Northern Trust Corporation (NTRS) has been granted license for its Beijing Branch Office by the China Banking Regulatory Commission (CBRC). This represents an important step in the company’s expansion plans.
Northern Trust’s new license would permit it to provide client services directly from the Beijing office, instead of offering services from Singapore or Hong Kong. This branch office would provide services including global custody, accounting, performance measurement and investment mandate compliance monitoring to institutional clients in China.
Northern Trust’s association with China is not new. The company started a cooperative relationship with the Bank of Communications in 1999. In 2002, it initiated consultation with China’s National Council for Social Security Fund (NCSSF) as part of its preparation for investment in overseas equities markets. And finally, the company received approval to open a representative office in 2005.
Besides, Northern Trust, in June 2010, Bank of New York Mellon Corporation (BK) also got the authorization from the CBRC to open a banking branch in Beijing to provide services to the company’s institutional clients. Again in July, BNY Mellon received the regulatory approval from CSRC for setting up a joint fund management company with Western Securities in China.
Besides Northern Trust, the major banks that have forayed into the Chinese capital market include JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and UBS AG (UBS).
This Beijing branch office license would enable Northern Trust to continue growing in the Asia-Pacific region, which has a strong growth potential. This region has experienced an 80% growth in assets under custody in 2009. Northern Trust has already strengthened its operating team in this region by increasing its staff to over 2,000 in the past three years.
China in particular has experienced solid growth in recent times and offers considerable space for expansion in the future. With the license for opening a banking branch in Beijing and approval for a number of JVs, the Chinese establishments are showing their eagerness of converting the country into a global financial hub.
Though growth in asset management and servicing fees based on anticipated improvement in equity markets and higher volumes are expected in the upcoming quarters, we believe that the low interest rates, which appear poised to be sustained for the remaining 2010 and in the first-half of 2011, will continue to restrict its interest margin.
Currently Northern Trust carries a Zacks #3 Rank (Hold), implying no clear directional pressure on the stocks over the next one to three months.