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I urge you to read our 2009 Annual Report and our periodic reports to the Securities and Exchange Commission for detailed information about factors that could affect actual results.Thank you, again, for your time today. Let me turn the call over to Bill Morrison. Bill Morrison Thank you, Bev and good morning, everybody. It’s my pleasure to speak with you today on Northern Trust’s second quarter earnings conference call. Earlier this morning Northern Trust reported second quarter net income of $200 million. Reported earnings equaled $0.82 per share. Our second quarter results include an expense credit of $0.04 per share related to the 2008 IPO of Visa which impacted all of Visa member banks. In our press release issued earlier today, we provided operating results which are exclusive of this Visa-related item. We believe operating results provide a clearer indication of the results and trends in our core businesses, therefore, our commentary for the remainder of today’s conference call, will focus on operating results, which are exclusive only of the Visa-related item. To that end, Northern Trust today announced second quarter operating net income of $192 million. Operating earnings equaled $0.78 per share. To help you evaluate our performance this quarter, I will begin with a brief overview of market conditions that influenced our results, specifically equity markets and interest rates. Equity markets, as you know, deteriorated during the second quarter, with the S&P 500 and EAFE indices both falling approximately 12%. Let me review the impact of these equity market trends on fees earned by Northern Trust. Equity market performance calculated on a one-quarter lag basis is the methodology used for calculating C&IS custody and PFS wealth management fees. The S&P 500 increased 46% year-over-year on a one-quarter lag basis. On a sequential quarter basis, the one-quarter lag markets increased 5%. Using the one-month lag methodology that applies to PFS fees, excluding wealth management, the S&P 500 was up 33% versus the prior year and up 4.6% versus the first quarter.
Short-term interest rates remained at extremely low levels throughout the second quarter. For example, in the United States, overnight interest rates averaged only 19 basis points in the second quarter, a modest improvement from 14 basis points in the first quarter.Three-month rates averaged 44 basis points, a welcome increase of 18 basis points sequentially, but still 40 basis points below one year ago. Short-term interest rates for the euro and sterling were also at low levels by historical standards. Our Chief Economist, Paul Kasriel, recently pushed out his forecast for Fed tightening from early 2011 to mid 2011, and noted that the first tightening might not take place until early 2012. As many of you know, low interest rates have impacted our recent performance most noticeably by pressuring both our net interest margin and the fees that we earn on money market mutual funds. I’ll discuss both of those impacts in more detail later on the call. With that environmental backdrop, let me review of our second quarter results. Revenues in the second quarter equaled $974 million, down 7% compared to last year’s second quarter, but up 7% sequentially. Trust, investment and other servicing fees are the largest component of our revenues, representing 56% of total revenues in the second quarter. Trust, investment, and other servicing fees of $544 million decreased 10% or $75 million year-over-year. Virtually, the entire decline reflects the year-over-year change in positive marks associated with the one mark-to-market fund used by certain securities lending clients. Positive marks impacted our fees in the second quarter of last year by $129 million, compared to $37 million in this year’s second quarter or $92 million year-over-year difference. Adjusting for these positive marks in both years, trust fees increased 7% year-over-year. On a sequential quarter basis, trust fees increased 6%. Read the rest of this transcript for free on seekingalpha.com