KeyCorp's loans grow, but 'uncertainty' expected to hit M&A fees

• Key Insight: Chris Gorman, the CEO of KeyCorp, says macroeconomic uncertainty is slowing down mergers and acquisitions among commercial clients.
• Forward Look: Once some of today's geopolitical concerns are resolved, Gorman expects a "huge surge" in middle market M&A activity.
• Expert Quote: "Admittedly, while we have record backlogs, we're not seeing as much come out of the pipeline right now as we would hope," Gorman said.

Even as KeyCorp posted first quarter earnings that outpaced expectations, its executives said macroeconomic concerns were clogging the M&A pipeline.

In the first three months of 2026, KeyCorp's investment banking fees rose, and its mergers-and-acquisitions backlog reached record levels. And yet its guidance for the rest of the year struck some analysts as anemic.

When asked why the outlook wasn't more bullish, CEO Chris Gorman pointed vaguely in the direction of Iran.

"I'd say there probably is some appropriate conservatism … given the macro uncertainty out there," Gorman said during Thursday's earnings call.

KeyCorp, the $189 billion-asset parent company of KeyBank, reported earnings per share of 44 cents in the first quarter, narrowly beating analysts' estimates of 41 cents, according to S&P.

During that three-month period, the bank's investment banking fees reached $197 million, a 13% jump from last year. This made it a record first quarter, the bank said, "reflecting higher merger and acquisition advisory fees."

And yet in its guidance, the Cleveland-based company projected that noninterest income, which includes fees connected to the M&A advisory business, would only increase by 3% to 4% in 2026.

Without going into detail, Gorman said the state of the world was causing some M&A clients to hesitate on pulling the trigger.

"Admittedly, while we have record backlogs, we're not seeing as much come out of the pipeline right now as we would hope," Gorman said. "I think when some of the geopolitical things are resolved, I think it'll be a little better environment for that."

This year's first quarter included the start of the war in Iran, which the United States and Israel launched on Feb. 28. The conflict in the oil-rich region, which has largely closed the Strait of Hormuz to traffic, has caused a spike in energy prices and many related costs. Last week, new data from the Bureau of Labor Statistics showed a sizable jump in U.S. inflation in March.

Without explicitly mentioning Iran, Gorman listed rising fuel costs as one of his concerns, as well as inflation that could crowd out some of consumers' discretionary spending. He also referred to what he described as "macro uncertainty," which can have a chilling effect on major business decisions.

"On M&A deals, what's happening is they're not going away, but people are kind of slow-playing it, doing a lot of due diligence, because there's so much volatility day to day, week to week," Gorman said.

Once that uncertainty clears — assuming it clears — KeyCorp has high hopes for what comes next.

"We're still waiting for this huge surge of middle-market M&A activity to come through," Gorman said.

As banks have reported their earnings this week, other lenders have voiced similar concerns. JPMorganChase's chief financial officer, Jeremy Barnum, said on Tuesday that while "quick resolutions" in the Iran conflict were still possible, a protracted or failed peace process could put deals on ice.

"On the question of overall sentiment on the pipeline, I would describe it as resilient, maybe surprisingly resilient, given everything that's going on," Barnum said. "But if things start getting derailed, I would be surprised if you don't see some impact on sentiment and on deal decision-making."

Overall, KeyCorp modestly outperformed Wall Street's expectations in the first quarter. Net income was $486 million, beating analysts' consensus estimate of $449.4 million, per S&P, and marking a 31% increase from one year ago.

Revenue for the quarter was $1.95 billion, just above analysts' expectations of $1.94 billion and up 10% from last year.

Net interest income was $1.23 billion, marking an 11% uptick from the same period last year.

"Overall, Key posted strong results driven by a higher than expected net interest income, lower than expected noninterest expense, and lower than expected provision for credit losses," Gerard Cassidy, an analyst at RBC Capital Markets, wrote in a research note.