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Cost of losing tax case, uncollectible debt of builders to blame for $1.13 billion decline
By Linda Shen
Bloomberg News
Published on Wednesday, Jul 23, 2008
KeyCorp, Ohio's third-largest bank, reported its first unprofitable quarter since 2001 as the lender lost a tax case tied to leasing and set aside more money to cover bad loans to builders.
The second-quarter net loss was $1.13 billion, or $2.70 a share, compared with a profit of $334 million, or 84 cents, a year earlier, the Cleveland-based bank said Tuesday.
While the cost of the tax case was less than the bank forecast, the cost of uncollectible debt was higher than expected, said Jeff Davis, an analyst with FTN Midwest Securities.
''More important is going to be what happens to credit quality,'' Davis said. ''It's about asset quality, and where does capital stand at this point in time.''
Chief Executive Officer Henry Meyer has stopped lending to builders in places where the bank has no community banking operations after defaults in states including Florida and California that prospered during the housing boom. KeyCorp raised more than $1.7 billion in the quarter selling convertible and common stock and halved its dividend after losing the tax case.
KeyCorp gained 49 cents, or 4.3 percent, to $11.99 in Tuesday trading, reversing an earlier decline of 15 percent after Vice Chairman Thomas Bunn said the only customers leav
ing KeyCorp are clients the bank no longer wants because they are at risk of not paying back loans.
The lender's stock has declined 49 percent this year, compared with the 73 percent slide at National City Corp., Ohio's largest bank, and the 41 percent plunge at No. 2 Fifth Third Bancorp.
''If the economy goes into full-blown recession, there's no way any of these banks have hit the bottom on credit,'' said RBC Capital Markets analyst Gerard Cassidy in an interview before results were announced.
The lender said loans it doesn't expect to be repaid climbed tenfold to $524 million, or 2.75 percent of average loans. KeyCorp in May doubled its forecast of uncollectible debt for the year to as high as 1.3 percent of average loans. Second- and third-quarter net charge-offs could run even higher, KeyCorp said in a regulatory filing on May 27.
KeyCorp, Ohio's third-largest bank, reported its first unprofitable quarter since 2001 as the lender lost a tax case tied to leasing and set aside more money to cover bad loans to builders.
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