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KeyCorp (KEY)

Q1 2009 Earnings Call Transcript

April 21, 2009 9:00 am ET


Henry Meyer – Chairman & CEO

Jeff Weeden – CFO

Chuck Hyle – Chief Risk Officer


Brian Foran – Goldman Sachs

Jeff Davis – Howe Barnes

Gerard Cassidy – RBC Capital Markets

David Knutson – Legal and General



Good day and welcome to KeyCorp's first quarter 2009 earnings results conference call. This call is being recorded. At this time I would like to turn the call over to the Chairman and Chief Executive Officer of KeyCorp, Mr. Henry Meyer. Mr. Meyer, please go ahead, sir.

Henry Meyer

Thank you, operator. Good morning and welcome to KeyCorp's First Quarter 2009 Earnings Conference Call.

Joining me for today's presentation is our CFO, Jeff Weeden and available for the Q&A portion of the call are our Vice Chairs, Beth Mooney, and Peter Hancock, our Chief Risk Officer, Chuck Hyle, and our Treasurer Joe Vayda.

I hope you all look at Slide #2 which is our forward-looking disclosure statement. It covers our presentation materials and comments as well as the Q&A segment of our call today.

Now if you turn to Slide #3, today, we announced net loss of $1.09 per share for the first quarter. As was the case for the fourth quarter of last year, the loss was primarily attributable to a non-cash accounting charge for goodwill impairment and continued building of a loan loss reserve.

In light of the prevailing economic environment during the first quarter of this year, we continued to build our loan loss reserve by taking a $875 million provision for loan losses which exceeded our net charge-offs by $383 million. At March 31, 2009, our loan loss reserve stood at almost $2.2 billion and represented 2.97% of period end loans and 126% of nonperforming loans.

In our earnings release this morning, we announced that the Board of Directors intends to reduce the quarterly common stock dividend from $6.25 per share to a penny per share commencing in the second quarter. Obviously, no one likes having to reduce the dividend again. However, given the current operating environment, I, my management team and our Board believe this action is prudent. As a result of this decision, the Company will retain approximately 100 million of capital on an annual basis.

These are challenging times and operating expenses in the form of higher collection cost and deposit insurance are impacting everyone in the industry is addressing the challenges by continuing to focus on controlling costs where we can. In the first quarter, we took some additional measures to reduce costs.

And in the past year, we have reduced FTEs by approximately 1,000. Many of these reductions were associated with businesses we previously announced we were exiting or deemphasizing such as private student lending and the home builder lending area with the national banking.

In other areas of the company we are achieving better cost efficiencies by developing new technology. We are also capitalizing on our efficiencies in our commercial mortgage servicing area where we recently bid on and won an additional $3 billion of servicing.

It's continued to move forward with this business plans to reshape the company and return to profitability as the economy begins to improve. However, we are not sitting around waiting for this to happen on its own. We continue to look for ways to streamline our operations by further eliminating lower value activities and capitalizing on investments we've made to improve our operations.

At March 31, 2009, our tier one capital ratio was a strong 11.16%. Our total capital ratio stood at 15.11% and a ratio that everyone seems to be focusing on these days are tangible common ratio was 6.06%.

We remain focus on the strategic allocation of our capital during these economically challenging times. As a result, we continued to make progress on our efforts to reshape our business mix by exiting low return and indirect portfolios. However, progress here has been slower than we would have liked simply because of the malaise hanging over the economy for the past several quarters.

We have also focused our people on working with our clients to meet their funding needs while getting fairly compensated for the capital and funding we put to work. As highlighted in our earnings release, in the first quarter, we entered into new extensions of credit with clients representing approximately 7.8 billion in new or renewed loan commitments.

We remain encouraged by the results we have seen coming from the Community Bank from the investments we are making in technology, branch monetization and de novo branches. As of March 31st we have completed our rollout of Teller 21 across the company, monetized over 100 locations and we have plans to complete between 35 de novo branches and 40 de novo branches in 2009.

Last week and yesterday again, we announced internally additional changes to our organization. Within our real estate capital business we have announced we are consolidating several of our national sales locations within the income property segment and we are signing new resources to work on more challenging credits.

Within the Community Bank, we are making a series of changes that will help build greater consistency across our districts in order to have better alignment to the clients we serve and do so in a more cost-effective way.

And as always, we will continue to keep our clients at the center of everything we do in order to provide the great client experience that earn KeyCorp recognition at the top rated bank in customer service by business week and as customer service champion in 2009 edition.

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