As expected, the Federal Reserve has approved KeyCorp’s (KEY) capital plan following the 2013 Comprehensive Capital Analysis and Review (CCARF). Consequently, the board of directors at KeyCorp announced a $426 million share buyback program.
KeyCorp intends to complete the buyback of shares by the end of the first quarter of 2014 through the open market or via privately-negotiated transactions. The repurchased shares will be held as treasury shares and are most likely to be reissued for a variety of corporate purposes.
KeyCorp will also consider a potential dividend hike in May. The company is looking forward to increase its dividend by 10% to 5.5 cents. The dividend hike, if approved, would become effective from the second quarter of 2013.
Additionally, last month, the company announced its intention to submit an updated capital plan to the Fed, requesting to utilize the realized gains stemming from the conclusion of the sale of Victory Capital Management and its broker-dealer subsidiary, Victory Capital Advisers, to buyback shares. The divestment is expected to conclude in the third quarter of the current year.
KeyCorp, along with many other financial institutions, had submitted its capital plan to the Federal Reserve for stress tests to secure approval for dividend increases and share buybacks. Stress test was conducted to find out whether the banks have enough capital to survive another financial crisis. 17 out of 18 companies passed the test, where Ally Financial Inc. was the one to fall short.
The Fed approved capital plans of 14 companies including KeyCorp, while the plans of Ally Financial and BB&T Corporation (BBT) were not approved. JPMorgan Chase & Co. (JPM) and The Goldman Sachs Group, Inc. (GS) have been asked to re-submit the plans after making certain amendments.
KeyCorp’s continuous efforts to enhance shareholders’ value are highly commendable. This reflects the company’s strong fundamentals and robust liquidity.
Keycorp currently retains a Zacks Rank #3 (Hold).
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