KeyCorp, which has been barred from acquiring banking companies for most of the past two years, is shopping again.
The $93 billion-asset Cleveland banking company said last week that regulators had lifted a pair of orders related to deficiencies in its compliance with anti-laundering regulations and the Bank Secrecy Act. With those problems fixed, KeyCorp is free once again to pursue bank deals.
Henry L. Meyer 3rd, its chairman, chief executive, and president, has said several times in public appearances this year that his company was looking forward to getting back into the market for mergers and acquisitions once the orders were lifted. In a conference call in January, for instance, he said KeyCorp would be “looking for the right price and the right fit” when it could resume in-depth negotiations.
At a May investor conference he reiterated that KeyCorp was looking for deals, and the company confirmed its interest last week.
The lifting of the order “enables us to get back into the market to explore acquisitions in our banking side of the business,” said Michael J. Monroe, a spokesman for KeyCorp, It is looking at opportunities “in all of our regions: Northwest, Rockies, Midwest, East — none of those regions would be outside of exploration.”
Several banking companies in the Midwest have made deals elsewhere recently, since economic conditions in their home markets hold little promise for growth.
Gerard Cassidy, an analyst with Royal Bank of Canada’s RBC Capital Markets Corp., said that KeyCorp has been a frequent acquirer in the past, and that the orders’ lifting “takes those shackles off” of the company.
“Most of their focus will likely be companies that would enhance the value of the existing footprint, because those type of acquisitions tend to offer the greatest cost savings,” Mr. Cassidy said.
The Office of the Comptroller of the Currency and the Federal Reserve Bank of Cleveland imposed enforcement actions on KeyCorp in October 2005. Before that its most recent acquisition was in October 2004, when it bought EverTrust Financial Corp. of Everett, Wash., for $195 million. That year KeyCorp also acquired 10 Michigan branches from Sterling Bank and Trust of Southfield.
In December 2002, KeyCorp bought Union Bancshares Ltd. of Denver.
Though KeyCorp could not acquire banks while operating under the orders, it was not barred from dealmaking entirely. It bought Orix Capital Markets LLC’s commercial mortgage-backed securities business in December 2005 and Austin Capital Management Ltd., a hedge fund management company, in the first quarter of last year.
KeyCorp got rid of its subprime mortgage arm, Champion Mortgage Co. of Parsippany, N.J., by selling the loan portfolio in November and the origination platform in March.
The company said that the lifting of the orders did not end its remediation efforts.
“Our goal goes well beyond achieving a satisfactory level of compliance,” Mr. Meyer wrote last week in an internal memo circulated to employees. “Today’s announcement clearly suggests we’re well on our way, but our work to build a culture of compliance and accountability is a nonstop job for all of us.”
Mr. Cassidy said it was not unusual for companies to get consent orders lifted in about a year, but he noted that it took KeyCorp almost two.
The additional time may mean that the company had to “spend more money and hire more people to solve the problems,” he said.
However, Scott Siefers, an analyst at Sandler O’Neill & Partners LP, said investors saw little “visible earnings impact” from the orders, and that they remain focused on other elements of KeyCorp’s performance.
“Coming off a rough first quarter, people are more concerned with the margin, what’s going on with credit trends — things like that — rather than the regulatory burden,” Mr. Siefers said.
KeyCorp is scheduled to announce its second-quarter earnings July 17.
