A shareholder of Northern Trust Corp. on Tuesday sued the Chicago-based financial services firm, claiming, among other things, that the company’s executives made “improper statements” so they could pump up the stock price and later sell $100 million of their own stock.
Northern investor Daniel Himmel filed the 71-page suit against Northern and about 20 of its executives and directors in Cook County Circuit Court. He’s seeking unspecified damages and asking that new corporate governance policies be instituted to strengthen the board, better monitor share repurchase programs and control insider selling.
“While Northern’s stock price was inflated due to defendants’ improper statements, certain defendants also directed the company” to repurchase nearly $175 million of its own shares, “wasting tens of millions of the company’s funds because the repurchases were made while the stock price was artificially inflated,” the complaint said. Himmel’s lawyer, Rowena Parma, didn’t immediately return a call for comment.
Northern shares were trading at $48 on Wednesday. The stock got as high as $87.20 in September 2008, before the global economic meltdown.
“We believe the complaint is wholly without merit,” a Northern spokesman said Wednesday. “Northern Trust will vigorously defend itself against this litigation.”
Northern Chief Executive Frederick Waddell and Chief Financial Officer William Morrison are among those named in the suit.
The lawsuit is filled with statements that Northern made both before and after the worldwide financial crisis erupted, about everything from its securities lending program to its commercial real estate portfolio.
Northern’s own chief economist, Paul Kasriel, for years had warned about the risks of the housing and credit crisis, the lawsuit said.
In 2004, Kasriel described the housing market as “an accident waiting to happen” and warned that “the most serious collateral damage from a housing bust would be a wounded U.S. banking system.”
From Jan. 1, 2009 to Dec. 31, 2009, Northern Trust stock was up 1 percent, according to a presentation at its annual shareholder meeting. The average for its peer group was up 6 percent. Ten firms outperformed Northern, including Goldman Sachs, which was up 100 percent in the time period, while nine underperformed Northern, including M&I Bank, which fell 60 percent.
Northern did better over a longer time frame, from June 30, 2007, through March 31, 2010, according to its shareholder presentation. Northern stock was down 14 percent while its peer group, on average, was down 54 percent. Only JPMorgan Chase and Wells Fargo outperformed Northern in that time frame, down 8 percent and 12 percent, respectively. Citigroup was down 92 percent in that time period.
