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Wednesday, May 28, 2008

Regional Bank Problems: KeyCorp

by Calculated Risk on 5/28/2008 01:04:00 PM

From Bloomberg: KeyCorp Slide Foretells Losses at `Delusional' Banks

KeyCorp ... doubl[ed] its forecast for loans that won't be repaid, prompting concern that regional banks have underestimated the cost of bad mortgages.

KeyCorp [said] debts may be as much as 1.3 percent of average total loans this year. The figure may rise even more, KeyCorp said, as the Cleveland-based company cuts holdings tied to homebuilders.

The revision by the Ohio bank, which last month quadrupled its provision for loan losses to $187 million, may foretell similar increases at U.S. commercial banks as home prices keep sliding, analysts said.
And they are also having problem with home improvement loans. Here is the KeyCorp release from the 8-K SEC filing:
KeyCorp (the "Corporation") is updating its previous outlook for net loan charge-offs for 2008. The previous estimated range for net loan charge-offs was .65% to .90% of average loans. The Corporation now anticipates that net loan charge-offs will be in the range of 1.00% to 1.30% for 2008, with second quarter and potentially third quarter net charge-offs running above this range as the Corporation deals aggressively with reducing exposures in the residential homebuilder portfolio and anticipates elevated net loan charge-offs in its education and home improvement loan portfolios. The Corporation announced in the fourth quarter of 2007 that it had: (i) decided to cease conducting business with “out of footprint” nonrelationship homebuilders, (ii) recorded additional reserves to address continued weakness in the housing market, and (iii) decided to exit dealer-originated home improvement lending activities, which involve prime loans but are largely out-of-footprint.