Acquisitive KeyCorp May Become Target

KeyCorp has earned a reputation as an enthusiastic buyer of overlooked banks. Now its own stock looks ripe for picking.

"This is one of my favorite stocks," said Bruce Herring, who manages a $50 million portfolio of financial services stocks for Fidelity Investments in Boston.

Mr. Herring called KeyCorp a real buy. At $41, the stock trades at only nine times projected 1992 earnings.

More Fuel for Earnings

Two acquisitions have given its robust earnings an extra lift. The Albany, N.Y.-based company recently acquired assets and deposits of Goldome Savings Bank and Empire of America, which had been seized by the FDIC.

"Those two deals have been home runs," said David Berry, an analyst with Keefe, Bruyette & Woods Inc.

The Goldome deal alone has added $5.3 billion to the bank's balance sheet and is expected to contribute 37 cents a share to earnings in 1992.

Net Rises 40%

As a result, third-quarter earnings soared to $52 million, 40% higher than a year ago.

Share earnings rose only 16%, however, mainly because of dilution resulting from an issue of common stock earlier this year.

"KeyCorp has a very attractive earnings gain from buying failed banks," said Mr. Herring, whose company holds about 8% of the bank's outstanding shares.

Further Growth Seen

Mr. Herring predicts a 15% gain in per-share earnings in 1991 and 1992, primarily on the strength of those acquisitions.

Salomon Brothers is also gung ho on KeyCorp. Analysts for the big Wall Street investment bank said earnings were on course to $4.45 a share in 1992.

They expect the stock to hit $50 in the next 12 to 18 months. Last Friday, the stock closed at $42.375, up 87.5 cents.

Not all analysts, however, are bowled over by its prospects.

"They are attractive, but not overwhelming," said Keefe's Mr. Berry, who predicts earnings of $4.60 in 1992.

Geographic Reach

KeyCorp has 625 branches predominantly in sleepy small towns spanning eight states from Maine to the Pacific Northwest to Alaska.

Except for a dip in earnings in 1987, KeyCorp's performance over the past five years has been steady, though not stellar.

Return on equity has been about 14.5% and return on assets just under the magic 1% since 1986.

By 1994, KeyCorp should break the 1% ROA barrier and record an ROE of more than 16%, according to Salomon Brothers.

Exclusive Club

At that level, the bank should break into the ranks of top superregionals.

Under chairman Victor J. Riley Jr., KeyCorp has stuck to consumer and small-business lending.

The largest loan slightly exceeds $30 million and the bank has no highly leveraged transactions or loans to developing countries on its books.

About two-thirds of its assets are in New York. While New England's economy has been scraping bottom for months, business in the Pacific Northwest has picked up and nonperforming loans there have decreased.

Steady Provisions

Still, loan-loss provisions and charges for foreclosed real estate have hovered about $50 million for the past two quarters.

Nonperforming assets rose 43% in the third quarter from their year-earlier level. But the addition of the two thrift's assets kept the percentage of non-performing assets to 2.5% of all assets.

All considered, investors are warming up to KeyCorp. Said Mr. Berry, "Their basic strategy is clearly in favor." [Graph Omitted]

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