M&A gaveth and tooketh away in KeyCorp's fourth quarter.

An investment banking acquisition boosted fee income, but merger-related expenses helped drive down overall profits along with a one-time tax charge.

The $137.7 billion-asset company said Thursday that it earned $182 million, down about 13% from a year earlier. Earnings per share of 17 cents missed analysts’ consensus expectations of 36 cents.

Revenue increased almost 3% to $1.6 billion, the Cleveland company said. Net interest income was $952 million, up less than 1%. Average total loans rose less than 1% to $86 billion. Commercial and industrial loans expanded by more than 4% to $41.3 billion, while other commercial loans declined by almost 3% and home equity loans fell by roughly 5%.

Keycorp Chairman and CEO Beth Mooney.
Impact of tax cuts
KeyCorp took a $29 million charge on items related to tax reform, but "we expect the new tax law will benefit both Key and our clients, by strengthening the competitive position of U.S businesses and promoting stronger economic growth,” Chairman and CEO Beth Mooney says. Bloomberg News

Noninterest income jumped 6% to $656 million as investment banking and debt placement fees climbed 27% to $200 million. KeyBanc Capital Markets' purchase in October of Cain Brothers, an investment banking firm focused on health care, was the main reason for the investment banking gains.

Meanwhile, income from operating leases and other leasing gains rose more than 28% to $27 million.

Those noninterest income gains were partly offset by a 15% drop in mortgage servicing fees and a more than 7% decline in corporate-owned life insurance income.

Moreover, noninterest expense rose 10% to $1.1 billion.

The quarter included $56 million of merger-related charges, primarily related to the 2016 acquisition of First Niagara Financial Group. KeyCorp said the fourth quarter was the last in which it will report merger charges tied to the First Niagara deal.

KeyCorp also took a $29 million charge related to tax reform.

Chairman and CEO Beth Mooney emphasized, though, that those charges were short-term pains for longer-term gain.

“Revenue trends benefited from growth in our fee-based businesses, with investment banking and debt placement fees reaching new record levels for the fourth quarter and full year,” Mooney said in a press release.

“Expenses this quarter reflect the strength of our capital markets business, along with a number of notable items, including merger-related charges and the impact from recent tax reform," she said. "We expect the new tax law will benefit both Key and our clients, by strengthening the competitive position of U.S businesses and promoting stronger economic growth.”

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