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KeyCorp (KEY) Plans to Reduce Expenses by $200M in 2019

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KeyCorp KEY, which has been on a cost savings mode for almost two years, now targets to cut another $200 million or nearly 5% of its total expenses in 2019. The bank announced this during its Investors Day conference.

In a statement, KeyCorp spokesperson Matthew Pitts said, “While I don’t have specific details to share at this time, our efforts will draw on lessons learned from the merger with First Niagara and we will meet (the $200 million) goal over time by keeping clients at the center of all that we do. That means we will carefully evaluate all activities and functions to ensure we’re supporting activities that provide significant value to our clients.”

Details

KeyCorp plans to consolidate branches and streamline back-and middle-office operations. Also, the bank is likely to realign businesses and make changes to staffing model. Further, it intends to cut expenses related to third-party vendor contracts.

All these efforts are expected to support KeyCorp to achieve targeted savings.

KeyCorp also intends to continue its revenue growth momentum by undertaking several measures like conducting targeted hiring, adding more products and capabilities as well as expanding its commercial expertise and financial wellness offerings. The company continues to seek additional revenue synergies from the acquisition of First Niagara Group Inc.

Notably, KeyCorp achieved targeted annualized cost synergies of $450 million from the First Niagara deal in second-quarter 2018.

Additionally, at the Investors Day conference, KeyCorp reiterated certain long-term targets. Management expects to continue generating positive operating leverage. Further, net charge-offs to average loans is projected to be 40-60 basis points.

The company now expects return on tangible common equity to be 16-19%, up from prior target of 15-18%. Also, KeyCorp now expects to achieve cash efficiency ratio target of 54-56% by second-half 2019, driven by accelerating cost saving efforts.

Our Viewpoint

KeyCorp’s expense discipline will go a long way in supporting its profitability. Further, solid organic growth, given the loan growth, higher interest rates and focus on non-interest income will continue driving the bank’s bottom line.

Shares of KeyCorp have lost 2.5% over the past year compared with 6.4% decline for the industry.


 

Currently, KeyCorp carries a Zacks Rank #3 (Hold).

Stocks Worth Considering

Stocks from the same industry worth a look are JPMorgan JPM, Citigroup C and U.S. Bancorp USB. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

JPMorgan’s earnings estimates for the current year have revised 1.2% upward over the past 30 days. Its shares have gained 54.7% over the past two years.

Citigroup has been witnessing 1.5% upward estimate revision for the current year over the past 30 days. Its shares have gained 31.9% in the past two years.

U.S. Bancorp’s earnings estimates for the current year have moved nearly 1% upward over the past 30 days. Its shares have gained 17.7% over the past two year.

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