Morningstar | KEY Updated Star Rating from 18 Oct 2018
KeyCorp was hurt during the financial crisis largely because of its ventures into higher-risk commercial real estate lending in out-of-footprint states. Since the crisis, KeyCorp has wound down most of its construction-related commercial real estate business and refocused on its core corporate banking operations and capital markets services. Despite increasing credit quality and declining credit-related costs, a generally unfavorable environment for bank profitability has made it difficult for KeyCorp to regain its past profitability. This is finally reversing, as the banking environment is improving, and KeyCorp’s operating efficiency and scale have already improved drastically thanks to the First Niagara acquisition.KeyCorp has an odd geographic mix, with Ohio, New York, and Washington its three largest deposit markets. While this provides protection from a localized downturn, it has also made hitting ideal branch and deposit concentrations more difficult. The First Niagara acquisition has improved many of these metrics for KeyCorp, such as deposits per branch and average metropolitan statistical area market share. KeyCorp also has an opportunity to cross-sell new products into this previously underoptimized branch footprint, and we expect improved returns on tangible equity over the next several years.KeyCorp’s noninterest income comes primarily from investment banking and asset and trust management services. While noninterest income has not grown substantially for the past decade, we like that KeyCorp is expanding its relatively new credit card income base as well as beginning its own mortgage operations (obtained from First Niagara). Finally, while capital markets operations tend to be cyclical, with high relative employee costs, we see moderate growth for noninterest income returning to KeyCorp in the medium term.We expect KeyCorp will continue to target middle-market business clients with its wide collection of traditional bank products and capital markets capabilities. While the middle-market investment banking and advisory industry remains intensely competitive, we believe KeyCorp's improved scale and product capabilities will help here.KeyCorp is a bank holding company. Through its principal subsidiary, KeyBank National Association and certain other subsidiaries, the company has the following main business segments: Consumer Bank, which serves individuals and small businesses by providing a variety of deposit and investment products, personal finance and financial wellness services, lending, mortgage and home equity, student loan refinancing, credit card, treasury services, and business advisory services; and Commercial Bank, which is focused principally on serving the needs of middle market clients in the following industry sectors, including consumer, energy, healthcare, industrial, public sector, real estate, and technology.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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