Manufacturing 'an area we're watching closely': KeyCorp CFO

KeyCorp is keeping a close watch on its manufacturing portfolio amid widespread concerns about a slowdown in that sector, a top executive said Wednesday.

Chief Financial Officer Don Kimble stressed that the Cleveland company has been “very diligent” in underwriting loans to manufacturing companies and isn’t overly exposed to that business. Roughly 10% of Key’s $67 billion commercial loan portfolio is in manufacturing, but because of where Key is based, its exposure is often assumed to be much higher than that, he said.

The manufacturing sector has hit a slump in recent months, at least partly because of ongoing tensions over U.S. trade policy, and many analysts believe manufacturing is already in a recession.

“That’s an area that we’re watching closely. I’d say tariffs and other issues are having an impact on the manufacturing sector, and we’re offsetting that with some growth in some of our other industry verticals,” Kimble said at the Bank of America Merrill Lynch Future of Financials conference in New York.

The $146.7 billion-asset Key is predicting loan growth in the low single digits in the fourth quarter. Kimble said he expects that commercial and industrial lending, which climbed 8% in the third quarter from a year earlier, will slow and commercial real estate balances will stabilize. Its outlook for consumer lending is somewhat brighter, as Key expects its acquisition of the student lender Laurel Road, as well as investments in its digital mortgage platform, to drive growth there.

Kimble’s comments on the loan growth outlook echoed those made by other big-bank executives this week. Commercial clients, particularly larger ones with more international exposure, have become increasingly cautious about borrowing, while consumer loan demand has remained strong thanks to low unemployment and declining interest rates.

Broadly, Kimble said that Key should be able to generate revenue growth and maintain a stable net interest margin in the fourth quarter and next year. Key has also been carefully managing its expenses in order to stay within its targeted efficiency ratio of 54% to 56%, he said. Its efficiency ratio was 56% in the third quarter.

He also said the company is unlikely to shift its strategy when Chief Operating Officer Chris Gorman succeeds CEO Beth Mooney next spring.

“From a strategic perspective, it will be a lot of the same Key you’ve seen over the last couple years," he said.