KeyCorp sets $200M cost-cutting plan for 2019
KeyCorp in Cleveland previewed a $200 million cost-cutting program for 2019 that it plans to unveil at its investor day Tuesday.
The $137.9 billion-asset Key intends to meet its goal by consolidating branches, tweaking its staffing model, streamlining back-office operations and reducing expenses on third-party contracts, it said in presentation materials filed with the Securities and Exchange Commission. Its goal is to cut around 5% in expenses and ultimately achieve an efficiency ratio between 54% and 56% by the second half of 2019.
Like its peers, Key faced a lot of questions when it reported third-quarter results about where it might cut expenses in order to boost earnings amid sluggish loan growth. Company executives discussed their efficiency ratio target at that time and hinted at more details to come at the investor day to be held in New York.
“We will reaffirm that there are times when we have to push heavier on the expense side to make sure that we meet our commitments,” Chief Financial Officer Don Kimble said in responding to an analyst’s question on an Oct. 18 conference call. “That's something we will live up to.”
R. Scott Siefers, an analyst with Sandler O’Neill, wrote in a research note Tuesday that the investment banking firm had “mixed feelings” about the expense initiative. On one hand, the announcement clears up questions analysts may have had after the company’s recent quarterly earnings call.
On the other hand, he wrote that Key had already been on its way to that range.
“We need to learn if the program is indeed necessary to get into the targeted range, or if it is simply ‘gravy’ that would push the efficiency ratio even lower into a range it would have entered anyway,” Siefers said.
Key’s efficiency ratio stood at 58.7% in the third quarter this year, compared with 62.2% a year earlier. On a yearly basis, its noninterest expenses fell 2.8% to $964 million, but Key said at the time that the year-ago quarter had contained $36 million of merger-related expenses.
The company also said that spending associated with the growth of its newly acquired Cain Brothers franchise had eaten into other cost savings initiatives.
Overall, Key’s net income rose 34% to $468 million in the third quarter.