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KeyCorp to participate in gov’t bailout

KeyCorp to participate in gov’t bailout

The tumult that tore through the financial industry in September has caught up with KeyCorp, which o

The tumult that tore through the financial industry in September has caught up with KeyCorp, which on Tuesday announced a third-quarter loss.

The Cleveland-based parent of KeyBank, which has 51 branches and 1,450 employees in the Capital Region, also disclosed its intention to apply for over $1 billion under the U.S. Treasury Department’s $250 billion plan to inject cash into banks in return for partial ownership of their stocks.

KeyCorp posted a third-quarter net loss of $36 million, a significant turnaround from earnings of $210 million in the same period of 2007.

The company continued to see its balance sheets roiled by mounting bad loans. Exacerbating those problems were $33 million in losses the company incurred in the wake of Lehman Brothers Holdings’ collapse. The investment bank’s failure prompted the cancellation of derivatives contracts and made KeyCorp swallow the subsequent drops in market prices.

Despite those losses, KeyCorp Chief Executive Officer Henry Meyer III maintained a positive outlook. Investors rallied behind him, sending the company’s stock up 12.4 percent on a day when the Dow Jones Industrial Average dropped 2.5 percent.

“In my 35 years in banking, we have successfully managed through a number of difficult credit cycles, and as I reflect on those cycles I cannot think of a time when we were more prepared than today,” Meyer said in a conference call with analysts.

To better navigate through the financial crisis, Meyer said KeyCorp will exit the business of floor-plan lending to marine and recreational vehicle products and limit new government-backed student loans. Those moves add to the growing list of businesses KeyCorp has exited in recent years, including subprime mortgages, automobile financing and broker-originated home equity lending.

A week after the Treasury revealed plans to prop up U.S. banks and unclog the flow of loans to businesses, Meyer also said KeyCorp will apply for capital under the $250 billion senior preferred capital purchase program. That initiative, which nine major U.S. banks already signed up for under government pressure, is part of the $700 billion Troubled Asset Relief Program that Congress passed earlier this month.

Meyer said KeyCorp could receive $1.1 billion to $3.3 billion from Treasury. Large bank holding companies, such as Bank of America Corp, Citigroup and JP Morgan Chase, will each receive $25 billion under the program.

“We would probably apply for more than the minimum but probably not the maximum … The added capital from the TARP senior preferred program would provide additional capacity for loan growth for our relationship customers and be good for the economy,” Meyer said.

During the quarter, KeyCorp boosted its reserves for bad loans to $1.55 billion, up from $955 million a year earlier. During the same period, nonperforming loans jumped 94.1 percent to $967 million.

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