Keycorp glad to satisfy clients' craving for plain-vanilla swaps.

If you're an institutional investor looking to buy billions of dollars worth of exotic derivatives, Keycorp does not want your business.

"We're not a bank that wants derivatives to be a top money maker. It's not a major product line for us," said Alistair W.J. Fyfe, the Cleveland-based bank's vice-president and manager of interest rate derivatives.

But if Keycorp has no intention of deriving 40% to 50% of its profits from Wading, as Bankers Trust New York Corp. and J.P. Morgan & Co. do, it is eager to roll out the plain-vanilla instruments its corporate customers increasingly demand, Mr. Fyfe said. And as such, the $63 billion asset bank's approach to the business is far more typical of the industry than that of the trading specialists.

"Before, the major derivatives products were seen as just alternatives," Mr. Fyfe said. Now, he said, derivatives -- financial contracts whose values depend on interest rates, currencies, and other benchmarks -- are the first thing the bank's clients want.

According to the bank's annual report, the notional value of interest rate swaps on Keycorp's books last year was $9.6 billion, up from $5.6 billion a year earlier. Of that total, $8.3 billion were for the bank's own asset-liability management and $1.2 billion for its customers.

The bank also had $688.5 million in futures and options contracts and $102 million in interest rate caps and floors.

Mr. Fyfe said although Keycorp is not positioned to be a major provider, it has been working to integrate its services throughout its vast network of branches, which covers 13 states from New York to Florida to Alaska.

Since completion of the merger with Society Corp. last March, Mr. Fyfe has been working within the organization to integrate the marketing of its derivatives products. Many of the products now available haven't been offered before through its KeyBank network of branches.

"It takes time to spread it throughout the organization," explained Mr. Fyfe. "Since we're diversified throughout the whole country, we have to get it right internally first before shoving it in front of our corporate clients. We have to be comfortable with how to use them first."

And the bank is definitely not comfortable with the more exotic products.

"We're not in a hurry to go out and show our clients Libor squared," he said. "Leveraged transactions are not a market that we want to be in."

He noted that Keycorp's clients -- about 10% of which are other banks -- have not expressed a need for the more exotic derivatives that have gotten others in trouble lately.

"You can get into a very gray area between hedging and speculation," Mr. Fyfe said.

Mr. Fyfe also said that many of the objectives of exotic structures can be met with the simpler traditional derivatives. He explains to his customers all the alternatives and lets them make the decision on what to buy.

"We don't want to make interest rate decisions for our clients," he said. "We educate them on how the products work and the risks involved. You give them as much information as possible and let them make the decisions."

Mr. Fyfe noted that while derivatives are becoming more and more an integral part of Keycorp's corporate strategy, they are considered another alternative in the bank's pricing arsenal.

"We believe the structures we come up with help us win local business," he said. "We view them as options that our clients can use to pay for their borrowings."

He also said that despite some highly publicized losses in the market and regulatory pressures on trading banks, derivatives will remain an integral part of the financing strategies at Keycorp and other banks.

"Derivatives have been around for a long time," Mr. Fyfe said. "We just try to take as much of the mystery out of these products as we can. There's no magic in any of this stuff."

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