Key Corp Increases Loan Loss Estimates One Month after Stating Earnings

KeyCorp raises forecast for loan losses
By John Spence
MarketWatch
9:50 a.m. EDT May 28, 2008

BOSTON (MarketWatch) -- Shares of KeyCorp came under early pressure Wednesday, retreating more than 10% after the regional bank increased its 2008 outlook for loan losses as a result of ongoing credit turmoil and housing-market weakness.

In a regulatory filing, the Cleveland-based company KEY) said it now anticipates net loan charge-offs in the range of 1% to 1.3% for the full year, up from its previous estimate of between 0.65% and 0.9% of average loans.

KeyCorp said it plans to deal "aggressively" with reducing exposure in its residential home-builder portfolio, and sees "elevated" net loan charge-offs in its education and home-improvement loan portfolios.

Several Wall Street analysts cut their profit estimates on KeyCorp in the wake of the news. Some were surprised that the revised outlook for loan losses came so soon after KeyCorp reported first-quarter results.

"While management had previously stated that these portfolios would drive higher loan losses, the major surprise is the degree to which management is increasing its guidance only a month after earnings, reflecting either misjudgment before or a significant deterioration in asset quality," wrote Deutsche Bank analyst Mike Mayo in an investor note. (We can expect to see a lot of these 'surprises' as the insiders continue to slowly sell off stock and bonds to the public. - Jesse)

KeyCorp's shares traded down $2.26 to stand at $19.69 in early action.

In April, KeyCorp reported first-quarter net income that fell 38% from the year-ago period as the company's provision for possible losses on bad loans rose by more than four times. At that time, the company raised its full-year loan-loss estimate to between 0.65% and 0.9%, up from a range of 0.6% to 0.7%.

John Spence is a reporter for MarketWatch in Boston.