Earlier this week, Keybank N.A., a wing of
), declared a couple of strategic measures to reinforce its
consumer and commercial payments businesses. These include the
acquisition of its credit card assets from Elan Financial Services
and amendment of its merchant services agreement with Elavon, Inc.
After obtaining the Key-branded credit card assets from Elan
Financial Services, the company will initiate issuing its own
credit cards. These measures have been taken to offset the negative
impact of the current regulatory changes on KeyCorp's financials.
As part of the deal, KeyCorp obtained credit card assets of roughly
$725 million and 400,000 consumer and business accounts of its
clients. These clients have deposits of roughly $10.0 billion and
loans of $5.8 billion at KeyCorp.
Moreover, the new arrangement for merchant services further boosted
its long standing association with Elavon. The agreement led to the
incorporation of merchant processing services into the overall
payment solutions for its corporate clients.
Additionally, KeyCorp stated that the strategic initiatives are in
sync with its ATM and debit card branding as well as processing
), which was announced during late 2011. These agreements are
expected to be implemented in the first half of 2013.
With the implementation of these agreements, it is anticipated that
KeyCorp will be considered as one of the frontrunners in debit
payment solutions and processing. These agreements are likely to
enhance the company's operating efficiency as well as favorably
impact its expense management.
These strategic initiatives are expected to provide KeyCorp with
opportunities for future expansions and broaden its revenue base.
Through these strategic steps, KeyCorp is expected to be able to
maintain better relationships with its clients. Moreover, these
will help the company gain the sole authority over its credit card
business. Also, the integration of the card offerings into the Key
Relationship Rewards program in the following year is expected to
be beneficial to the clients.
However, the Durbin Amendment has made the regulatory environment
more costly, and it is adversely impacting KeyCorp's revenue and
expenses. We expect that the company will be able to offset the
regulatory headwinds to a great extent through these initiatives.
KeyCorp currently retains a Zacks #2 Rank, which translates into a
short-term Buy rating. However, we maintain a long-term Neutral
recommendation on the stock.
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