CLEVELAND, June 12 OH-KeyCorp-new-equity
CLEVELAND, June 12 /PRNewswire-FirstCall/ -- KeyCorp (NYSE: KEY) today
announced a series of steps to preserve and enhance its capital strength in
response to a previously announced ruling by a federal court in a dispute over
tax treatment of a segment of its leveraged lease portfolio. Although the
announced steps are being taken primarily to offset the accounting effects of
the adverse court ruling, they will also help maintain the company's strong
capital ratios and position it to better address both current economic
conditions and future growth opportunities.
In the 2008 second quarter, KeyCorp will take an after-tax accounting
charge to earnings and capital in the range of $1.1 billion to $1.2 billion
for the leveraged lease tax litigation and all of KeyCorp's other contested
leveraged lease transactions.
To accommodate an accounting charge of this extent, the Board approved
transactions that will allow KeyCorp to raise approximately $1.5 billion of
additional equity capital, consisting of newly-issued KeyCorp common shares
and non-cumulative perpetual convertible preferred stock. The net proceeds
from the two offerings are intended to restore capital to strengthen KeyCorp's
balance sheet following the accounting charges, and will be used for general
corporate purposes.
Finally, it is the Board's current intention to reduce the dividend on
KeyCorp's common shares by 50 percent commencing with the third quarter 2008
dividend, to an annualized dividend of $0.75 per common share. The dividend
reduction will result in Key retaining approximately $200 million of capital
annually (pro forma, after giving effect to the anticipated capital raise).
"We are taking these actions to preserve and enhance our balance sheet
strength," said KeyCorp CEO Henry Meyer.
"If it had not been for the adverse court ruling on our tax treatment of a
leveraged lease transaction, we probably would not have considered the capital
raising actions," Meyer continued. "But the ruling forced our hand and
prompted the decision to build on our strength with a capital raise, one that
we think not only is prudent in light of the economic climate, but also is an
appropriate move as we look to the future of the enterprise."
KeyCorp and its counsel are evaluating the prospects for appealing the
court decision rendered on the leveraged lease transaction. KeyCorp continues
to believe that the tax treatment it applied to its leveraged lease
transactions complied with all applicable tax laws, regulations and judicial
authorities in effect at the time and was consistent with industry practice.
Regardless of whether KeyCorp decides to appeal the trial court tax
decision, management believes that the applicable accounting guidance requires
KeyCorp to recalculate lease income recognized on its entire portfolio of
contested leveraged leases - not just the single leveraged lease subject to
the court decision. The related second quarter charge to earnings and capital
in the range of $1.1 billion to $1.2 billion consists of two primary
components: approximately $475 million is the after-tax interest cost on the
taxes claimed on the contested leveraged leases and approximately $625 million
to $725 million represents a non-cash accounting adjustment based on the
revised cash flows of the leases. Management expects future earnings to
increase over the remaining terms of the affected leases by approximately
two-thirds of the non-cash accounting adjustment.
"The decision to reduce our dividend after 43 consecutive years of annual
increases was made after great deliberation," Meyer commented. "It was a
record we were extremely proud of, but we must recognize the current economic
realities as we manage our business for the future. We will continue to review
our dividend policy each quarter and we look forward to a time when conditions
may warrant a return to the precedents we set in past periods."
With respect to the capital raise, KeyCorp announced that it has commenced
concurrent offerings of common shares and non-cumulative perpetual convertible
preferred stock, for an aggregate of $1.5 billion. The common share and
non-cumulative perpetual convertible preferred stock offerings are being
conducted as separate public offerings under the Securities Act of 1933, as
amended, and are not contingent upon each other. KeyCorp also expects to grant
the underwriters for these offerings an option to purchase additional common
shares and/or non-cumulative perpetual convertible preferred stock in order to
cover any over-allotments.
Citi is serving as the sole book-running manager for the offerings.
KeyBanc Capital Markets Inc., UBS Securities LLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, and Morgan Stanley & Co. Incorporated are serving
as joint lead managers.
KeyCorp has filed a registration statement (including prospectus) with the
SEC for the offerings to which this communication relates. Before you invest,
you should read the prospectus in that registration statement, the preliminary
prospectus supplement and other documents the issuer has filed with the SEC
for more complete information about the issuer and these offerings. You may
get these documents for free by visiting EDGAR on the SEC Web site at
www.sec.gov. Alternatively, the issuer, any underwriter or any dealer
participating in the offerings will arrange to send you the relevant
prospectus if you request it by contacting Citigroup Global Markets Inc.,
Attn: Prospectus Department, Brooklyn Army Terminal 140, 58th Street, 8th
Floor, Brooklyn, New York 11220 or by calling toll-free (877) 858-5407 or by
facsimile at (718) 765-6734.
About KeyCorp
Cleveland-based KeyCorp is one of the nation's largest bank-based
financial services companies, with assets of approximately $101 billion. Key
companies provide investment management, retail and commercial banking,
consumer finance, and investment banking products and services to individuals
and companies throughout the United States and, for certain businesses,
internationally. For more information, visit https://www.key.com/.
This news release contains forward-looking statements, including
statements about our financial condition, results of operations, earnings
outlook, asset quality trends and profitability. Forward-looking statements
express management's current expectations or forecasts of future events and,
by their nature, are subject to assumptions, risks and uncertainties. Although
management believes that the expectations and forecasts reflected in these
forward-looking statements are reasonable, actual results could differ
materially due to a variety of factors including: (1) changes in interest
rates; (2) changes in trade, monetary or fiscal policy; (3) continued
disruption in the fixed income markets; (4) adverse capital markets
conditions; (5) changes in general economic conditions, or in the condition of
the local economies or industries in which we have significant operations or
assets, which could, among other things, materially impact credit quality
trends and our ability to generate loans; (6) increased competitive pressure
among financial services companies; (7) the inability to successfully execute
strategic initiatives designed to grow revenues and/or manage expenses; (8)
consummation of significant business combinations or divestitures; (9)
operational or risk management failures due to technological or other factors;
(10) changes in accounting or tax practices or requirements; (11) new legal
obligations or liabilities or unfavorable resolution of litigation; (12)
heightened regulatory practices, requirements or expectations; and (13)
disruption in the economy and general business climate as a result of
terrorist activities or military actions. Forward-looking statements are not
guarantees of future performance and should not be relied upon as representing
management's views as of any subsequent date. We do not assume any obligation
to update these forward-looking statements. For further information regarding
KeyCorp, please read KeyCorp's reports that are filed with the Securities and
Exchange Commission and are available at www.sec.gov.
SOURCE KeyCorp
