Cleveland-based Keycorp said Wednesday it will take up to $100 million in pretax charges this quarter and next as part of a program to reduce exposure to rising rates.
Although analysts did not view the episode as severe, it does mark a continuing trend of ratedriven setbacks in the banking industry. Keycorp is the fourth major banking company in three weeks to announce such a charge.
On Nov. 21, Banc One Corp. said it would take a pretax charge of more than $250 million stemming from a balance sheet overhaul. Then Mellon Bank Corp. said it would suffer a roughly $200 million pretax hit from a securities mishap at subsidiary Boston Co. And last week, Central Fidelity Banks Inc. said it will take a $30 million pretax charge on a balance sheet restructuring.
Not one of the banks involved in these episodes has been weakened, experts say. And the incidents are fairly isolated when taken in the context of the entire U.S. banking industry.
But each episode has emerged as a surprise. And analysts say the rate-driven flare-ups have exacerbated an investor stamede out of bank stocks. "As we have seen at Mellon Bank, the impact of rising rates can hit you in places you don't expect, and that's a big reason why the market discounts financial stocks in a rising rate environment," said Lawrence Vitale of Bear, Stearns & Co.
Keycorp's stock has been hovering at a 52-week low. It rose 62.5 cents to $24.625 a share on Wednesday.
Citing a determination "to reduce interest rate sensitivity substantially," the $63 billion-asset Keycorp said it would:
* Reconfigure holdings of securities classified as available for sale, shortening maturities and capturing higher market yields.
* Securitize and sell $300 million of fixed-rate automobile loans whose yields fall short of current market levels.
* Allow certain fixed-rate loans and securities to run off the books without replacement, reducing the need for costly short-term funding.
* Issue longer-term fixed-rate liabilities "to support like assets."
Between $25 million and $35 million of pretax charges will be recognized in the fourth quarter, Keycorp said, followed by $65 million to $75 million of pretax charges in the first quarter.
Lee Irving, Keycorp's treasurer, acknowledged investor pressure to complete all actions immediately. But he said Keycorp wanted to skirt some of the turmoil in the yearend bond market.
He said the company would use options and short sales to lock in certain positions, then reenter the market after the traditional flurry of tax-driven, yearend trading subsides.
Kemper Securities' Thomas Maier called Keycorp's exercise the "fine-tuning" of an eminently healthy franchise.