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KeyCorp Closes Laurel Road Deal, Strengthens Online Lending

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In sync with its efforts to improve digital capabilities, KeyCorp (KEY - Free Report) has completed the acquisition of New York-based Laurel Road Bank's digital lending business. The financial terms of the transaction, announced in January, were not disclosed.

KeyCorp will utilize Laurel Road's proven ability to attract and serve professional millennial clients (healthcare professionals, lawyers and graduate students) through customized, end-to-end lending products. Nonetheless, Laurel Road's three bank branches located in southeast Connecticut are not part of this deal.

At the time of announcement of the deal, KeyCorp had stated that Laurel Road will likely add less than $50 million to both income and expense in 2019. Also, it will be dilutive by nearly 2 cents per share for the year and accretive thereafter. The deal will also have a slight impact on loan growth in 2019. Further, nearly 140 employees of the acquired firm will join KeyCorp and remain based in New York, Connecticut and California.

Laurel Road’s student loan refinancing platform (launched in 2013) is growing rapidly, having originated more than $4 billion in loan. The platform provides a streamlined, transparent experience with customized loan products. Last year, it had introduced an innovative mortgage platform, which offers home buyers and owners an efficient digital application process.

Jamie Warder, Head of Digital for KeyBank, said, “Part of KeyBank's strategy is to pair the best of the best in fintech with our industry expertise and scale. Now that the deal is officially closed, we're thrilled to begin work with Laurel Road.”

The bank plans to accelerate growth by leveraging Laurel Road’s national reach, existing infrastructure and technology capabilities.

Over the past few years, KeyCorp has been expanding operations through buyouts. In 2016, the company acquired First Niagara Financial Group while in 2017, it acquired HelloWallet and Cain Brothers & Company, LLC. All these inorganic efforts are expected to continue supporting the company’s profitability.

So far this year, shares of this Zacks Rank #3 (Hold) company have rallied 11.2%, slightly underperforming the industry’s rise of 11.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The wave of M&As in the banking industry is expected to continue in the near term driven by easing of stringent regulations and lower corporate tax rates that freed up capital. The blockbuster merger deal between BB&T Corporation and SunTrust Banks , announced earlier this year, points toward this.

Also, several small and mid-size banks including Fifth Third Bancorp (FITB - Free Report) , BancorpSouth Bank and People's United Financial, Inc. have been undertaking opportunistic acquisitions that will not only lead to geographic expansion but will also help diversify revenue base.

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