Key shuns M&A, lauds buybacks after activist investor callout

• Key insight: Key CEO Chris Gorman said Tuesday that the Cleveland-based company has no interest in acquiring another bank.
• What's at stake: HoldCo's reports calling out banks this year have made waves in the industry. The hedge fund called for Comerica to sell itself just months before that bank inked a deal with Fifth Third Bancorp.
• Forward look: Key is focused on organic growth and can buy back at least $800 million of shares next year as part of its repurchase program, Gorman said.

KeyCorp CEO Chris Gorman said Tuesday that when it comes to strategies around mergers and capital buybacks, his bank is "pretty closely aligned" with the activist investor that called for his ouster last week.

The Cleveland-based bank is not looking at buying another financial institution, Gorman said at an industry conference. Key is also "stepping on the gas" when it comes to repurchasing stock, Gorman said.

Key will buy back $200 million worth of stock in the fourth quarter, double the amount it had previously projected, the CEO said. Gorman added that the bank still has $800 million of repurchases in its existing plan, and will likely reup its buyback program in 2026.

"We are focused on generating organic growth," Gorman said. "We have an incredible path ahead of us. And we're going to basically spend our time on a couple of things. One, taking advantage of the disruption that's out there in the marketplace. When there is an acquisition, basically all customers are up for grabs. … We are an undervalued stock. We believe that strongly, and we're going to spend our capital buying our stock."

Gorman's comments come just days after HoldCo Asset Management publicly released a 58-page presentation grilling Key for share dilution in recent years and what it called "poor judgment" by Gorman.

The hedge fund's demands include adopting a moratorium on M&A; using all excess capital for buybacks; firing Gorman; choosing to not re-nominate certain directors; and creating an independent capital allocation committee.

On Tuesday, the $187 billion asset-bank seemingly got at least part of the way there, swearing off acquiring another depository and agreeing that the bank's stock is undervalued and worth buying back.

Key's stock rose more than 4% on Tuesday after Gorman's comments.

Gorman said the bank was still "digesting" HoldCo's presentation and "looking at all the content in there," but that Key agrees on abstaining from bank deals and returning capital to shareholders.

"We're buying back our shares in a certain way," Gorman said. "We absolutely agree with that investor that our shares are undervalued and that we have excess capital, and we're going to buy it back."

He added that Key has "made a lot of changes over the last two or three years in terms of really making sure that we're buttoned down and tight, particularly from a finance perspective."

Gorman also said Tuesday that Key is on pace to meet all of its 2025 projections, and that the bank is aiming for a long-term return on tangible common equity of 16-19%, which is a new target for Key.

It is "unclear if the statements will satisfy the activist," Piper Sandler analyst Scott Siefers wrote in a note. "However, from our standpoint, the repurchase commentary is a plus, the underlying momentum looks stronger than expected (and puts upward pressure on our numbers), and the M&A statement should really clean up any lingering investor confusion on Key's aspirations here."

TD Securities analyst Stephen Alexopoulos upgraded his rating on Key from "Hold" to "Buy" in a note released after Gorman's comments.

Gorman didn't address HoldCo's call for his removal as CEO.

HoldCo, which owns $142 million of Key shares, or about 0.7% of the bank's stock, has made waves in the banking sector this year, calling out four other banks for similar alleged transgressions.

Notably, the firm said this summer that Comerica should sell itself, which it did just a couple of months later. HoldCo has also highlighted what it sees as faults in merger strategies at Columbia Banking System, Eastern Bankshares and First Interstate BancSystem.

Columbia and First Interstate appeared receptive to HoldCo's demands in comments made by executives following the activist investor's reports. The banks both said acquisitions were not priorities, and that more buybacks were coming — the two main points HoldCo highlighted in its complaints.

Similarly, in its report about Key, HoldCo used scathing language to critique the bank's strategies, such as its 2016 acquisition of First Niagara Financial Group.

HoldCo also lambasted the bank's securities portfolio positioning in recent years, which, after the rapid rise of interest rates, was followed by a 2024 capital raise funded by Bank of Nova Scotia. And the activist investor questioned Scotiabank's potential involvement in Key strategic decisionmaking on deals going forward.

"How did we get to a place where a leader with such a short, failure-laced tenure now seemingly holds shareholders hostage, dangling the debasement of the cheapest currency in the super-regional space instead of simply committing to the obvious long-term strategy: buying back perennially cheap shares?" HoldCo wrote in its report. "In our view, we got here because you treated this company's capital as something to be risked, not protected."

HoldCo said in its report that it intended to "listen carefully" to Gorman's comments, but that if the rhetoric didn't reinforce "using all current and future excess capital for buybacks and recognizing that Key has neither the judgment nor the valuation to pursue any acquisition," the firm would publish at least three additional presentations next year.

The firm also said in its report that it may also pursue other lines of offense, like a proxy battle or pushing Key to sell itself. HoldCo declined to comment Tuesday.