Magazine article American Banker

Key Slashes Costs, Branches as 2Q Profit Slips

Magazine article American Banker

Key Slashes Costs, Branches as 2Q Profit Slips

Article excerpt

Byline: Jackie Stewart

KeyCorp (KEY), which is still seeing expenses eat up more than two-thirds of its revenues, will slash costs and close branches in an effort to lower its efficiency ratio.

As it reported second-quarter results on Thursday, the Cleveland company announced plans to cut between $150 million to $200 million in expenses by the end of 2013 and close up to 5% of its more than 1000 branches. Key said it expects to see the full impact of these cuts in 2014.

The $86.5 billion-asset bank is hoping to reduce its efficiency ratio from 69% in the second quarter a a percentage point higher than it was in the first quarter a to 60% to 65%. The cost-cutting initiative, which includes the branch closures, is expected to reduce the ratio by four or five percentage points, while Key said it hopes to increase its revenues to make up the difference.

Key wants to improve that ratio to help weather the extended low interest rate environment, the increasing cost of regulation and a cautious attitude among American businesses, Beth Mooney, the bank's chairman and chief executive, said during a conference call with investors and analysts.

"You put all those together and it is clear, as I said, that we needed to be purposeful and proactive in addressing our cost base and our plans for revenue in light of those industry economics," she said.

The plan drew immediate praise from observers; one analyst on the conference call praised the cost-cutting initiative as "excellent."

Many of Key's regional bank competitors have better efficiency ratios, including Huntington Bancshares (HBAN), with a 62.8% ratio, U.S. Bancorp (USB) at 51.1% and Fifth Third Bancorp (FITB) at 59.4%.

KeyCorp is also the only bank in that group with its shares trading at less than 100% of its tangible book value. …

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