Northern Talks Tokenization, Deposits
Northern Trust released its latest earnings report and hosted its Q1'26 call Tuesday. CEO Mike O'Grady comments, "We're also seeing continued interest in our digital asset strategy, particularly in custody, reporting, and servicing of tokenized assets as tokenization moves towards scale. During the quarter, we onboarded five new clients providing custody and other services for tokenized real-world assets, U.S. stablecoins, European money market funds, and carbon credits. Turning to asset management. NTAM made good progress in the first quarter, with strength across liquidity, alternatives, and equities, positioning the business well to meet its 2026 targets." He says, "Within liquidity, we extended our streak to 13 consecutive quarters of positive flows with associated AUM increasing to $350 billion. Importantly, we continued to diversify our funding sources across global liquidity vehicles and third-party platforms while gaining overall market share. We also launched a tokenized share class for our NIF Treasury Instruments Portfolio during the quarter, marking Northern Trust's entry into the digital asset marketplace. By applying tokenization to institutional-grade liquidity strategies, we're offering clients a modern, digital-first way to access money market investments while maintaining our high standards for risk management and service." CFO Dave Fox, tells us, "Deposit levels were higher than expected throughout the quarter as a result of both elevated volatility and general uncertainty in the marketplace. Average deposits were $129 billion, up 8% compared to fourth quarter levels and 11% year-over-year. Within the deposit base, interest-bearing deposits increased by 8% sequentially, and non-interest-bearing deposits increased by 5%, remaining at 15% of the overall mix.... Sequentially, NII was favorably impacted by higher deposit levels, including growth in non-interest-bearing deposits, along with the impact from fixed asset repricing and deposit pricing actions we've taken, which was partially offset by the full quarter's impact from the fourth quarter rate cuts." Asked about deposit growth and large deposits, O'Grady replies, "We had some largely unexpected, extremely large deposits. You've heard me speak in the past about why we keep our capital ratios where we keep them, and we want our balance sheet to be open at all times for our largest clients. Occasionally, some of our clients will do some strategic repositioning, and we want to be in a position to capture those deposits when they do that. They're not core operational deposits. They aren't there for a long period of time, but we want to be able to accommodate them.... At the end of the day, that's really what you saw there was client-driven, specific, very large deposits from just a handful of just really important big clients." Finally, O'Grady says about family offices, "They have significant liquidity, which they are, I'll say, utilizing and moving around quite a bit. It can move from on the balance sheet as deposits into our money market funds or short-term Treasury. It's, I'll say, a pretty active management of liquidity that we do ... on their part and for them.... We have the benefit of having this strong Family Office business, which we've been in for quite a while and have built up the capabilities."
