To boost fee income and restructure its balance sheet, KeyCorp sold a $481 million chunk of its commercial mortgage portfolio just before the end of the second quarter.
The sale, which was disclosed Thursday, was the first in a planned series of commercial mortgage securitizations, KeyCorp said.
The Cleveland banking company, along with Bridger Commercial Realty Finance and Salomon Brothers Realty Corp., pooled and sold a total of $816 million in permanent mortgage loans. KeyCorp said the sale was completed June 29.
The sale fits into KeyCorp's strategy of divesting assets to free up capital. Late last year the company left the credit card business by selling its $1.3 billion card portfolio to Associates First Capital Corp. To make up for lost income from the credit card sale, the company is not securitizing as many home equity loans, analysts said.
The securitization is the first conducted by Key's commercial real estate group since it entered the business two years ago, and executives at the company said to expect more of the same.
"We intend to execute commercial mortgage loan securitizations on a regular basis - probably three times a year," said E.J. Burke, senior vice president of Key Commercial Mortgage.
"Having the ability to take an interim loan from origination, to permanent placement, to securitization allows us to get to market much faster," Mr. Burke said.
KeyCorp's announcement comes at a time when many banks are paying closer attention to the makeup of their balance sheets. Asset sales have been a way for some regional banks to ease the pain of dwindling profit growth because of rising interest rates.
Last month Key's hometown competitor National City Corp. announced it had sold $2 billion of its student loans, which would result in a $75 million pretax gain on its second-quarter results. At the same time it said that it would sell some adjustable rate mortgage assets and fixed-income securities, and that it would securitize credit card receivables.
KeyCorp is "doing what a lot of companies are doing - rationalizing their balance sheet, giving themselves more flexibility and trying to play their strength," said Henry C. Dickson, an analyst at Salomon Smith Barney Inc. "A little focus always helps."
Key's portion of the sale represents 59% of the pooled loans. The company is not retaining any residual interest, but will remain the servicer on all of the loans sold in the transaction.
The deal "reduces their risk to an area that's been under fire lately," said Bradley S. Vander Ploeg, an analyst at First Union Securities in Chicago. "It will be a good source of fee income for them."
Key Commercial Real Estate, the nation's third-largest bank-based commercial real estate lender with nearly $6 billion of annual financings.
"This deal reflects the commercial real estate line of business strategy of taking an interim construction loan, finding a permanent placement for it when it matures, and then finally securitizing it, which offers opportunities to generate additional fee-based income," said a KeyCorp spokesman. "This strategy aligns with KeyCorp's strategy to enhance its fee-based revenue mix."