31 de julio de 2008 / 10:40 / en 9 años

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) 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

"KeyCorp has negatively guided on credit three times in the last two to three months, so we would not be surprised to see negative revisions to the extent the macro environment remains challenging," Baird analysts said.

The analysts expect continued reserve build and elevated losses for the bank in the next six quarters.

A prolonged real estate and housing downturn could hurt credit quality trends at KeyCorp and adversely impact its earnings power and valuation, they said.

They estimated that KeyCorp's commercial real estate portfolio totals $19 billion, accounting for 25 percent of its total loan portfolio.

Its commercial real estate exposure is one of the highest among the larger regional banks, analysts said.

About 70 percent of KeyCorp's commercial real estate loan portfolio is not owner-occupied, and roughly 40 percent of its portfolio is exposed to residential, light non-residential, and multi-family loans, they added.

The price target on the stock was cut by $1 to $12. (Reporting by Mary Meyase in Bangalore; Editing by Jarshad Kakkrakandy, Himani Sarkar)

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