KeyCorp, which has toiled with a number of banking strategies over the past few years, has a back-to-basics plan: Sell more products and keep costs down.

Declaring that the "pieces are coming together" for the Cleveland company, chairman and chief executive officer Robert W. Gillespie said in a speech here that KeyCorp is anchored by retail banking. And he has set goals to improve its performance.

Retail banking is the "glue that holds everything together," Mr. Gillespie said. By boosting retail's profitability, the $80 billion-asset KeyCorp could register 13% annual increases in earnings per share, he said, up from 8% in 1998.

"We're still in a consolidation phase, and it seems clear unless you're the largest bank in the category, you're not going to survive on size, you're going to survive on performance," Mr. Gillespie said. His comments came at American Banker's Best Practices in Retail Financial Services Symposium.

To bolster the retail bank, Mr. Gillespie put Jack L. Kopnisky in charge of the area in October. Mr. Kopnisky had been responsible for KeyCorp's brokerage business and oversaw the integration of McDonald & Co., the Cleveland investment firm KeyCorp bought last year.

Mr. Kopnisky's charge is to reap more profits from the retail bank through more aggressive selling-using the company's data base on customers to focus the effort-and by keeping a close tab on expenses. Specifically, the company wants to produce an additional $50 million in income and cut $25 million this year.

Reconfiguration of the branches is also in order. After scrapping a plan to customize branches to serve different customer-types, KeyCorp decided late last year to redesign its branches to resemble investment firm offices, or to automate them to handle transactions efficiently.

Mr. Kopnisky said the company plans to close 30 to 50 of its 968 branches this year and will continue at that pace for the next few years. It has closed or sold 315 over the past four years.

Mr. Gillespie said the retail bank accounts for about 30% of KeyCorp's income and is among the lowest in terms of profitability. Retail banking income grew only 6% in 1998, but KeyCorp wants that number to grow to 8% in 1999 and 10% in 2000.

He said the job of making the bank more profitable has been arduous. "We've been laboring in this vineyard for a while," he said.

Mr. Gillespie said he is comfortable with Wall Street's estimates for 1999, which call for KeyCorp's earnings to increase 10%. For 1998, KeyCorp reported net income $98.9 million, or $2.23 per share.

Still, he said he hopes the retail strategy could provide an upside surprise at the end of the year. Annual earnings growth of 13% would put KeyCorp more in step with some of its largest competitors, including BankAmerica Corp. and Bank One Corp.

In his speech and in an subsequent interview, Mr. Gillespie seemed almost defensive about past strategies.

"We have been criticized for being so intrigued with financial services," Mr. Gillespie said. "We have been accused of taking our eye off the core bank operations."

Mr. Gillespie maintains that his company has led the pack in terms of buying specialty units, including investment firms and leasing and finance companies. "The question is, when do you stop buying banks and start buying financial services?" Mr. Gillespie said in the interview. "Some would argue that we started too early."

"The difference between our acquisitions is we're doing purchases," he added. "Everyone else is doing poolings (of interest). We have a real earnings stream."

Mr. Gillespie said KeyCorp had been "beaten up" for buying McDonald, but he said he believed the transaction would be successful.

"KeyCorp is going to do relatively well with McDonald, but I'd be surprised if McDonald becomes a driver of earnings," said analyst R. Jay Tejera of Dain Rauscher Inc. in Minneapolis.

Mr. Tejera is among those who believe KeyCorp, formed by the 1994 merger of Albany, N.Y.-based KeyCorp and Society Corp. of Cleveland, has neglected its retail bank in recent years.

"The business (that is) keeping the lights on is not being invested in," Mr. Tejera said.

KeyCorp executives acknowledged as much this week and said the company made some missteps. An acquisition of AutoFinance Group, a Chicago subprime auto lender, for instance, proved to be too expensive, and its profits were low. KeyCorp scaled back that business last year.

By throwing out its plan to customize branches, KeyCorp is turning its back on an idea it trumpeted as visionary just three years ago.

"I don't think our mistakes are exclusive to KeyCorp," Mr. Kopnisky said. "The strategy is now in place. I don't believe there will be much change in strategy. We've just got to execute."

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