Last week, Northern Trust Corporation (NTRS) announced the acquisition of Bank of Ireland Securities Services (BOISS) for $82 million (€60 million).
BOISS, the fund administration unit of Bank of Ireland (IRE), comprise the fund administration, investment operations outsourcing and custody business of the bank. Dublin-based BOISS is the largest Irish-owned asset administration provider of specialised, client-driven services to a broad range of funds, including mutual money-market, multi-manager, exchange-traded funds (ETFs), and property funds, serving both the on-shore and off-shore markets.
The acquisition is expected to close in the second quarter of 2011, depending on applicable regulatory approvals and other customary closing conditions.
Through this acquisition, Northern Trust expects to combine the fund administration business with existing activities in Ireland and continue to provide the outstanding consumer service and solutions to clients. The acquisition will improve and expand Northern Trust’s Global Fund Service capabilities, particularly in the fund administration and ETFs.
Owned 36% by the government, Bank of Ireland, is selling assets in an effort to raise 2.2 billion euros of additional capital required by the central bank. The banks in the country are under pressure as bad loan losses are escalating subsequent to the collapse of the domestic real-estate bubble.
Northern Trust anticipates that on completion of the transaction, combined assets under custody and administration in Ireland will increase by approximately $96 billion (€70 billion).
On the other hand, the deal will increase Bank of Ireland’s core Tier 1 capital by €40 million and also the financial potential of the bank. Since 2000, Northern Trust has been providing custody and fund administration services to clients from its Dublin office and opened its Limerick operations in 2006.
Earnings Recap
Last month, Northern Trust reported fourth-quarter earnings of 64 cents per share, below the Zacks Consensus Estimate of 71 cents per share. The decrease was attributable to low interest rate environment, which negatively affected net interest income and trust fees.
Our Take
The combined entity is expected to boost Northern Trust’s position in Ireland and will make the company more competitive in the market. Further, we expect increased asset management and servicing fees based on improvement in equity markets and higher volumes. The company is also poised to benefit with the growth in client network.
However, we expect low interest rate environment to continue restraining earnings, impacting net interest income and securities lending fees. Moreover, the Dodd-Frank Act will ring in numerous regulatory changes over the next several years, which might act as a deterrent to the company’s fundamentals.
Northern Trust currently retains its Zacks #4 Rank, which translates into a short-term Sell rating. However, considering the fundamentals, we are maintaining our Neutral recommendation on the stock. We also maintained a Neutral recommendation on Northern Trust’s peers — The Bank of New York Mellon Corporation (BK) and State Street Corp. (STT).
BANK OF NY MELL (BK): Free Stock Analysis Report
IRELAND BK-ADR (IRE): Free Stock Analysis Report
NORTHERN TRUST (NTRS): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
Zacks Investment Research
