Tuesday, January 25, 2011

KeyCorp (NYSE: KEY): Q4 Earnings Preview 2010

KeyCorp (NYSE: KEY) is scheduled to release its fourth-quarter earnings before the opening bell on Tuesday, January 25, 2011. Analysts, on average, expect the company to report earnings of 13 cents per share on revenue of $1.11 billion. In the year ago period, the company posted a loss of 30 cents per share on revenue of $1.11 billion.

KeyCorp operates as a holding company for KeyBank National Association that provides various banking services in the United States. The company operates in Community Banking and National Banking divisions. At September 30th, 2010, its tangible common equities, tangible asset ratio was 8.0%. Its Tier 1 common equity ratio was 8.59%, and Tier 1 risk-based capital ratio was 14.26 percent.

In the preceding second quarter, the Cleveland, Ohio-based company's net income was $219 million, or 20 cents a share, compared to a loss of $397 million, or 52 cents a share, in the year-ago quarter. Revenue increased 15% to $1.133 billion from $981 million in the same quarter last year. Analysts, on average, expected the company to report earnings of 3 cents per share on revenue of $1.09 billion.
At June 30, 2010, KeyCorp's estimated Tier 1 common equity ratio was 8.01% compared to 7.51% at March 31, 2010, and estimated Tier 1 risk-based capital ratio was 13.55% up from 12.92% one quarter ago. A significant decrease in provision for loan losses, solid expense management and improved fee income were the primary factors that boosted results.

The company has benefited from the continued improvement in credit quality across the majority of loan portfolios in both Community Banking and National Banking. KeyCorp has also experienced good growth in Private Banking and Key Investment Services, its branch-based investment group.  At its last earnings call, the company said that it expects to experience continued improvement in the level of net charge offs and non-performing loans. As a result, the company expects our provision for loan losses to be less than the amount of net charge offs for the fourth quarter of 2010. 

KeyCorp continues to reorganize its operations in order to improve its business mix by exiting risky and unprofitable businesses. The company continued to take decisive steps to exit low-return, indirect businesses to focus on its relationship strategy and use its capital and resources where it has cross-selling opportunities within its franchise. Most importantly, KeyCorp is gaining market share through its restructuring actions. The company opened 34 new branches during the first nine months of 2010. In October 2010, the bank said that it expects to open five new branches during the fourth quarter of 2010, increasing its market presence in selected markets of its 14-state branch network. The company has plans to open another 35 to 40 branches in 2011.  In addition, KeyCorp continues with its plans to renovate its existing branches.

Late in December, the bank said that the proposed U.S. federal rules that would slash banks' debit card fee revenues could affect up to $100 million in revenue.

The regional bank has been often seen as a takeover target. With longtime Chairman and CEO Henry Meyer retiring in the spring, M&A speculation is likely to pick up surrounding the Key franchise.

Regional banks, which spent most of 2010 struggling to recover from soured real estate loans, have been slower to repay government bailout funds than large banks with more diversified businesses. KeyCorp still owes $2.5 billion in TARP money. For repayment, the company might have to indulge in capital raise in the upcoming quarters, which might have a dilutive effect on its earnings per share.

In terms of stock performance, KeyCorp shares have gained more than 14 percent over the past year.

Full Disclosure: None.
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