Capital Markets

CFOs React: Northern Trust’s Steven Fradkin

The finance chief of the Chicago-based bank worries about his clients and his balance sheet more than "market gyrations."
Alan RappeportOctober 3, 2008

Steven Fradkin, CFO of Northern Trust, likes to say that life is not always so sweet in the C-suite. The jobs are high pressure and the stress can be daunting.

The sentiment rings especially true now, with banks collapsing, merging, and being bailed out by the government. While much of the focus has been laid upon the fall of storied Wall Street banks, such regional banking institutions as Chicago-based Northern Trust are feeling the pressure, too. Last week, for example, the KBW bank index, which tracks the performance of regional bank stocks, fell by 21 percent while the $700 billion federal rescue plan hung in the balance.

Working for a regional bank, the finance chief feels he’s at the nexus of finance and economics. “Wall Street and Main Street are intersecting streets in the same village,” observes Fradkin.

The past couple of months have been a perfect storm of financial calamities that even the best forecasters could not have predicted. For Fradkin, the top concerns have been keeping his clients calm and satisfied while maintaining a solid balance sheet. “Helping our clients will ultimately help us,” he says.

To that end, Northern Trust has provided capital-support agreements to ensure that its investment funds maintain a stable asset value and prevent any chance of “breaking the buck”; that is, decreasing to a price lower than $1 per share, a benchmark of failure for money-market mutual funds.

Also, the bank agreed to repurchase any illiquid auction-rate securities that were bought through its Personal Financial Services arm or its affiliated brokers. “We decided it wasn’t worth having them worry about it,” says Fradkin. “We’re trying to take a headache off our clients’ hands.”

In the past few months, several banks have agreed to repurchase auction-rate securities from clients who thought they were “cash equivalents” before the market froze and investors were forced to hold on to them.

Although happy customers are paramount, Fradkin is keeping a watchful eye on the balance sheet. Risk management has never been more important, and the margin of error has narrowed in such a volatile market environment, he says.

The CFO also tries to avoid being swept up in the drama of the current stock-market volatility. While he follows such indicators as the Dow Jones Industrial Average and the London interbank offered rate, as a manager Fradkin likes to focus on things he can control.

“I don’t obsess over that,” he says of the various gyrating indices. “I spend more time focused on how we are executing for clients. In the end, if we do that at an exceedingly high standard, the stock price takes care of itself.”

Northern Trust’s stock price opened at $66.24 per share on Friday, down from a 52-week high of $88.92. The 119-year-old bank has $751.4 billion under investment management.

Although investors have been rattled by troubles in the banking sector, Fradkin says Northern Trust’s long history of stability has allowed it to benefit from the current “flight to quality” mentality. “People look for a place that they’re comfortable with,” he says. “From a client perspective, the challenges that Lehman and others have faced have been helpful to us.”

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