) has recently announced its plans to commence cost-curtailing
measures with the aim of improving efficiency. The measures include
closure of branches as well as job cuts.
The news of the cost containment plan follows the company's solid
second-quarter results, which included a 27.8% earning surprise.
Stable non-interest income, continued improvement in credit quality
and robust capital ratios were the primary highlights of the
quarter. However, dwindling net interest income and escalating
operating expenses slightly subdued the results
Actions To Be Taken
KeyCorp aims at reducing expenditures by $150-$200 million through
the end of 2013. Moreover, it will start exploring newer
opportunities for generating higher revenues. It plans to close
around 50 units of its 1,000 plus strong branch network.
The first phase of the closure will involve 17 branches, all
outside Cleveland. At the same time, KeyCorp plans to open new
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Layoffs are also expected, but there has been no official number
provided. Moreover, KeyCorp plans to save money by consolidating
office space and renting out some of these. Through all these
activities, it aspires to achieve an efficiency ratio of 60-65%.
Sluggish macro economic growth, the persistent low interest rate
environment, gradually increasing regulatory expenses as well as
wary business outlook have contributed to an oppressive situation,
which is likely to continue for sometime. Due to this, it has
become necessary for the companies to redesign their strategic set
up to survive in a changing environment.
Initiatives of Other Banks
About two months ago,
), a regional bank, announced cost-cutting measures. Other
regional banks, including
Huntington Bancshares Incorporated
Fifth Third Bancorp
), are expected to follow suit. These banks have to resort to
expansive efficiency measures in order to survive in the market
amid the new business environment.
Besides these regional banks, big banks like
Bank of America Corporation
) have also come up with cost-cutting actions. In 2011, BofA
announced - Project New BAC - a two-phased initiative with the
primary aim of streamlining workflows and processes, aligning
businesses and expenses more closely with the overall strategic
plans and operating principles, and subsequently increasing
revenues. Under Phase 1, the company announced nearly 30,000 job
cuts and expects annual operating expenses to decline nearly $5
billion by 2014.
Likewise, in Phase 2, BofA would be laying off employees in Global
Banking, Global Markets and Global Wealth & Investment
Management segments. However, the reductions under Phase 2 are not
expected to be as severe as in Phase 1.
Given the dismal economic scenario, reduction of expenditure and
closure of non-core units are the only ways for the companies to
survive these tough times. Considering this, it can be stated that
KeyCorp's measures are fully justified. However, this will increase
the already high unemployment.
Currently, KeyCorp retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the stock.