KeyCorp of Cleveland has opened an investment banking office in Boston to target middle-market corporations in New England.

Fleet Financial Group’s merger with BankBoston Corp. in October 1999 to form FleetBoston Financial Corp., and the subsequent divestiture of some of the company’s deposits assets to Sovereign Bancorp, is presenting non-New England companies, KeyCorp included, with an opportunity to wedge themselves into the region.

The new office sets up KeyCorp as a direct competitor to $35 billion-asset Sovereign, of Wyomissing, Pa., which entered New England this year with its purchase of Fleet assets. Smaller companies, hoping to take advantage of turmoil in the wake of the Fleet Financial-BankBoston combination, believe the new Fleet is growing too large to focus on the middle market.

KeyCorp has no retail banking presence in Boston, though it employs more than 350 people in Boston in businesses like educational lending, home equity, global equity, and commercial real estate.

“We see opportunity in the consolidation of the financial services industry” in New England, said Linda Moulton, senior vice president in charge of the new office for KeyCorp’s McDonald Investments Inc. investment banking arm. “As some of the regional providers get bigger, they can no longer afford to focus on the middle marketplace.”

Fleet, with $170 billion of assets, is the largest commercial banking company in the region, followed by Citizens Financial Group of Providence, R.I., with $20 billion, and Sovereign’s Sovereign Bank New England division, with $11.8 billion.

Observers expert in the New England market said penetration will not come easy for new entrants in the region.

John Carusone, president of Bank Analysis Center Inc., a Hartford, Conn., advisory, said McDonald has “a large challenge in front of them to distinguish themselves.” Fleet’s investment banking unit is strong, and the company’s heritage as a New England-based institution “is a competitive advantage,” he said. “Their size won’t hold them back.”

Ms. Moulton said New England “has a very large universe of companies that match the areas of expertise in both the KeyCorp and in the McDonald organizations,” such as industrial, consumer, technology, health-care, and real estate. “We think that we can bring value-added products and services to that base in the Boston area.”

McDonald is confident it will be able to attract clients, Ms. Moulton said. “We think we offer high levels of expertise in areas that we serve at very competitive pricing levels.”

In September, McDonald opened a satellite investment banking operation in Nashville, another market the company views as underserved. A KeyCorp spokesman said McDonald’s brokerage and investment banking operations will be expanded to a number of additional cities in the year ahead.

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