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Culture of Conservatism Here to Stay at Northern Trust

We think this trust bank can expand margins over time, but shares look overvalued today.

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Eric Compton: The trust banks do not operate like your typical bank. For example, trust banks are not primarily focused on deposit gathering in order to fund loan growth. As a result, trust banks typically take on minimal credit risk and have low liquidity and duration risk. 

Rather than viewing trust banks through the lens of your typical bank, we instead think of them more as a service provider. The trust banks provide the infrastructure and technology which allow everyone to connect to and use the financial markets. This includes items such as record-keeping, maintaining custody of assets, calculating NAV values for mutual funds, and much more. The trust banks then charge fees for providing these services, leading to roughly 80% of total revenues coming from fees for these banks. We currently view BNY Mellon and State Street as more or less fairly valued, with both trading at roughly 8% above our fair value estimates. 

Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.