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No. of Recommendations: 2
Key has been rumored to be a takeover candidate for the last 5+ years and believe me I would love to see it happen. Management needs a good shake up! From time to time there is a brief and I mean brief run up in the stock price but it always falls back. The company has always paid a nice dividend which is its saving grace. The earnings are relatively flat with no real top line growth. Expenses seem to be in control although in years past they were incredibly out of line. Once the Directors finally woke up to that fact the company went through several acronyms to bring expenses in line. Those programs have been reasonably successful. Relative to its peers Key is a laggard. Unfortunately Key is spread out geographically and except for a few cities in stagnant or declining markets they don't have any significant "market share." On the other hand they have been innovative in a number of areas which have certainly helped maintain earnings such as Leasing, Real Estate, Asset Management and On-line Banking. I briefly listened to this quarter's conference call and it sounded like the increase in earnings came from a one time sale that took advantage of rates but it was emphasized that it was a one time occurence. However, they said the bank is well positioned when and if rates rise. While the quarters numbers looked good they certainly pale when compared against many of their peers who continually post extraordinary numbers!

I don't think you can get hurt with Key but don't look for any significant appreciation unless they get real lucky and find a suitor willing to pay up! Keep thinking dividend yield. I think the most likely buyer of Key will be a foreign bank wanting to add a significant presence in the US.
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