loans generated by its new AutoFinance Group Inc. subsidiary. The $96 million offering is part of Keycorp's new emphasis on securitization and is the second such deal completed since the formation of its specialized consumer finance bank, Key Bank USA, in September. The first was a $783 million student loan securitization in late October. Ultimately, the special-purpose bank could serve as a model for other multistate banking organizations looking to standardize their loan originations, underwriting, and servicing functions. "I believe that Key Bank USA is the approach other multistate banks ought to adopt," said Thomas Brown, a regional bank analyst with Donaldson, Lufkin & Jenrette. "What they're saying is that you've got certain asset classes that don't need to be offered just in the geographic area where you have a physical branch." Eventually, Keycorp will consolidate all of its credit card, auto, student, and marine and recreational vehicles lending operations in Cleveland. Mr. Brown said this approach will produce greater efficiencies not only in lower costs, but also in improved loan generation. Craig Platt, a vice president in portfolio management with Key Bank USA, said one of the key benefits of having all these functions in one place is that the bank can determine which loans meet its corporate required rate of return and which don't. "If you can identify what the return on equity is as the loan is made, you can sort the loans on the front end" instead of wondering what to do with them after they are in the portfolio, he said. Those that meet an internal standard for rate of return are sold into Keycorp's affiliate banks. Those that don't are accumulated within Key Bank USA until there is enough volume to package them as securities for investors. The new mechanism also assures that the bank can continue to generate loans. The bank's large presence in the student loan market, for example, could create difficulties because of the typical 10-year life of these loans. Mr. Platt said that the growing number of long-term loans on its books eventually could create liquidity and funding pressures - not to mention loan concentration issues. By putting these loans in Key Bank USA, he said, the bank can manage the flow of loans into its affiliate banks and securitize the rest. He added that the centralized operations have benefits to the bank's growing securitization efforts as well. Before the new bank was created, Keycorp had to poll its affiliate banks to find out what kinds of loans they had on their books. After a decision was made on which loans to securitize, the loans would then have to be legally transferred, a time-consuming and costly process. A further problem was that rating agencies and investors have worried about varying underwriting standards for each of the affiliate banks. The bank would have to create larger reserve accounts to overcome these difficulties. "Now we have a standardized product that is understood by the marketplace," said Mr. Platt. Still, it could take some time before the securitization market fully accepts the bank's offerings. While Keycorp is considered among the top tier of student loan issuers - over $1.1 billion in securitizations already this year - its reputation in subprime auto loans is less certain. Lisa Anderson, an asset-backed securities analyst with Chase Securities, said the market has become more selective because of rising concern over consumer loan delinquencies. "Anything new like Keycorp's subprime auto paper, and investors get concerned," she said. Still, she said the timing is right for Keycorp to ramp up its securitization efforts. Earlier this year, the bank completed a $300 million prime auto loan securitization that was priced just 2 basis points above the rate Ford Motor Credit was paying at the time. "The more often they come to market, the more it is going to help them," she said. "But they are going to have to perform as well."

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