KeyCorp this week won permission from the Federal Reserve Board to underwrite corporate debt and equity through its securities affiliate, KeyCorp Capital Markets Inc.
The Cleveland-based banking company is the 25th bank to obtain so-called Tier 2 underwriting powers. A slew of banks have sought to expand their securities businesses this year, because the Fed reduced a host of regulatory restrictions on section 20 units, as commercial banks' securities arms are known.
KeyCorp obtained initial authorization to establish a section 20 unit in early 1996 and has built its corporate finance capabilities steadily since then.
KeyCorp boosted the number of investment banking professionals in KeyCorp Capital Markets by 20 this year, bringing the total to about 130. Over the next six months, it expects to add another 20 people, said a KeyCorp spokeswoman.
Last year KeyCorp acquired the second-largest investment banking firm in Cleveland, Carleton, McCreary, Holmes & Co. And in February, KeyCorp signed an agreement with boutique securities firm SPP Hambro to provide private placements to its corporate customers.
"This market has become increasingly sophisticated and our mission is to deliver the full range of capital markets products to our clients in a seamless fashion," Shiv V. Krishnan, president of KeyCorp Capital Markets, said in a statement.
Banks such as KeyCorp seek to win more of their corporate customers' financing business by offering "one-stop shopping" service, including loans, private placements, and bond and stock underwriting.
Some observers questioned the ultimate revenue-generating strength of KeyCorp's new underwriting powers, given the bank's predominantly middle- market customer base.
"There's value in it because KeyCorp clearly has some corporate customers that can use the service, but I really don't expect it to be as meaningful to KeyCorp as it could be to some other companies," said Ruchi Madan, a bank analyst at PaineWebber Inc.
"I think this is their attempt to offer one-stop shopping to their customers who need it, but it's certainly not the focus of this company," she added.
But a spokeswoman said KeyCorp's customers are interested in having the bank underwrite their securities issues.
"We wouldn't be getting into this business unless we were hearing there's a need for this service from our middle-market customers," the spokeswoman said.
