KeyCorp 2Q Loss Narrows On 2008 Charge, Boosts Provisions

   DOW JONES NEWSWIRES 
 

KeyCorp's (KEY) second-quarter loss narrowed on a year-earlier charge as the regional bank again boosted its loan-loss provisions and results missed expectations.

The company also slashed the amount of preferred shares it plans to exchange by 71%.

KeyCorp wasn't a big subprime player but expanded aggressively into hot markets that are now deeply troubled and has grappled with surging loan losses.

Many regional banks have suffered during the credit crunch on their considerable exposure to construction and commercial real-estate loans, as well as their longer exposure to the deteriorating housing market and recent increases in unemployment.

Chief Executive Henry Meyer III said the company's results continue to reflect the weak economic environment and the steps it has taken to address issues in credit quality, strengthen capital and control costs.

The Ohio regional bank posted a loss of $236 million, or 69 cents a share, compared with a year-earlier loss of $1.13 billion, or $2.71 a share. In addition to the loan-loss provisions, the latest results included $114 million in charges related to the exchange of common shares for preferred stock. The prior year's results included a $1.01 billion charge related to a federal tax-court ruling.

Excluding items, the loss was 68 cents, compared with year-ago earnings of 34 cents. Analysts polled by Thomson Reuters expected a 41-cent loss.

Loan-loss provisions were $850 million, up 31% from a year earlier and down 2.9% from the prior quarter. Net charge-offs of average loans from continuing operations rose to 3% from 2.75% a year earlier and 2.65% in the prior quarter. Nonperforming assets rose to 3.6% from 1.6% and 2.7%, respectively.

The company's tangible common equity ratio, which measures how much of a bank's hard assets its common shareholders actually own, was 7.4%, from 6.3% in the year earlier and 6.1% in the first quarter.

Deposits grew 5% from a year earlier.

KeyCorp said earlier this month it had surpassed its target of a $1.8 billion increase in common equity, which was dictated by government stress tests. Last month, Fitch Ratings cut its issuer default ratings on KeyCorp one notch as part of its review of U.S. banks, saying that although its capital raise provided extra loss absorption, it still faces elevated risk because of exposure to commercial real estate.

KeyCorp said Wednesday it would now accept up to $500 million in trust preferred securities as part of its exchange offer, down from its original intention to accept $1.74 billion in exchange for common stock.

KeyCorp's shares closed Tuesday at $4.82 and haven't traded premarket. The stock is down 43% this year.

-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; [e-mail]