State Street (NYSE: STT) closed at $174.96 on October 9 and has returned 25.5% over six months, ahead of BNY (11.9%) and Northern Trust (10.5%). The article stresses that custody banks earn very thin returns on assets, from 0.87% at State Street to 1.28% at Northern Trust, and that their profits depend on enormous balance sheets and clients who rarely switch custodians. Northern Trust stands out with a 42.50% operating margin, 36.40% revenue growth and 88.00% earnings growth in the latest quarter, though it spent more on investment than it generated in operating cash. On forward earnings, State Street trades at 11.30 times, below Northern Trust at 13.09 and BNY at 13.90, so the article calls State Street the cheapest and Northern Trust the one worth paying more for. The shared risk it identifies is falling interest rates, which would reduce income from interest and cash-balance fees.
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