated custodial services market share would exceed 30 percent, and would appear to significantly increase consolidation in this market, as measured by the Herfindahl-Hirschman Index (‘HHI’), by roughly 400 points,” Warren wrote.
Northern Trust’s stock price was down 3% in the first hour of trading Wednesday, and Truist analysts attributed the dip to “the emphatic denial of the company being up for sale, in contrast to news reports of suitors approaching [Northern Trust] management in recent weeks, and the pros and cons of independence drove the bulk of the analyst questioning.”
As of 11 a.m. Thursday, the price has risen to $128.39, above where it was before the call.
Northern Trust declined to comment beyond the earnings call comments. BNY and Goldman also declined to comment.
