IBS Journal December 2017
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taken so far will avoid layoffs. While I didn’t ask Houlihan this, it is obvious that the bank, in line with almost all of the big banks, will have to take advantage of new technologies such as robotics to slim down its permanent workforce.
In October Northern announced what it called “Value for Spend,” a companywide expense management program aimed at reducing costs by evaluating the company’s structure.
According to The Chicago Times, Northern Trust’s chief financial officer, Biff Bowman said the bank may outsource services and consider new tools like artificial intelligence and robotics to increase efficiency and productivity.
“We are committed to building on our growth momentum to achieve a better balance between revenue expansion and the expense needed to support that expansion,” Bowman told analysts during a conference call recently to discuss Northern Trust’s quarterly earnings.
Northern executives have “always focused on growing our franchise,” but recent efforts to rein in costs have “plateaued,” Bowman said.
News of the cost-cutting program came a day after the bank announced that current president Michael O’Grady will take over as Northern Trust CEO in January 2018. 1. Frederick Waddell, the current chairman and CEO of Northern Trust, will stay on as chairman.
Waddell said in a statement that the cost-cutting work will be evenly distributed over the next three years, and that the company will keep investors informed on the progress of the initiative.
In the third quarter earnings call November 2017 Biff Bowman said: “With our value for spend initiative, we will be focused on realigning our expense base in the short-term. Expenses throughout the company with a focus on non-client facing functions are under review. A portfolio of initiatives will support profitable growth by permanently taking expense out of our operating model.
Initiatives fall into three categories, organisational alignment, process optimization and strategic resourcing, strategic sourcing. We expect to realize $250 million and expense run rate savings by 2020. Our longer-term goal is to sustain profitable growth. We are embedding new management discipline across the enterprise. Additionally, we will review an ongoing pipeline of cost savings initiatives.”
Houlihan sets the record straight: “Being a long-established bank with relatively deep pockets as a stand-alone investment manager means that we have a better chance of putting into place and leveraging the new technologies and the strategies to deal with the disruption which we see all around us. I don’t like to use that
word because we are always looking to the future and just see these as new opportunities – certainly not threats.”
There is a lot of other work being done behind the scenes at Northern Bank. They are working on proving out some natural language tools, cognitive tools and big data tools and data science initiatives. Houlihan says: “Robert P. Browne, our executive vice president and chief investment officer, sits on a number of Silicon Valley company fund boards so at any given time we are doing a proof of concept on at up to thirty new companies with a view to investment. Now some of that will obviously be throwaway but we are concentrating on what we can leverage as a bank and what technologies will be valuable for our customers and clients.”
Northern Bank can be proud of its recent achievements – it is doing a lot on the blockchain side – it was the first to market with a full blockchain capability in its partnership with IBM on the private equity side out of Guernsay and have opportunities in other locations whether that be Delaware, Cayman Island or Luxembourg.”
Houlihan has a front-row seat at the fintech circus ring but he is very measured in his view of how Northern Trust will be using any new technology and doesn’t conflate the two.
“Most of the cool fintech I see tends to be very functional specific or very asset-class specific and then we’ll see it in certain segments like the private equity space or the asset-owner class so we feel that we have a decent handle on it as long as you are looking at how to put all these pieces together through the cloud and have a fairly sophisticate and faster-moving application architecture and our argument is why would that not be us? We have a very strong balance sheet and I can tell you I spend most of my time these days focused on how to deploy balance sheet capital through technology ends than other acquisition targets to not just be thinking about our capabilities in technology alone.”
Houlihan says that the experience the bank is replicating is like the one every user has on their mobile devices – ease and speed of use and dashboards to make their experience the digital experience front and centre. This, the use of robotics and artificial intelligence and developing the bank’s own staff are the main priorities for the bank in the next year. What can we do to disrupt rather than be disrupted, particularly through blockchains’ ability in the derivative space – particularly transfer agency and reconciliations.”
AS OF SEPTEMBER 30, 2017, •
$7.8 trillion in assets under custody
• •
$9.7 trillion in assets under custody/administration $1.1 trillion in assets under management
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