Henry L. Meyer 3rd, the chief executive officer of KeyCorp, extolled the moves he has made this year and last year to guard against the downturn in the credit cycle, including exiting subprime mortgage lending, curtailing loans to home builders, and bolstering loan-loss reserves.
But after a blunt question from a shareholder at the Cleveland company's annual meeting Thursday, Mr. Meyer conceded that serious mistakes were made, particularly in residential real estate lending.
Before the housing bubble burst, "I didn't do what I should have done, which was cut back on housing," he said. "At the time we thought housing was the bedrock."
In particular, Mr. Meyer cited troubled loans to builders in Southern California, where KeyCorp's commercial real estate lending deteriorated in the fourth quarter of last year and the first quarter of this year. It cut more than 700 jobs late last year, citing the weak performance of its commercial real estate portfolio.
His concession was a response to a comment from a shareholder, who did not identify himself but said he fears KeyCorp is riddled with credit problems. "What I see here is large cracks developing, like I did at National City Bank. … And I don't have to tell you what happened at National City Bank."
National City Corp., a Cleveland company plagued by Florida's housing slump, lost $170.7 million in the first quarter, raised $7 billion of capital, and slashed its dividend by 20 cents, to a penny a share. It also considered selling itself, and KeyCorp was one of the companies analysts speculated might make a bid. (KeyCorp did not make an offer.)
The $101 billion-asset KeyCorp has fared much better than Nat City and several others hurt by the subprime mortgage mess. Mr. Meyer noted that his company stayed in the black in the first quarter; net income fell 38% from a year earlier, to $218 million. "We know that we made fewer mistakes than some others."
The economic stress weighing on the financial sector will last "a few more quarters at the longest," he said.
Other CEOs have faced tougher crowds in recent weeks.
Kerry Killinger, Washington Mutual Inc.'s CEO, announced at its annual meeting last month that the Seattle thrift company had parted ways with a longtime director, Mary E. Pugh. Her departure was seen as a response to shareholders who had called for her to resign for what they viewed as poor oversight of Wamu's mortgage business. During the meeting, a shareholder said Steve Rotella, Wamu's president, "has driven the company to the edge of bankruptcy, and he should be fired."
Last month in New York, several shareholders called on Citigroup Inc.'s entire board to resign. (All its members were reelected).
Some Wachovia Corp. investors demanded that G. Kennedy Thompson step down as the Charlotte company's chairman, president, and CEO. Mr. Thompson relinquished the chairman's role last week.
Jeff K. Davis, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., said in an interview Thursday that KeyCorp is vulnerable to the prospect of further declines in housing markets and a worsening economy but is much better off than Nat City.
"I think Key will weather through this storm OK," Mr. Davis said.
KeyCorp does not have a wide margin for error, he said. In the first quarter it quadrupled its loan-loss provision, to $187 million. Net chargeoffs more than doubled, to $121 million. The nonperforming asset rate more than tripled, to 1.38% of total loans. However, it raised its cash dividend by a penny, to 37.5 cents a share.
