KeyCorp expects to more than double its earnings from fee-based businesses in 1993, from $40 million this year, and to show a fivefold increase by 1997.

Ralph M. Carestio, executive vice president of the Albany-based holding company, attributed the expected profit growth to strong demand and declining costs in operations-intensive businesses such as mortgage servicing, trust and investment management, and asset disposal.

Added Responsibility

Mr. Carestio, who runs the bank's mortgage servicing and asset-disposal units, was also named last week to head KeyCorp's financial-services group, which handles trust and investment services.

Combined profits from these businesses are expected to total $40 million in 1992, or 16% of KeyCorp's projected $250 million in earnings.

Profits from fee-based businesses are expected to rise to between $85 million and $90 million in 1993, and to between $220 million and $260 million by 1997, Mr. Carestio said.

Analysts said they had already accounted for KeyCorp's improving returns from fee-based businesses in their earnings estimates. These projections range from $3.15 to $3.20 a share in 1992 and $3.60 to $3.70 a share for 1993.

If the predictions are accurate, in 1997 KeyCorp will pull in about a third of its profits and 40% of its revenues from the fee-based businesses, Mr. Carestio said.

This would be the payoff on chairman Victor J. Riley Jr.'s strategy of reducing KeyCorp.'s reliance on conventional lending and deposit-taking, an area he and many other top bankers believe is entering a long-term slump.

"What we're all facing is that we won't see the same kind of loan value in the next 10 years that we saw in the last 10," Mr. Riley said in a recent interview. "That means we've either got to accept lower returns, or get involved in other businesses."

Strategy Wins Praise

Analysts also applauded the diversiiication strategy.

"I think the extra fee income would clearly give them a more stable earnings outlook, and certainly higher returns," said John D. Leonard, a director and bank stock analyst at Salomon Brothers, New York.

The biggest of the fee businesses for KeyCorp is mortgage servicing, an area where KeyCorp Corp vaulted from a nonentity to the top 20 with the regulator-assisted acquisition of Goldome Savings Bank and its big mortgage servicing unit.

Mr. Carestio said that KeyCorp was servicing $3.5 billion of mortgages, and the Goldome acquisition brought in an additional $14 billion.

KeyCorp then acquired another $2.7 billion portfolio of mortgages this year, and earlier this month started servicing another $2.5 billion of mortgages from Puget Sound Bancorp, Tacoma, Wash., which KeyCorp plans to acquire in mid-January.

That means that KeyCorp's mortgage servicing portfolio now totals about $22.7 billion, a placing it among the 10 largest mortgage servicers.

Building Its Servicing

Mr. Carestio said KeyCorp plans to expand its mortgage servicing portfolio to between $50 billion and $55 billion by 1997. He said the company planned to do this primarily through its own originations.

KeyCorp officials expect to collect $137 million of fees and $25 million of profits in 1992 from mortgage servicing, a total that is expected to rise to $275 million of fees and $ 100 million of profits by 1997.

On another front, Mr. Carestio said KeyCorp was expecting steady growth from its Niagara Asset Corp. and Niagara Portfolio Management Corp. units, which now have contracts to help the Federal Deposit Insurance Corp. sell off Goldome's bad assets.

Mr. Carestio said that these two units would contribute $7 million in profits in 1992, $24 million in 1993. He said the units were also in a good position to win more contracts to help the Resolution Trust Company in a new program to dispose of assets in half-billion-dollar chunks.

If these contracts come through as expected, profits from RTC asset disposal could total $4 million or $5 million in 1994, and rise to $30 million to $33 million in 1996. Profits could continue at just above $30 million per year level into the next decade.

No Sure Thing

But analysts cautioned that they were not including RTC revenues in earnings predictions, since it was not yet clear that KeyCorp would win this business.

Mr. Carestio said that KeyCorp also expected strong earnings from its trust, custody, and mutual fund lines of business. He said that KeyCorp now held more than $4 billion of assets in trust for individuals and retirement funds.

He said the institution held another $12 billion in custody, and $600 to $700 million in two mutual funds.

Fees from these businesses are expected to reach $33 million to $34 million in 1992, with profits of about $4 million.

But Mr. Carestio said that in five years, KeyCorp was expecting profits from these services to rise to $30 to $40 million, on revenues of $300 to $325 million.

Expansion of Brokerage

KeyCorp also plans to build its retail stock brokerage business, Mr. Carestio said, increasing its current coterie of 135 retail brokers in bank branches, mostly in the West, to nearly 260 brokers in two years.

Profits from brokerage operations are expected to total $4 million in 1992 on revenues of about $40 million. Profits are expected to rise to between $7.5 million and $8 million in 1993, on about the same revenues, mainly because of a cost-cutting move to centralize administration and management.

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