New York, January 25, 2021 -- Moody's Investors Service (Moody's) has affirmed the long-term
debt and deposit ratings, and assessments of KeyCorp (Key,
senior unsecured debt at Baa1) and its subsidiaries, as well as
the baseline credit assessment (BCA) of its bank subsidiary Key Bank National
Association (Key Bank, long-term deposits Aa3, long-term
senior unsecured A3, BCA a3). The ratings outlook remains
stable. A complete list of affected ratings and entities can be
found at the end of this press release.
The ratings affirmation resulted from Moody's unchanged assessment
of the bank's credit fundamentals, as expressed by its a3
BCA, which is in line with the median for rated US banks.
RATINGS RATIONALE
The affirmation of the BCA and ratings reflects Key's robust funding
and liquidity profile and conservative risk appetite, which Moody's
expects to keep credit costs manageable. Key operates a diverse
regional banking franchise, which supports its risk profile and
generates solid profitability. Its capitalization, though
sound, is the weakest aspect of its financial profile.
Key's core deposits more than fully fund its loan portfolio,
which limits its need for confidence-sensitive market funding resulting
in limited refinancing risk. In 2020, it had exceptionally
robust deposit growth, which has increased its holdings of liquid
assets. The rating agency expects some reversal of these trends
as market conditions normalize, but Key's funding and liquidity
profile will likely remain a credit strength as it was before the coronavirus
pandemic started.
Key's asset quality is supported by its conservative underwriting
and the sector and geographic diversification of its loan portfolio.
Its loan mix was approximately 71% commercial and 29% consumer
loans as of 31 December 2020. In its commercial portfolio,
it has avoided large concentrations. Prior to the onset of the
pandemic, Key was strategically reducing its commercial real estate
portfolio, which had grown with its 2016 acquisition of First Niagara
Corporation. Its exposure to commercial sectors more vulnerable
to the economic effects of the coronavirus is moderate at about 9%
of loans as of 31 December 2020.
Moody's views capital as the weakest aspect of Key's financial
profile. Key reported a common equity tier 1 ratio of 9.8%
as of 31 December 2020, which is above its targeted range of 9-9.5%.
As of 30 September 2020, its Moody's tangible common equity/risk-weighted
asset ratio was 8.82%. Both measures are below the
median of same-rated and large US bank peers. Positively,
in the recent Federal Reserve's stress tests, Key's
capital resiliency was higher than most peers, which partially offsets
its lower starting point.
The rating agency expects Key's profitability growth to be pressured
by the low interest rate environment and limited loan growth, offset
by lower provision expense compared to 2020. Key's pre-provision
earnings benefit from diversity, with approximately 40% of
net revenue from noninterest income. Key's net interest margin
fell in 2020, but should show more stability in future periods aided
by lower deposit costs, shifts in its balance sheet, and its
interest rate hedges. Key's management expects to accelerate
its branch consolidation, which will be supportive of expense control.
Key Bank's long-term deposits and senior unsecured debt are
rated Aa3 and A3, respectively, based on the a3 BCA,
and the application of Moody's advanced loss given failure (LGF)
analysis based on Key's liability structure. Because Key
has a larger proportion of unsecured long-term debt in its liability
structure relative to most other regional US banks, Moody's
see lower potential loss severity for bank-level senior debt and
deposits, which is reflected in wider notching relative to the BCA
compared to most US regional banks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward movement of Key's BCA would hinge on higher tangible common
equity capitalization and sustained improvement in profitability.
A higher BCA would likely lead to a ratings upgrade.
Downward pressure on the BCA could emerge if Key's capitalization
or asset quality deteriorates significantly or it materially increases
its market funding or reduces liquid assets. A lower BCA would
likely lead to a ratings downgrade.
Affirmations:
..Issuer: KeyCorp
....LT Issuer Rating, Affirmed Baa1,
Stable
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Baa1
....Subordinate Medium-Term Note Program,
Affirmed (P)Baa1
....Other Short Term, Affirmed (P)P-2
....Pref. Stock Non-cumulative,
Affirmed Baa3(hyb)
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1, Stable
....Pref. Shelf, Affirmed (P)Baa2
....Pref. Shelf Non-cumulative,
Affirmed (P)Baa3
....Senior Unsecured Shelf, Affirmed
(P)Baa1
....Subordinate Shelf, Affirmed (P)Baa1
..Issuer: First Niagara Financial Group, Inc.
....Subordinate Regular Bond/Debenture,
Affirmed Baa1
..Issuer: KeyBank National Association
....Adjusted Baseline Credit Assessment,
Affirmed a3
....Baseline Credit Assessment, Affirmed
a3
....Senior Unsecured Bank Note Program,
Affirmed (P)A3
....Subordinate Bank Note Program, Affirmed
(P)Baa1
....ST Bank Note Program, Affirmed (P)P-2
....LT Deposit Note/CD Program, Affirmed
(P)Aa3
....ST Deposit Note/CD Program, Affirmed
(P)P-1
....LT Counterparty Risk Assessment,
Affirmed A2(cr)
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....LT Counterparty Risk Rating (Local Currency),
Affirmed A3
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-2
....LT Counterparty Risk Rating (Foreign Currency),
Affirmed A3
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-2
....LT Issuer Rating, Affirmed A3,
Stable
....Senior Unsecured Regular Bond/Debenture,
Affirmed A3, Stable
....Subordinate Regular Bond/Debenture,
Affirmed Baa1
....LT Bank Deposits, Affirmed Aa3,
Stable
....ST Bank Deposits, Affirmed P-1
..Issuer: KeyCorp Capital I
....Backed Pref. Stock, Affirmed
Baa2(hyb)
..Issuer: KeyCorp Capital II
....Backed Pref. Stock, Affirmed
Baa2(hyb)
..Issuer: KeyCorp Capital III
....Backed Pref. Stock, Affirmed
Baa2(hyb)
Outlook Actions:
..Issuer: KeyCorp
....Outlook, Remains Stable
..Issuer: KeyBank National Association
....Outlook, Remains Stable
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Rita Sahu, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
