KeyCorp's chairman and chief executive, Henry Meyer, said the Cleveland lender — having just hired a high-profile strategic planner — has the strength to be a buyer of other banks as the recession eases, not a takeover target like some market watchers have speculated.
"I see the opposite," Meyer said in an interview last week. "I think Key is very well positioned to be an acquirer. We have got as broad a footprint as any bank in the country."
With more than 1,000 branches in 14 states, he said the $95 billion-asset company has the reach to do deals from "Maine to Alaska" as the banking industry consolidates in the next few years.
Keefe Bruyette & Woods Inc. analysts said in a report last week that Key was among several regional banks that could be taken over in the next 18 months as stiff financial and regulatory headwinds crimp banks' ability to improve profits. But Meyer said he is upbeat about Key's prospects as a stand-alone player given its scale and progress in "digging out of a crisis."
After two years of losses on bad construction and commercial loans, Key's net loss narrowed sharply last quarter on falling problem loans and expenses. Meyer said Key has lots of capital; with an unusually far-reaching branch network, it is in a lot of markets where it can build density by buying other banks. It also has ample opportunity for boosting market share organically, something it has been focusing on by overhauling and opening new branches in 2009 and 2010.
"Going on the offense is the way I have been talking to our employees," Meyer said. "We are looking at the future, and we want to be strategically prepared to do better in this new environment."
To that end, Meyer hired a veteran commercial banker with a background in consulting and aerospace engineering to oversee strategic planning.
Mark Williams, who starts this week in the newly created position of director of strategy, comes to Key from rival PNC Financial Services Group Inc., where he had worked since 2005 and oversaw various corporate banking units. He worked as a McKinsey & Co. consultant and engineer in General Electric Co.'s aircraft division earlier in his career.
Williams sits on Key's management team and answers directly to Meyer, whereas prior strategic planners worked under the chief financial officer. Meyer said Williams is a "strategic thinker" with a "tremendous resume." He "will help us prioritize where we will focus spending our money," Meyer said.
Scott Siefers, an analyst with Sandler O'Neill & Partners LP, said that Williams "brings plenty of experience to the table." He said the hire shows how Key is looking beyond fixing its problems to increasing profits, a transition it began last year.
If loan losses keep falling like they did last quarter, that would enable it to start releasing reserves, freeing up capital to do deals in places like the Northwestern and Northeastern U.S., Siefers said. Acquisitions are among the most efficient ways to grow profits, he said.
"They'll definitely survive. They have plenty of capital and plenty of reserves," Siefers said. "It is certainly possible they could be a consolidator a little later on."
The big worry market watchers have about Key involves the strength of its core earnings, he said, because its profits excluding taxes and loan provisions have lagged behind its competitors.
For his part, Meyer declined to discuss Key's profit outlook. But he said Key has a competitive edge on a number of fronts. It is ahead of other midsize banks in technology, he said, having developed a process that reduces the need for paper checks. Though it is among the 20 largest banks in the country, it has maintained a local touch, with the majority of lending decisions made at the local level.
Meyer said reform may also work to Key's favor in some ways because the new regulations may be most painful for large and small banks. Lawmakers have stigmatized large banks for being large, he said, while small banks have fewer resources to cover compliance costs. The "negatives in this regulatory reform bill are going to fall very heavily on community banks. … A company like Key at roughly $100 billion [of assets] is very well positioned," he said.
"We're medium, and we've got a lot of room to continue to grow both our size and our profitability at a time when the small banks are going to be having trouble."
