Northern Trust shares slide after forecasting bigger drop in net interest income

An employee walks past a company logo at Northern Trust offices in London

By Chibuike Oguh

NEW YORK (Reuters) - Shares of Northern Trust Corp fell by more than 9% to their lowest level in nearly a month on Tuesday after the custodian and asset manager forecast a bigger-than-expected drop in net interest income (NII) in the third quarter.

Northern Trust's NII, the difference between what it makes on loans and pays out on deposits, is likely to fall by as much as 10% this quarter, Chief Financial Officer Jason Tyler told the Barclays financial conference on Tuesday. That's double its prior forecast, made in July, of a 5% drop.

Like many financial institutions in the current high interest rate environment, Northern Trust is confronting growing financing costs as tries to hold onto deposits.

"So costs are up, and we - coming at the end of second quarter - felt good about cost pressure. We knew it was coming, but it hadn't really hit hard. In the third quarter, it's hit very hard," Tyler said.

Northern Trust shares sank to $69.81, down more than 9%, to their lowest level since mid-July after Tyler's comments. The stock, which has now lost nearly 19% year-to-date, was last at $71.99.

A Northern Trust spokesperson did not immediately respond to a Reuters request for further comment.

Asset and wealth managers, including Northern Trust and peer State Street Corp, are seeing a decline in NII as customers move deposits to higher yielding alternatives.

In July, Northern Trust reported that its deposits fell by 10% to $91.9 billion in the second quarter, although Tyler said on Tuesday deposits have generally stabilized.

Separately, Northern Trust on Tuesday published its flagship annual Capital Market Assumptions report, which forecast constrained global economic growth that could result in higher bond yields over the next decade, but a slow down in returns from equities.

(Reporting by Chibuike Oguh in New York; Editing by Michelle Price and Mark Potter)