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Trust and Custody Banks: Financial Winners

Stocks in this article: AGNC NLY BK STT NTRS I:BKX

NEW YORK ( TheStreet) -- Trust and custody banks were the winners among the nation's largest financial names on Monday.

Shares of State Street of Boston were up over 2% to close at $61.67, while Bank of New York Mellon was up nearly 2% to close at $28.82 and Northern Trust of Chicago was up over 1% to close at $55.11.

The broad indices ended mixed, after the Census Bureau reported Monday that retail sales rose 0.1% in April after falling by a revised 0.5% in March. The consensus estimate among economists polled by Thomson Reuters was for retail sales to fall 0.3% in April.

The Census Bureau also said manufacturers' and trade inventories during March were rose by 0.1% during March from February. Economists had expected inventories to increase by 0.3% during March.

The KBW Bank Index (I:BKX) was up 0.4% to close at 58.79, with all but four of the 24 index components showing gains for the session.

"We're seeing the green shoots of spring," for the trust and custody banks, according to BernsteinResearch analyst Brad Hintz, who says that the trust banks are a play on the rising fortunes for asset managers.

"It appears that the retail investors in North America are slowly embracing more risk," Hintz says. "That is leading to money flowing into the asset managers, which is a pretty good tail wind for the trust banks."

With continued evidence of sustained economic growth, although some recent economic reports have been more positive than others, investors also see the trust banks as a play on rising interest rates. "We have the trust banks all still marked as 'market perform,' but on the other hand, it certainly is looking up for the group," Hintz says, adding that "they should do very well when rates ride."

The prospect of significantly higher rates weighed on the shares of large mortgage real estate investment trusts. Shares of Annaly Capital Management (NLY) were down over 2% to close at $14.73, while American Capital Agency (AGNC) was down over 3% to close at $29.05.

Both REITs feature very high dividends, as the companies borrow at record low short-term rates, while making leveraged investments in long-term mortgage backed securities, much of which was purchased at significant discounts.

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