UPDATE 2-Baird cuts KeyCorp to neutral on earnings challenges
(Adds analyst's comments, background; updates share price) July 31 (Reuters) - Analysts at Robert W. Baird & Co downgraded KeyCorp (KEY.N: Cotización) to "neutral," just 10 days after upgrading it to "outperform," citing earnings challenges for the U.S. Midwest regional bank.
KeyCorp shares, which fell as much as 7 percent, pared some of their early losses and were trading down more than 5 percent on the New York Stock Exchange.
"While reversing our recent upgrade is a tough decision and atypical for us, we have a hard time making a bull case for the stock given what we believe is notably diminished earnings power in 2009 due to the company's earnings challenges," analysts led by David George said.
KeyCorp's earnings power over the next several quarters will likely be hurt by higher credit costs, a higher tax rate and net interest margin compression, given the competitive Midwestern environment, analysts said.
"Given noted earnings headwinds and our estimate that over the next four quarters KeyCorp will not earn its annual dividend of $0.75.., we believe KeyCorp's balance sheet will remain stressed," they wrote in a note to clients.
The analysts widened their 2008 loss estimate to $1.86 a share from their prior estimate of a loss of $1.69. They halved their 2009 earnings estimate to 75 cents a share.
Last week, KeyCorp posted a second-quarter loss on a $1 billion charge related to an adverse tax ruling and the cost of boosting reserves ahead of further commercial real estate write-downs.
Shares of the Cleveland-based bank were down 60 cents at $10.62. They touched a low of $10.41 earlier in the session.
CREDIT QUALITY CONCERNS Continuación...