(Recasts, adds details, paragraphs 1-2, 5-6, share movement)
By Jonathan Stempel and Sweta Singh
BANGALORE, May 28 (Reuters) - KeyCorp (KEY.N), a large U.S. Midwest regional bank, said mounting loan losses could cause net charge-offs to double from its prior forecast, causing its shares to tumble to a new year-low.
The bank's shares were down $2.65, or 12.1 percent, at $19.30 in afternoon trading on the New York Stock Exchange. The KBW Bank Index .BKX, which includes KeyCorp, was down 3.2 percent.
In a filing late Tuesday with the U.S. Securities and Exchange Commission, the Cleveland-based bank projected full-year net charge-offs in the range of 1 percent to 1.3 percent, up from its prior forecast of 0.65 percent to 0.90 percent.
KeyCorp said net charge-offs in the second quarter and possibly the third quarter could be higher than the new range, citing exposure to residential homebuilders, and in its education and home improvement loan portfolios.
"The disclosure is bad news," wrote Scott Siefers, an analyst for Sandler O'Neill & Partners LP. "Key simply happens to be among the first so far to increase its net charge-off guidance, and as time goes on, we would expect similar deterioration to impact many others."
Many U.S. banks have struggled with mounting credit losses as the economy slowed and housing market slumped, making it more difficult for many borrowers to keep current on their debts.
KeyCorp spokesman William Murschel declined to immediately elaborate on the filing.
Several analysts lowered their profit forecasts for KeyCorp, and some questioned whether the bank could maintain its $1.50 per share dividend, which equated to a 6.83 percent dividend yield as of Tuesday's market close.
Many U.S. banks have slashed their dividends this year, including Citigroup Inc (C.N), Wachovia Corp WB.N and another Cleveland-based bank, National City Corp NCC.N.
Goldman Sachs & Co analyst Brian Foran lowered his 2008 profit per share forecast to $1.55 from $1.95, and projected that KeyCorp will halve its dividend to preserve capital. RBC Capital Markets analyst Gerard Cassidy lowered his forecast to $1.00 from $1.80, and called a dividend cut "likely."
Siefers, meanwhile, cut his 2008 profit per share forecast to $1.28 from $2.00.
In the first quarter, KeyCorp profit fell 38 percent, as loan losses more than quadrupled. The bank, in the fourth quarter of 2007, cut back on some real estate lending, and set aside more money to address weakness in the housing market. (Editing by Gopakumar Warrier)