In an effort to keep pace with the rapidly evolving world of corporate finance, KeyCorp has signed a joint venture agreement with boutique firm SPP Hambro to provide private placements.
The nation's 26th-largest bank is adding these long-term sources of capital often used by the middle market to a menu of services that includes asset securitization, foreign exchange, derivatives, and revenue bond underwriting.
"Speed is of the essence," said James S. Bingay, an executive vice president at KeyCorp and group head of corporate banking.
"Things are changing every day in the marketplace, and it's important to the client base that we are able to deliver integrated solutions to their financing requirements," he said.
The private placement joint venture underscores the steps KeyCorp has taken in the past year to develop a full-service bank that provides an array of commercial and investment banking products.
Last summer, KeyCorp bolstered its investment banking prowess with the acquisition of Carleton, McCreary, Holmes & Co., the second-largest investment bank in Cleveland.
The acquisition brought to 30 the number of specialists in mergers and acquisitions. Carleton McCreary Holmes, a division of Key Capital Markets Inc., is to work jointly with SPP Hambro to give KeyCorp's middle-market customers access to the private placement market.
"We need to provide a wide range of capability to the marketplace," said Doug Holmes, a partner at Carleton McCreary Holmes.
Private placements give mid-dle-market companies fixed-rate debt, with maturities of up to twice the duration of a bank loan.
"What we needed was long-term debt distribution, which SPP Hambro provides," said Mr. Bingay. "Today, we have all the capabilities we need to be a player: senior debt, mergers and acquisitions, and direct equity investing."
Mr. Holmes said that offering private placements not only will help the bank's customers gain access to long-term capital but also will make KeyCorp more comfortable with managing structurally intricate transactions. This, he said, will encourage the slow cultural change necessary for the bank to ease into an even broader array of investment banking products such as underwriting equity.
"If you can sell risk off and show that it's market-priced correctly, that gives you more courage to do more innovative financial structures for your clients," said Mr. Holmes.
KeyCorp observers said the bank plans to apply to the Federal Reserve for so-called "tier 2," or equity, powers.
KeyCorp is the 10th bank to establish a joint venture relationship with SPP Hambro. Stefan L. Shaffer, SPP Hambro's president, said KeyCorp's middle-market client base is ideal for private placement offerings.
"Their niche is what every private placement intermediary looks for," said Mr. Shaffer. "They have the ability to do large corporate credits, but more importantly, they have a very big presence with middle-market companies. They are what we covet most: a big relationship bank."
Other banks with sizable middle-market franchises have found some success bringing their clients to this market.
Tim Conway, a managing director and head of corporate finance at Fleet Financial Group Inc., said the Boston-based bank had closed five deals since it began offering private placements in the middle of last year and is currently lining up several additional transactions.
"If their customer base is anything like ours, then there will be a very attractive opportunity to provide placements," said Mr. Conway.
Some observers asked why a bank with the size and scale of KeyCorp would pursue a joint venture instead of developing the services in-house. In the relationship with SPP Hambro, KeyCorp has to split the profits with another party.
"It makes more sense to share the overhead costs with other banks or other institutions that use SPP Hambro," said Mr. Holmes.
Mr. Bingay added that the bank would consider moving the expertise in- house at some point if it could realize greater immediate profitability by doing so.
Analysts lauded KeyCorp's most recent steps to increase the number of financial offerings.
"KeyCorp is realizing that to be a successful bank in the 21st century, they're going to have to accommodate their customers in ways that they were not permitted to five or 10 years ago," said Gerard Cassidy, a bank analyst at Tucker Anthony.