KeyCorp, having struggled to realize benefits from its 1994 merger with Society Corp., announced several restructuring steps Monday, including employee cutbacks exceeding 10% of its 28,000-member work force.
The Cleveland-based company said 2,700 jobs would be eliminated through consolidations of its 12 bank charters into one. Hundreds more would disappear through sales or closings of about 280 branches.
KeyCorp said the moves will cause a $100 million charge against this quarter's earnings: $52 million for severance and outplacement, $28 million for technology writeoffs, and $20 million for branch closings.
Though painful in the short run, the measures gained market approval as KeyCorp's shares rose by $2.375 Monday, to $51.25. Investors may also have been applauding a new share buyback program that could result in up to 12 million being repurchased by the end of next year.
Analysts said the company is insulating itself from takeover bids.
"KeyCorp has the choice to take some tough actions today or risk someone acquiring them," said Michael Mayo of Lehman Brothers.
Robert W. Gillespie, chairman of KeyCorp, said the actions would place it "among the top-performing financial services companies in terms of both productivity and earnings growth."
Mr. Gillespie said $110 million in additional income would result by the end of 1997. He also said the company would reduce its ratio of operating expenses to revenue from 61% to 55% over that period.
KeyCorp said it would consolidate nearly 140 branches, known as KeyCenters, into other nearby offices. A slightly larger number of branches, mostly in rural areas, are to be sold. In all, almost a fourth of the 1,218 branches KeyCorp had on Sept. 30 - down from 1,301 a year earlier - could be gone by the third quarter next year.
The $65 billion-asset company plans to sell $3 billion of deposits and $1 billion of loans, said Robert Jones, executive vice president of community banking.
Analysts, contending such drastic actions should have been taken when KeyCorp and Society merged in March 1994, said KeyCorp spent too long trying to set its future direction and settle on its management team.
"Better late than never," Mr. Mayo said Monday.
When the merger was announced in 1993, KeyCorp chairman Victor Riley was designated chairman and chief executive officer, while Society's Mr. Gillespie waited in the wings. Mr. Gillespie was named CEO in September 1995 and chairman earlier this year.
Dennis Shea, an analyst with Morgan Stanley & Co., said KeyCorp and Society also had two distinct cultures. KeyCorp's believed in small town- oriented decentralization; Society's was more urban and suburban, seeking benefits through consolidating operations.
Over time, Mr. Gillespie and his former team gained control and are consolidating it. Many of the branches slated for sale or closure are former KeyCorp offices in the Northeast and Northwest.
Mr. Shea said the long time it took to make the merger work pointed up the difficulties in mergers of equals. Expenses were high, he said, as the company wrestled with internal organizational and strategic issues.
Fred Cummings, an analyst with McDonald & Company Securities in Cleveland, said, "With this (restructuring) plan in place, they're less vulnerable. This takes some pressure off of them."
However, Mr. Cummings noted KeyCorp has taken two other restructuring charges since the merger. "There can't be any more restructuring charges, and they know it," Mr. Cummings said, describing the move as one of "competitive necessity."
Mr. Mayo said cost-cutting can sustain KeyCorp earnings growth for another couple of years, but the company still must identify major revenue producers.
This will "keep earnings momentum going," said Joseph Duwan, an analyst with Keefe, Bruyette & Woods. "The industry is just having a tremendous reconfiguration of the delivery system."
KeyCorp's Mr. Jones said the branch reductions will improve retail revenues because the network will become more efficient and more focused on attractive demographic niches such as the young affluent or seniors.
Mr. Shea said he recommends KeyCorp's stock, despite his frustration that the company hasn't lived up to its potential. Most analysts have responded more favorably to quantifiable moves like cost-cutting than to the banking company's emphasis on marketing, the creation of "Key" as a nationwide brand, and the unique span of its branch network across northern states from Maine to Alaska.
