KeyCorp has quietly built up an in-house mergers advisory to serve small companies falling beneath the radar screen of its investment banking operation, McDonald Investments Inc.

The Cleveland banking company's Key Business Advisory Services, founded last year, gives merger-and-acquisition guidance to privately owned companies with sales of $3 million to $25 million. It said it has completed two deals since November - both for its parent's commercial banking clients - and that it has another 24 queued up for completion.

Fees for these deals have averaged $300,000. That's a pittance on KeyCorp's bottom line, but Cindy Crotty, senior vice president and head of Key Business Advisory Services, said the group fills a void that keeps business from slipping away to competitors.

"We can still be part of the process," she said.

Ms. Crotty, who reports to Patrick Auletta, president of Key's commercial banking division, said her group has worked closely with McDonald Investments. But McDonald, which KeyCorp bought in 1998, prefers larger deals that generate bigger fees.

Analysts said a number of other regional banking companies have developed advisories serving small and lower-end middle-market banking customers and that many more are considering it. Until recently, such services were handled mostly by outside accountants and lawyers or niche investment advisory firms.

"As some of these companies grow and develop, it can be a nice niche and an opportunity for some decent fee income," said Joseph Duwan, an analyst at Keefe, Bruyette & Woods Inc.

"It can be an important part of the glue that holds a relationship with a customer together," said Jay Tejera, director of research at Ragen MacKenzie in Seattle.

Key's group has 20 employees and offices in Cleveland, New York, Denver, and Seattle.

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