Northern Trust Corp.’s new chief executive said he plans to use small acquisitions to expand domestically while opening offices to expand internationally.
“Our expansion effort is going to focus on developing our global footprint and increasing our capabilities to better serve institutional clients,” Frederick H. “Rick” Waddell, the 33-year Northern Trust veteran, said in an interview.
If the strategy sounds familiar it is because Mr. Waddell said he doesn’t plan to do anything dramatically different from his predecessor, William Osborn.
But Mr. Waddell said Northern Trust, which has 85 U.S. offices in 18 states, plans to make purchases in secondary U.S. markets. Though nothing is set in stone, he said he is interested in expanding in the Midwest, Minnesota, Ohio, Missouri, New England, and New York. “We’d also like to get into Mid-Atlantic states and regions like Philadelphia, Washington, and Virginia.”
Mr. Waddell, who took over as the Chicago company’s CEO at the beginning of the year, said Northern Trust doesn’t need to make a megadeal to keep up with larger competitors. Internationally, where Northern Trust has 15 offices, he said he wants to use an organic growth strategy that has worked for the past several years. “We may do an acquisition, but typically we’ve expanded our footprint internationally by opening small offices and then expanding as the business expands.”
Last year his company opened offices in Luxembourg, Amsterdam, and Melbourne, Australia, and Mr. Waddell said that it plans to open an office in Abu Dhabi this year. It also is interested in Germany, where it has received regulatory approval to open an office. “Our decision to open these offices was driven primarily to meet the needs of clients,” he said.
Mr. Waddell, 52, said Northern Trust’s international assets under custody have grown at an average annual rate of 30% for the past 15 years, but last year they increased 50%. Currently, 30% of its employees and 52% of its $4.1 trillion of assets under custody are outside the United States.
However, it does not have a specific goal for international growth for the next five years, he said. “Obviously, global expansion is a key driver of our growth strategy. We very much want global custody assets to continue to grow at its current level.”
Mr. Waddell, who succeeded William Osborn as the CEO, reiterated that Northern Trust does not need “a transformational deal just to get bigger for the sake of size,” but he said developing offices closer to where clients are located could help it develop additional assets.
Analysts said Northern Trust sat quietly on the sidelines last year while Bank of New York Co. Inc. and Mellon Financial Corp. completed their megadeal and State Street Corp. bought Investors Financial Corp.
But no one expects Northern Trust to change its strategy now.
“It is highly unlikely that they will make an acquisition this year or next,” said Mark Fitzgibbon, the director of research at Sandler O’Neill & Partners LP. “Northern has been fond of saying that the best acquisitions that they’ve done are the ones that others did, because they were able to poach a lot of business while others were distracted by integration.”
Mr. Waddell said his company still has the capital to invest in small deals, and it has watched competitors struggle after making a large one.
“We are competing globally with people that are much larger than us, and we are winning,” he said. “The bottom line is are we competing? And as long as the answer is yes, we don’t need to bulk up just for the sake of bulking up.”
Gerard Cassidy, an analyst at Royal Bank of Canada’s RBC Capital Markets, said: “As long as Northern keep delivering strong returns and earnings growth, they don’t need to make a deal. When their earnings are negatively impacted because they don’t have the size that the others have, that is when they will need to sell themselves or go out and buy something. And there is not a single sign that Northern is at that point or approaching that point.”
Some analysts said Northern Trust might be an attractive target for a large financial services company, such as JPMorgan Chase & Co., but Mr. Waddell said that in his brief tenure as the CEO, “I can tell you we haven’t had any discussions with anyone about selling.”
Northern Trust is dedicated to its “conservative and consistent” strategy, he said, and analysts said there is no better example of this than the new CEO himself, who has worked there since 1975 in such areas as commercial banking, corporate marketing, strategic planning, and wealth management. In February he became the heir apparent to Mr. Osborn, 60, by being named president and chief operating officer.
Mr. Waddell said the board never specifically told him his ascent would be so quick, “but a reasonable person could see that this was the initial step in a transition.”
Eight months later Northern Trust announced that it would promote Mr. Waddell to CEO at the beginning of this year, and that Mr. Osborn, its chief executive for 12 years, would remain the chairman.
From the beginning, Mr. Waddell said, he was committed to not overhauling the company. “There is not going to be a change in strategy just because I got this role,” he said. “We have positioned our business in certain markets and we want to grow in these markets.”
Northern Trust’s domestic acquisition strategy has been in place for years, he said. For example, when it realized five years ago that it wanted to gain a foothold in Atlanta, it bought a small money manager there, just as it had in California and Florida decades earlier.
“Acquisitions can offer us a terrific entry vehicle in order to enter very attractive markets,” he said. “We are interested in acquiring smaller investment management companies to bulk up in markets where we don’t have the history and the presence that we have in Illinois, California, and Florida.”
To continue its organic domestic growth and develop brand awareness, Northern Trust plans to increase advertising, Mr. Waddell said. Most visibly, it will sponsor a Professional Golfers’ Association tour event: next month’s Northern Trust Open in Pacific Palisades, Calif.
“This is the first time we’ve done anything like this on this scale,” he said. “Golfing events reach 450 million households in 40 countries, and this is a good way for us to develop brand recognition.”
The corporate marketing and advertising budget has grown every year since 2005, with a 30% increase planned for this year as a result of the golf sponsorship and a new slate of television ads that will air on CNBC, NBC, CBS, and the Golf Channel. Mr. Waddell also said his company has increased its online and print advertising.
Despite sponsoring a professional golf event for the first time, Mr. Waddell said that he is certain Northern Trust does not need to do anything “splashy.” Instead, it will consider adding alternative investment products, including hedge fund and private-equity products.
The company does not need flashy products or a big acquisition to “leapfrog” over competitors, he said. “We are committed to executing our strategy and continuing the growth track that … [Mr. Osborn] and others before him put us on. This company is not about one individual. My vision really isn’t that much different than anyone else’s here. We all want to continue to grow the company the right way.”
