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Analyst Blog

Moody's Investors Service, a rating arm of Moody’s Corp. (MCO - Analyst Report) , recently completed the rating review of KeyCorp. (KEY - Analyst Report) and its subsidiaries. The rating agency maintained the long-term ratings of KeyCorp and projected its outlook as “Stable”.

While KeyCorp was reaffirmed at Baa1, the company’s bank subsidiary – KeyBank National Association – remains at A3 for long-term deposits and Prime-2 for short-term obligations. Further, KeyBank National Association has a standalone bank financial strength rating of C and the baseline credit assessment of a3.

The rating agency reaffirmed its rating based on KeyCorp’s strength in asset quality, capital position and liquidity, offset by rising expenses and persistent pressure on net interest margin (NIM).

In second-quarter 2013, KeyCorp’s nonperforming assets, as a percentage of period-end portfolio loans, OREO assets and other nonperforming assets were 1.30%, falling 21 basis points (bps) year over year. Moreover, net charge-offs, as a percentage of average loans, decreased 29 bps year over year to 0.34%.

However, the company’s non-interest expense inched up 2.6% from the prior-year quarter to $711 million. Though NIM increased 7 bps year over year to 3.13%, the pace of improvement remains sluggish.

Further, KeyCorp has been working hard to lower its risk profile. Though the company’s commercial real estate (CRE) concentration has declined from what it was before the financial crisis, it still remains a matter of concern.

KeyCorp, currently carries a Zacks Rank #3 (Hold). Some better-performing banks include BankUnited, Inc. (BKU - Analyst Report) and Wells Fargo & Company (WFC - Analyst Report) . While BankUnited carries a Zacks Rank #1 (Strong Buy), Wells Fargo has a Zacks Rank #2 (Buy).