Northern Trust Corporation (NASDAQ:NTRS) Q2 2020 Earnings Conference Call - Final Transcript

Jul 22, 2020 • 10:00 am ET

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Northern Trust Corporation (NASDAQ:NTRS) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you. [Operator Instructions] We'll go first to Alex Blostein with Goldman Sachs.

Executive
Mike O'Grady

Hey Alex.

Analyst
Alex Blostein

Hey, good morning guys. Thanks for taking the question. So, I guess my first question is related to money market funds. I'm curious if you guys can give us your latest thoughts on outlook for money market fee waivers. It doesn't look like there is really anything in the quarter so far, but clearly rates have come down quite meaningfully. So to frame it, maybe, as we think about your current prevailing market rate and second quarter money market fund balances if you'll kind of go through the repricing mechanisms. Can you give us a sense of what the fee waivers could be, as we look out over the next few quarters?

Executive
Mark Bette

Sure Alex. So first of all, you're right the quarter doesn't have a lot and so let me give you a couple of facts, and then I'll get to what the outlook could look like. So, first of all, in second quarter waivers were less than $0.5 million. As we think about the current run rate, as we sit today they're about $2.5 million a quarter. That said, we're going to start to see this ramp a little bit, as the portfolio gets repriced and so as we look out to the end of fourth quarter and even into next year assuming rates stay the way they are today.

We could see waivers getting in the $20 to $39 a quarter range. Now, those are the facts, I also want to just provide a little bit of a significant framework to your question about how people should think about it. We've had a lot of growth in the money market fund business. Obviously, we talked about that earlier, and even if you look at the treasury fund that's among the top three in size and investment returns in the universe, it's grown from -- it was at $55 billion at year-end and it's about $90 billion today overall.

Overall, the complex has about 30 funds, and they totaled $275 billion to $300 billion in aggregate. Now that whole complex is geared toward a very institutional and high net worth client base. That's very important to realize because, it means the pricing on average is lower than a retail complex. That complex -- the funds has a fee rate ranging in general, think about 15 basis points to 20 basis points.

There are exceptions on either side, but that's where the bulk of the assets are. If I take those 30 funds and boil it down to the ones that are most likely to have waivers, there's really a handful or half dozen funds that have both large AUM, but also have yields that are within 10 basis points to 15 basis points of the fees. Those handful of funds totaled $125 billion plus or minus. The gross yield on those funds is about 30 basis points and the stated beyond then probably 20 basis