Northern Trust Corporation (NASDAQ:NTRS) Q1 2018 Earnings Conference Call Transcript

Apr 17, 2018 • 10:00 am ET

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Northern Trust Corporation (NASDAQ:NTRS) Q1 2018 Earnings Conference Call Transcript

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Q & A
Operator
Operator

Thank you. (Operator Instructions) We'll take our first question from Brian Bedell, with Deutsche Bank.

Analyst
Brian Bedell

Great. Thanks, good morning folks.

Executive
Mark Bette

Hi, Brian.

Analyst
Brian Bedell

Hi, good morning. Maybe just to start off with FX trading, obviously another strong result, can you talk about the portion that you think is due from the FX swap activity in the treasury business, and it looks like even adjusting for currency volatility, were in the last two quarters, now we're seeing a big step up in that run rate, so just like to sort of think about that going forward.

Executive
Biff Bowman

Yes, thanks, Brian. So, we had really solid growth both sequentially and year-over-year in foreign exchange, as you highlighted. And that was really driven by two key factors: the first was, that in our core trading, if you will, our core trading business volumes were higher, and we did see some higher volatility. And so that produced approximately $63 million to $64 million of the FX volume you see, which is above our traditional run rate there. The remainder, approximately $15 million, is from the treasury swap activity, that we called out, and if I could I'd like to give a little bit of an explanation on that. As a part of our normal balance sheet management, we manage our currency and put it in the most effective currency. We have been able to, because of a demand for dollars from certain institutions, take dollars from our Fed balances, swap them into sterling and euro and place them with the ECB or the Bank of England.

So, when we've done that the resulting benefit from the currency swap, flows through the FX line. As you would understand, we gave up some net interest income to get that. So the $15 million improvement you have seen in the FX line that's attributable to treasury trades, was there was about $10 million of net interest income give-up to do that, but that's still a good economic trade for our shareholders if you think about that. And right now that's because of the widening we've seen, in that swap trade because of the demand for dollars. So, it's hard to project where that trade and that spread will go, but we've taken the right currency decisions, and the right balance sheet decisions, in the first quarter of this year, and even a bit of the tail end of 2017.

So, about $63 million to $64 million was core FX, and $15 million was driven by the treasury swaps. You'll be able to see that in the 10-Q, as well that shows up under the treasury trading line in the segment reporting.

Analyst
Brian Bedell

Great, and that's fantastic color, thank you. And then maybe just to follow up on expenses. Obviously, a very good expenses controlled quarter. And you've achieved a little over 25% of the 250 programs so far on a run rate basis. So could you just talk about the trend going into 2Q and into the rest of this year,