Founded: 1825 as Commercial Bank of Albany
Incorporated: 1958 as Society Corporation
NAIC: 551111 Offices of Bank Holding Companies; 522110 Commercial Banking; 522292 Real Estate Credit; 523110 Investment Banking and Securities Dealing; 523920 Portfolio Management; 523930 Investment Advice; 524210 Insurance Agencies and Brokerages; 525910 Open-End Investment Funds; 532420 Office Machinery and Equipment Rental and Leasing
SIC: 6712 Bank Holding Companies; 6021 National Commercial Banks; 6022 State Commercial Banks; 6029 Commercial Banks Nec; 6081 Foreign Banks - Branches & Agencies; 6162 Mortgage Bankers & Correspondents; 6282 Investment Advice; 6411 Insurance Agents, Brokers & Service; 6722 Management Investment - Open-End; 7377 Computer Rental & Leasing
One of the 15 largest banks in the United States, KeyCorp is involved in retail and commercial banking as well as a number of other sectors within the financial services industry. Its community banking operations encompass more than 950 full-service branches and more than 1,400 ATMs in 13 northern-tier states: Oregon, Washington, and Alaska in the Northwest; Colorado, Idaho, and Utah in the Rocky Mountain region; Ohio, Michigan, Indiana, and Kentucky in the Great Lakes region; and New York, Vermont, and Maine in the Northeast. Via this network, KeyCorp offers individuals and small businesses a variety of deposit, lending, investment, and wealth management products and services.
KeyCorp also operates a number of other business units that reach a broader swath of the country, 29 states in all. These include operations focusing on real estate capital, equipment financing, global treasury management, asset management, investment banking, capital markets services, insurance, and financial planning. The KeyCorp of the early 21st century is a product of the 1994 merger of "old" KeyCorp, whose ultimate predecessor was the Commercial Bank of Albany, founded in Albany, New York, in 1825, and Society Corporation, a Cleveland-based institution dating back to its establishment in 1849 as Society for Savings.
The Road to KeyCorp
KeyCorp's history dates back to 1825 when New York Governor DeWitt Clinton signed a bill chartering the Commercial Bank of Albany, KeyCorp's direct ancestor. In 1865 Commercial Bank was reorganized under the National Banking Act of 1864, and its name was changed to National Commercial Bank of Albany. Also during this time, another bank that would eventually become part of KeyCorp opened, the Trust and Deposit Company of Onondaga in Syracuse, established in 1869. In 1919 this bank merged with First National Bank of Syracuse to become First Trust and Deposit Company. Around the same time, the National Commercial Bank of Albany went through another reorganization, consolidating with Union Trust Company to become National Commercial Bank and Trust Company.
These two banking concerns operated independently over the next several decades, growing via a number of acquisitions. In 1967 First Trust and Deposit Company adopted a "key" symbol, the foundation for the KeyCorp name and its signature logo. Four years later, First Trust and Deposit merged into National Commercial Bank and Trust, creating First Commercial Banks, Inc. With that transaction, First Commercial had 89 offices in New York State. The name was changed to Key Banks Inc. in 1979, and then six years later, with its expansion beyond branch banking and into other financial services, the institution's holding company adopted the name KeyCorp.
Victor J. Riley, Jr., became president and CEO of the bank in 1973. He continued to serve in this capacity into the early 1990s, when he was one of the longest-tenured bank CEOs in the country. Riley led the bank from its days as a strictly upstate New York bank to its position as the country's 29th largest financial institution in 1991 with $23 billion in assets, up from $2.4 billion ten years earlier. Between 1981 and 1991, the bank's stock produced an impressive 810 percent total return including dividends, third among the 50 largest banks, according to the company's annual report.
During the 1970s and early 1980s, KeyCorp bought banks throughout the upstate area as well as 25 offices from the Bank of New York. Initially, Riley's plan was for KeyCorp to become a regional concern by acquiring banks in New England as well, starting with its purchase of a bank in Maine: Augusta-based Depositors Corporation, acquired in early 1984. However, at the same time, to keep the large New York banking establishments from dominating the New England banking system, a move was made to exclude New York banks from purchasing banks in Massachusetts and Connecticut.
Looking West
Riley looked to the West when his New England strategy was thwarted. He anticipated that when U.S. trade with Asia increased, the economies of western states would also improve. KeyCorp bought a string of banks, and in the four years between 1985 and 1990 quintupled its assets from $3 billion to $15 billion. While other banks were focusing on large cities, especially in the Northeast, KeyCorp was focusing on areas of low population in which banking services were scarce. Furthermore, KeyCorp avoided the pricing wars that often occurred in highly competitive markets.
While eastern banks were buying other eastern banks at premium prices, KeyCorp continued its westward expansion, acquiring inexpensive and promising banks in Wyoming, Idaho, and Utah. In 1985 Riley bought two banks in Alaska and Alaska Pacific Bancorporation; he used Alaska's interstate banking laws to purchase a bank in Oregon, which became known as Key Bank of Oregon. The next year, KeyCorp acquired Northwest Bancorp of Albany, Oregon, and Pacwest Bancorp of Portland, Oregon, which also became part of Key Bank of Oregon.
Many leaders in the banking industry thought Riley was making a mistake when he started buying banks in Alaska and the Northwest in 1984. Critics doubted his ability to manage such banks from a home office in Albany, New York. The purchase certainly seemed like a mistake when oil prices dropped dramatically, and Alaska plunged into a recession. KeyCorp moved quickly to restructure loans for borrowers hit by recession and foreclosed on loans when necessary.
KeyCorp also continued to buy banks in small towns and cities in New York State. In 1986 it acquired four savings banks in the mid-Hudson Valley. In the same year, it increased its western holdings by purchasing Beaver State Bank in Beaver, Oregon.
Although KeyCorp had been shut out of acquisitions in much of New England a few years before, in 1987 Riley bought eight branch offices in Maine from Fleet/Norstar Financial for $14 million. They became part of Key Bank of Maine. KeyCorp also opened a unique subsidiary based in Albany, Key Bank USA N.A., which provided banking services by mail to customers nationwide who were not within a Key Bank region.
Regional Diversity with a Small-Town Approach
Regional diversity had advantages and disadvantages for KeyCorp. On the positive side, KeyCorp was not so vulnerable to economic slumps in one region. Director H. Douglas Barclay told the Wall Street Journal, "Problems in one or two states can be contained. Over time it all balances out." While the Northwest was in a slump, the Northeast was booming. Then, the tables were turned and the Northwest picked up while the Northeast was in recession. Nevertheless, geographic diversity also made KeyCorp expensive to run, with operating costs as a percentage of assets high. Top executives also spent a lot of time on the road, visiting branches far from the Albany headquarters.
Consistent with the small-town approach, Riley rarely replaced personnel in the banks KeyCorp purchased, choosing instead to stay with management familiar to the local population. He told Business Week, "You cannot go into a new state and start shuffling people around and maintain yourself as a retail bank."
The small-town philosophy, which had led Wall Street to commonly refer to it as the "Wal-Mart of banking," also helped the bank avoid costly bad loans. KeyCorp's policy was to lend to people and businesses in the areas it served. It avoided the pitfall of many other banks, lending outside the states in which it had branches. In 1990 bad loans made up only 4 percent of its $9.9 billion load portfolio; most of those bad debts were at its Alaska banks, hard hit by a decline in oil exploration. Furthermore KeyCorp's lending practices were financially conservative. The company did not make any loans greater than $20 million and its average commercial loan was only about $2 million. Furthermore, no single industry group represented more than 24 percent of KeyCorp's commercial loans.
After more than ten years of acquisitions that had brought KeyCorp into the top 50 list, KeyCorp shifted its focus to reducing its high overhead costs. In 1990 its efficiency ratio was about 66 percent, meaning that about 66 cents worth of every dollar in revenue was spent on overhead. By the end of 1992, its efficiency ratio had improved to 61.9 percent and was more in line with the efficiency ratios of comparable banks. KeyCorp merged its operations into two computer centers and brought its four mortgage companies together as one. The banking company also sold a car-leasing business and a finance company that were unprofitable. Still KeyCorp lacked a standardized reporting system for its hundreds of branches. This became a priority for William Dougherty, the company's chief financial officer, who set to work linking KeyCorp's branches by computer and consolidating its back-office operations. By the end of 1992, all of KeyCorp's banks were linked electronically, with primary processing centers in Albany and in Tigard, Oregon. Six secondary sites handled business more suited to regional processing.
Consolidation and Further Acquisitions
In line with the trend in banking toward consolidation of holdings, KeyCorp consolidated several New York State operations into one financial institution. Key Bank of Eastern New York, Key Bank of Central New York, and Key Bank of Western New York became a single nationally chartered bank, Key Bank of New York State, N.A., with its offices in Albany.
KeyCorp benefited from the country's thrift crisis in the early 1990s by buying from the government assets of two large failed New York thrifts: Empire Federal Savings and Loan and Goldome Savings Bank. With the Goldome purchase, KeyCorp moved from its status as an unknown in the mortgage industry to become the 19th largest mortgage banker in the nation. Furthermore, the Goldome purchase turned out to be profitable as the market for new and refinanced mortgage loans boomed, with interest rates the lowest they had been in decades.
In 1992 KeyCorp acquired Valley Bancorporation of Valley Falls, Idaho, which became part of Key Bank of Idaho. KeyCorp also bought the 48 branches of Security Pacific Bank in Washington, which became part of Key Bank of Washington. The company negotiated several other deals as well that were completed in early 1993; Puget Sound Bancorp, with assets of $4.7 billion, merged with Key Bank of Washington; 40 branches of New York's First American Bankshares and nine branch offices of National Savings Bank of Albany were acquired; and KeyCorp also bought its first holding in Colorado, Home Federal Savings Bank of Fort Collins.
By the end of 1992, KeyCorp had its operations and its expenses under control, using a computer system to keep track of its coast-to-coast snowbelt holdings. Its earnings were also looking better. For a long time earnings stood at 90 cents for every $100 in assets, but in 1992, they pulled past the industry standard of one dollar per $100 in assets.
While other banks in the Northeast had been saddled with bad real estate loans, KeyCorp's net earnings were increasing because its Northwest holdings, which in 1990 made up more than 39 percent of its holdings, were booming. Although it owned banks in some larger western cities, the majority of its banks were located in small towns such as Troy, Idaho, with a population of 820 and Gig Harbor, Washington, with a population of 2,429.
Riley and Dougherty were credited with taking KeyCorp into the ranks of the top 50 U.S. financial institutions, with total assets of more than $30 billion by early 1993. According to the Economist, KeyCorp's "loan book and profitability are the envy of other banks." That article explained that KeyCorp avoided the "easy money" made from big development loans for commercial property and corporate loans for highly leveraged transactions. This kept KeyCorp out of some of the deep troubles that other banks encountered. KeyCorp also refrained from making loans to third world nations. In 1992 the bank held only 25 loans that were worth more than $12.5 million and only one worth more than $30 million, a loan to the owner of the bank's headquarters in Albany. From this prudent position, KeyCorp next pursued a merger with Society Corporation.
From Society for Savings to Society Corporation
The Society for Savings was founded by Samuel H. Mather as a mutual savings bank in Cleveland, Ohio, in 1849. Within three years, Mather's part-time business had collected deposits of $150,000; by 1857, Society had become Mather's full-time job. Ten years later, the bank built its first headquarters, a three-story building on Cleveland's Public Square. Society outgrew that building by 1890, when the bank erected Cleveland's first "skyscraper," a ten-story stone structure that featured two massive murals depicting the story of "the goose that laid the golden egg." At the time, the Society for Savings was the tallest structure between New York and Chicago.
The bank earned a reputation for security and conservatism during its first half-century in business by surviving four depressions and financial panics. It emerged from the Great Depression's federally mandated bank holiday as one of Cleveland's four largest banks, with deposits of over $100 million. By the time Society celebrated its centenary in 1949, it was the largest mutual savings bank west of the Allegheny Mountains. Although it still had only one office, Society had garnered 200,000 depositors and over $200 million in deposits.
Society National Bank was formed in 1955 as a commercial bank of the National Banking Association. Society National acquired the assets and liabilities of the Society for Savings mutual bank in 1958. The terms of the merger also made Society a public company. Voting certificates were issued to depositors of record at the end of 1958 at $500 each. Society Corporation was then created and became the first entity in Ohio formed under the 1956 federal Bank Holding Company Act. Before 1960, Society National became the first commercial bank in the United States to use online teller terminals, one of the decade's newest electronic data systems.
Society Corp.'s adoption of the holding company structure enabled it to grow rapidly between 1958 and 1978, when it acquired 12 community banks, including: Fremont Savings Bank, Western Reserve Bank of Lake County, Springfield Bank, Xenia National Bank, Erie County Bank, Farmers National Bank & Trust Co., Tri-County National Bank, Second National Bank of Ravenna, Peoples Bank of Youngstown, 1st State Bank & Trust, American Bank, and First National Bank of Clermont County. The subsidiary banks had combined assets of over $500 million in 1972.
Society Corp.'s history as a mutual savings bank was often derided by analysts, but by the mid-1970s, the heritage was recognized as an advantage. Savings accounts, a source of strength and stability, represented 65 percent of the bank's $1.5 billion in total deposits. In 1979, when Ohio's banking laws were revised to permit banks to establish branches in counties contiguous to the home office's county, Society Corp. was poised for its second growth spurt. The expansion was accomplished through dozens of small acquisitions and three billion-dollar mergers between 1979 and 1989.
1979 Acquisition of Harter BanCorp.
Society Corp.'s opening salvo in its acquisitions spree occurred in 1979 with the acquisition of Canton, Ohio's largest bank, Harter BanCorp. Harter entered Society Corp.'s 12-bank stable second only to Society Corp.'s flagship Society National Bank, adding $400 million in assets to the holding company's $1.8 billion. Society Corp. acquired five smaller banks over the next three years. Second National Bank of Bucyrus, with assets of $34.6 million, was purchased in 1980 for $5.2 million. Second National helped fill a gap between Society Corp.'s northern Ohio banks and its Dayton and Columbus affiliates, thereby giving the corporation access to counties that it had not been able to reach in the past. Later that year, Society Corp. acquired Community National Bank (Mount Gilead, Ohio) and merged its $15 million assets and customers with Second National of Bucyrus. The new entity was renamed Society National Bank of Mid-Ohio. In 1981, Society Corp. purchased First National Bank of Carrollton and merged it with Harter BanCorp.'s flagship Harter Bank & Trust. Lancaster National Bank's $30 million in assets and three branch offices were added to Society Corp.'s roster at a cost of $2.78 million later that year. The acquisition of Citizens Bank of Hamilton for $10.7 million in cash and notes closed Society Corp.'s first round of relatively small acquisitions.
The corporation regrouped over the next two years by reorganizing its top management structure and consolidating its bank holdings. Early in 1982, a tripartite management team was formed, with J. Maurice Struchen, chairman and CEO of Society Corp., Robert W. Gillespie, vice-chairman of Society Corp. and COO of Society National Bank, and Gordon E. Heffern, president and COO of Society Corp., sharing the corporation's top responsibilities. The team concept helped coordinate policymaking, planning, and operating between the holding company and its largest subsidiary. It also helped Society Corp.'s management prepare for interstate banking and inter-industry acquisitions.
Later in 1982, Society Corp. merged three of its northwest Ohio banks--Society National Bank of Northwest Ohio, Fremont Savings Bank, and American Bank in Port Clinton--to form a $250 million, 15-office, five-county bank. Society Corp. also joined with three other banks, National City Corporation (Cleveland), Fifth Third Bancorp (Cincinnati), and Third National Bank of Dayton, to form an ATM network of 400 machines. The virtually statewide network gave over one million customers access to accounts in most major Ohio cities.
1984 Acquisition of Interstate Financial
By the end of 1983, Society Corp. had net earnings of $8.01 million on total assets of $4.3 billion, and was poised for another major acquisition. In the spring of 1984, Society Corp. merged with Interstate Financial Corporation, parent of Third National Bank in Dayton. The acquisition increased Society Corp.'s assets to $5.1 billion and gave the corporation a stronger foothold in Dayton metropolitan area banking, where Interstate was the second largest bank. Interstate's subsidiary, North Central Financial Corp., had offices in Ohio, Indiana, Virginia, Maryland, and Florida, and held $1.1 billion in mortgage loans.
Within a little over a year, Society Corp. would make an even larger acquisition, but in the meantime, the corporation contented itself with the purchase of BancSystems Association, a regional bank card processor headquartered in suburban Cleveland. BancSystems provided MasterCard and Visa credit and debit card processing for 140 banks and savings and loan associations, and employed over 300 people. The acquisition helped Society Corp. diversify its income base into more non-interest sources, giving it over 1.4 million credit card accounts and annual volume of $2.3 billion in processed transactions. Later in 1984, Society Corp. set up barriers to a takeover by prohibiting two-tier pricing and establishing a two-thirds majority in case a takeover vote was called.
1985 Acquisition of Centran
The corporation further shored up its takeover defenses with the purchase of Centran Corp., a holding company of Cleveland's fourth largest bank, Central National, in 1985. Society Corp. offered Centran's stockholders a choice of cash or stock totaling $220 million for its assets of $3.1 billion and 82 offices in northern and central Ohio. The acquisition made Society Corp. one of the state's top five banks. The merger had some drawbacks, however. Centran carried with it the vestiges of ill-advised bond investments made in 1980, an unsuccessful attempt to expand into consumer finance that lost another $20 million, and problems with international loans. Centran lost $70 million on the bad bonds and had to be bailed out by Marine Midland Banks, Inc., which held influential stock in the company. Society Corp. offered Marine Midland $26 million in cash and $50 million in non-voting adjustable-rate perpetual preferred stock, thereby limiting this bank's voice in the merged company. Following the takeover of Centran, Heffern continued as chair and CEO of Society Corp., while Wilson M. Brown, Jr., chairman, president, and CEO of Centran, became president and chief administrative officer of Society Corp. Gillespie was named deputy chairman and chief operating officer. All three combined to maintain the tripartite "office of the chairman."
The merger was deemed a success when the positive results started pouring in as early as 1985: both Society Corp. and Centran chalked up record earnings for the year, and once their two primary banks were integrated, Society National Bank ranked second in Cleveland. Society Corp.'s assets reached $9 billion, up from $6.1 billion before the acquisition, while the company saved $28 million in annual operations in the process of the merger. Society Corp. became Ohio's third largest bank holding company, next to National City Corporation (Cleveland), with $12 billion in assets, and Banc One Corporation (Columbus), with $9.6 billion in assets. Society Corp. had 250 bank branches statewide and about 6,500 employees. One of the reasons for the bank's continuing success was its tradition of conservatism. The company's executives were proud of the fact that it had avoided most of the decade's banking pitfalls: agricultural, energy, and foreign loans, and the financing of leveraged buyouts.
In 1987 Heffern retired and was succeeded as CEO by Gillespie, who, at 42, became the youngest chief executive to head one of Ohio's top-ten bank holding companies. The promotion gave Gillespie a total of four titles: CEO and president of Society Corp. and CEO and president of Society National Bank. Gillespie had spent his entire career at Society Corp., starting out as a part-time teller while in graduate school at Case Western Reserve University. Also in 1987, Society Corp. was able to set earnings records by repurchasing some of its stock after the October 1987 stock market crash. Profits rose to $89 million, and the stock appreciated almost $10 per share within less than a year.
Ohio's interstate banking legislation opened the state to banks from virtually any other state with similar legislation in October 1988. By 1990, new state laws enacted around the country had made old federal laws against interstate banking irrelevant, and in the summer of 1989, a federal thrift reform law that permitted the purchase of savings and loans was passed.
The country had entered an era of "superregional banks," such as NBD Bancorp of Detroit, PNC Financial Corporation of Pittsburgh, and Banc One of Columbus. To prepare for the increased competition that would come from these powerful banks, Society Corp. began to consolidate its holdings. Society Bank of Eastern Ohio was merged into Society National Bank, creating a bank with assets of $7.5 billion and 132 offices. Society National was then reorganized into nine districts to take advantage of the growing bank's economies of scale. Late in the year, Society Corp. increased its impact in central Ohio with the purchase of 13 branches of Citizens Federal Savings and Loan Association. The acquisition increased Society Corp.'s number of offices in the Columbus area by 50 percent, and raised the assets of the newly merged bank to $2.75 billion. Society Corp. sold BancSystems Association Inc. to Electronic Data Systems Corp. of Dallas to garner an estimated $6 million profit late in 1989.
Acquisitions of Trustcorp (1990) and Ameritrust (1991)
Society Corp. began the 1990s with two major acquisitions that placed it among the area's superregional banks. In 1990 the purchase of Toledo's Trustcorp, Inc., through an exchange of $430 million in stock gave Society Corp. operations in Ohio, Michigan, and Indiana and raised its total assets to almost $16 billion, thereby ranking the company among the United States' 40 largest banks. Trustcorp's BB credit rating pulled Society Corp.'s A-plus down to an A because of several loan losses on downtown Toledo real estate projects. Society Corp. was also obliged to settle a $5.6 million shareholder lawsuit against Trustcorp and assign extra funds to reserves that would cover any defaulted loans. By the fall of 1991, Society Corp. had turned its newest subsidiary around and renamed its affiliates Society Bank & Trust; Society Bank, Indiana; and Society Bank, Michigan.
Society Corp. worked to pare down its non-interest expenses during the recession of the early 1990s that slowed loan demand and cut into profits. In March 1990 it repurchased Marine Midland's interest in the corporation for $49.25 million, thereby saving the preferred dividends paid on the stock. That spring, Society Corp. vowed to cut about 10 percent, or $40 million, from its $390 million in annual non-interest expenses.
In September 1991 Society Corp. announced the largest bank acquisition in Ohio history. It merged with Cleveland's Ameritrust Corporation. The tax-free agreement called for an exchange of $1.2 billion in Society Corp. stock, and created a new corporation with combined assets of $26 billion. The addition of Ameritrust's retail and trust locations throughout Ohio, Indiana, Michigan, Texas, Florida, Missouri, Colorado, New York, and Connecticut made Society Corp. the largest bank in Cleveland and the 29th largest in the country. The two banks' trust departments together became the 15th largest in the country in terms of revenues. Merging Ameritrust and Society Corp. required the elimination of about 2,000 positions and closing or selling 90 branches. Society Corp. also had to divert about $46 million to Ameritrust's reserve against problem loans.
Society Corp.'s acquisitions in 1992 and 1993 were modest, compared to the purchases made in the first two years of the decade, but they expanded the Great Lakes corporation geographically. In 1992, the corporation purchased First of America Bank-Monroe (Michigan), a $149 million bank, from First of America Bank Corporation. Early in 1993, Society Corp. completed its purchase of First Federal Savings and Loan Association of Fort Myers, a $1.1 billion thrift with 24 branch offices in central and southwestern Florida.
1994 Merger of KeyCorp and Society Corp.
In October 1993 Society Corporation and KeyCorp agreed on a so-called merger of equals valued at $3.9 billion. In this deal, completed in March 1994, KeyCorp was merged into Society Corporation, which was the surviving entity but took the KeyCorp name. The new KeyCorp, which adopted Society's headquarters in Cleveland as its base, was led by Victor Riley as chairman and CEO and Society's Robert Gillespie as president and COO. With $58 billion in assets, KeyCorp ranked as the 11th largest bank in the country.
The merger created a branch network ranging across 13 states, all in the northern tier, save Society's Florida branches. Society's other branches in Ohio, Michigan, and Indiana filled in a gap in KeyCorp's operations, which encompassed Alaska, Washington, Oregon, Idaho, Utah, Wyoming, Colorado, New York, and Maine. The combination was designed to mesh KeyCorp's strength in community banking with Society's more robustly developed array of financial products, which included strong investment management, specialty finance, and large corporate banking operations.
The actual implementation of the merger ended up being a protracted one hampered by culture clashes and in the short run failing to deliver on the initial synergistic promises. A number of restructuring moves were needed, including divesting certain peripheral operations, such as its residential mortgage servicing unit, which was sold to NationsBank Corporation in March 1995. On the addition side, KeyCorp expanded into the booming market for subprime lending, the sector of the lending market serving higher-risk individuals with lower credit ratings. The company acquired Chicago-based AutoFinance Group, Inc., a subprime auto lender, in September 1995 for $325 million in stock and Champion Mortgage Co., Inc., a subprime home-equity lender based in Parsippany, New Jersey, for $200 million in stock in August 1997. KeyCorp in July 1997 also acquired Leasetec Corporation, a concern based in Boulder, Colorado, specializing in the leasing of information-technology and telecommunications equipment.
The branch network was overhauled as well. In March 1995 KeyCorp gained its first branches in Vermont and also became the number one bank in Maine by purchasing the Maine and Vermont operations of Bank of Boston for nearly $200 million. In mid-1996 the company sold its Florida banking operation having determined that it would be unable to become a major player in that market. Late that same year, KeyCorp launched a major restructuring. Seeking further efficiencies in its operations, the company announced plans to close or shut down 280 branches across the country and eliminate about 3,000 jobs. Among the subsequent cuts was the sale of all of the branches in Wyoming. In addition, in 1997 KeyCorp dismantled its regional-bank structure by consolidating its various state-chartered banks into a single national bank, KeyBank National Association. To raise its profile among consumers around the country, KeyCorp in 1996 launched a highly successful and long-running television ad campaign featuring actor Anthony Edwards. In the midst of all these developments, a transition in leadership occurred as well. Riley turned over the CEO position to Gillespie in September 1995 and then the chairmanship one year later.
Move into Investment Banking and Further Restructuring
As the barriers between commercial and investment banking continued to crumble, KeyCorp late in 1998 made its own move into investment banking, purchasing McDonald & Company Investments, Inc., for around $581 million in stock. The deal enabled KeyCorp to add the stock and bond underwriting capabilities of Cleveland-based McDonald and thereby broaden its offerings to corporate clients in small and medium-sized markets.
Still dealing with a higher cost structure than many of its peers, KeyCorp ended the decade with further restructuring moves. In October 1999 the company sold its 28 branches on Long Island after concluding that this was another market where it was destined to remain a minor player. The move freed up resources to invest in markets with higher growth potential, such as Salt Lake City, Denver, Seattle, and Portland, Oregon. Just a month later, the company launched a major restructuring that eventually yielded annual cost savings of roughly $300 million. KeyCorp reduced its workforce by nearly 4,100 mainly through management cuts and the consolidation and outsourcing of various "back-office" functions, including processing and customer-service operations. As this overhaul began, KeyCorp unloaded another peripheral business, selling its relatively small, $1.3 billion credit card portfolio to Associates First Capital Corporation and recording a $332 million pretax gain in the process. KeyCorp aimed to concentrate its lending in such areas as commercial and small-business loans and home-equity lines of credit.
In the early months of 2001, Gillespie retired from both the CEO position and the chairmanship. His handpicked successor was Henry L. Meyer III, who had been president and COO and who had come from the company's Society side, having joined that concern in 1972. Meyer continued to oversee the restructuring launched in late 1999 and spearheaded the jettisoning of another troubled unit. In May 2001 KeyCorp announced plans to exit from the automobile leasing business and also to cut back on its indirect auto lending. In connection with these pullbacks, the company recorded more than $400 million in charges, cutting net income for 2001 to just $132 million, down from the previous year's total of just over $1 billion.
Return to Growth
By 2002 KeyCorp was confident enough in its restructuring and turnaround efforts to enter into another period of acquisitions that lasted through 2006. During this period, the company made its first bank acquisition in seven years, the $66 million, December 2002 purchase of Union Bankshares, Ltd., a Denver-based seven-branch banking operation with assets of $475 million. In July 2004 KeyCorp bolstered its Michigan branch network by purchasing Sterling Bank & Trust FSB, a privately held thrift based in Southfield with ten branches and approximately $380 million in deposits. Later in 2004, KeyCorp spent $195 million for EverTrust Financial Group Inc. of Everett, Washington, which operated 12 bank branches and two commercial loan offices and had assets of $770 million.
KeyCorp was also busy beefing up its operations in three areas in which it was ranked among the nation's leaders: commercial real estate, equipment leasing, and asset management. Purchases in the commercial real estate field included Conning Asset Management (Hartford, Connecticut; June 2002), Malone Mortgage Company (Dallas; July 2005), and ORIX Capital Markets, LLC (Dallas; December 2005). In December 2004 KeyCorp acquired the equipment leasing unit of American Express Company's small business division. Then in April 2006 the company bought Austin Capital Management, Ltd., an asset management firm based in Austin, Texas, that specialized in selecting and managing hedge fund investments mainly for institutional investors.
Toward the end of this array of acquisitions, KeyCorp began focusing more intently on its 13-state branch banking business and on other "relationship-based" businesses that best meshed with its retail banking operations. A number of businesses unrelated to its retail banking network were thus jettisoned. KeyCorp sold its indirect auto lending business in the spring of 2006 and then sold Champion Mortgage to a unit of HSBC Holdings plc in November 2006 for $2.5 billion. In February 2007 KeyCorp pulled back on its foray into investment banking by selling the branch network of McDonald Investments to a subsidiary of UBS AG for $219 million.
In 2007, as the deteriorating housing market and credit crisis began sending ripples through the U.S. banking industry, KeyCorp announced its largest acquisition since 1998. In a deal completed in early 2008, the company bought U.S.B. Holding Co., Inc., parent of Union State Bank, for $547 million. Adding U.S.B. and its $3 billion in assets and 31 branches doubled KeyCorp's branch network in New York's Hudson Valley and pushed its total assets close to the $100 billion mark. Soon thereafter, however, KeyCorp announced its results for 2007, reporting that its fourth-quarter earnings had plummeted 83 percent after it had been forced to set aside $363 million during the quarter to cover rising loan delinquencies and defaults. Full-year earnings dropped 13 percent to $919 million. The credit crisis that precipitated these results also sparked speculation about a possible merger between KeyCorp and crosstown rival National City Corporation, which had been hit even harder by the crunch. Such a merger of equals, the second for KeyCorp, had the potential to create the sixth largest bank in the United States as well as a much more competitive institution than the two predecessors.
Principal Subsidiaries
KeyBank National Association.
Principal Operating Units
KeyBank Regional Banking; KeyBank Commercial Banking; KeyBank Real Estate Capital; Key Equipment Finance; Global Treasury Management Group; Media and Telecommunications Group; Victory Capital Management; KeyBanc Capital Markets.
Principal Competitors
National City Corporation; Fifth Third Bancorp; U.S. Bancorp; Citizens Financial Group, Inc.; JPMorgan Chase & Co.; Wells Fargo & Company; Bank of America Corporation; Huntington Bancshares Incorporated; Sovereign Bancorp, Inc.; M&T Bank Corporation; Washington Mutual, Inc.
Further Reading
Benoit, Ellen, "The Hunger," Financial World, December 11, 1990, pp. 62+.
------, "KeyCorp's Northern Lights," Financial World, October 31, 1989, pp. 20+.
Boraks, David, "Key, Meyer Look Past Turnaround," American Banker, October 2, 2002, p. 1.
Brannigan, Martha, "NationsBank to Buy Assets from KeyCorp," Wall Street Journal, February 24, 1995, p. A4.
Cahill, Joseph B., "KeyCorp Plans to Cut 3,000 Jobs in Bid to Increase Efficiency, Spur Growth," Wall Street Journal, November 24, 1999, p. C18.
Chakravarty, Subrata N., "Two Strong Partners," Forbes, November 8, 1993, p. 44.
Chase, Brett, "2,700 Jobs, 280 Branches Due for Axe at KeyCorp," American Banker, November 26, 1996, pp. 1+.
Cocheo, Steve, "Unlocking KeyCorp's Acquisition Strategy," ABA Banking Journal, July 1986, pp. 29+.
Fraust, Bart, "Society to Buy Centran, Creating Ohio's 2nd Largest Holding Company," American Banker, September 25, 1984, pp. 2+.
Fuller, John, "Society Seeks Centran Merger," Cleveland Plain Dealer, September 25, 1984, p. 1A.
------, "A Tale of Two Bankers," Cleveland Plain Dealer, September 30, 1984, p. 1E.
Herzog, Lester W., Jr., 150 Years of Service and Leadership: The Story of National Commercial Bank and Trust Company, New York: Newcomen Society in North America, 1975, 25 p.
Hill, Miriam, "Society to Take Over Ameritrust," Cleveland Plain Dealer, September 14, 1991, pp. 1A, 4A.
Hill, Miriam, and Diane Solov, "Biggest Ohio Bank Merger to Create a $58 Billion Company," Cleveland Plain Dealer, October 5, 1993, p. 1A.
Jereski, Laura, "Small Towns Add Up to Big Banking for KeyCorp," Business Week, April 30, 1990, p. 104.
Klucina, John L., "KeyCorp Growth Linked to Strategy of Acquisitions," Albany (N.Y.) Times Union, April 13, 1986, p. D1.
Lipin, Steven, "KeyCorp and Society Hope Differences Become Asset," Wall Street Journal, October 5, 1993, p. B4.
Lubinger, Bill, "Key Will Sell Its Credit Cards to Texas-Based Operation," Cleveland Plain Dealer, December 29, 1999, p. 1C.
------, "KeyCorp to Fire 3,000," Cleveland Plain Dealer, November 24, 1999, p. 1A.
Mahoney, Mike, "Merger Looks Bright for Banks," Cleveland Plain Dealer, July 14, 1985, pp. 1D, 2D.
Maturi, Richard J., "Frost Belt Bank," Barron's, August 11, 1986, p. 75.
Mazzucca, Tim, "Execution Time at Key's Retail Lines," American Banker, December 20, 2006, p. 1.
------, "Key Sets Exit from Another Noncore Line," American Banker, September 7, 2006, p. 1.
------, "KeyCorp Puts a Subprime Unit on the Selling Block," American Banker, August 2, 2006, p. 1.
Miller, Jay, "Nat City Ills Revive Talk of Key Combo," Crain's Cleveland Business, January 7, 2008, p. 1.
Murray, Matt, "KeyCorp Agrees to Buy McDonald & Co. to Add Investment-Banking Capability," Wall Street Journal, June 16, 1998, p. A4.
------, "KeyCorp Remains at a Crossroads After Bank Merger," Wall Street Journal, November 23, 1994, p. B4.
------, "KeyCorp Slashing Work Force, Branches," Wall Street Journal, November 26, 1996, p. A3.
------, "Missed Opening: KeyCorp Fails to Prove It Can Unlock Promise of a Merger of Equals," Wall Street Journal, August 25, 1998, p. A1.
Murray, Teresa Dixon, "KeyCorp Selling McDonald," Cleveland Plain Dealer, September 7, 2006, p. C1.
------, "KeyCorp to Buy Bank in New York," Cleveland Plain Dealer, July 28, 2007, p. C1.
------, "Mortgage Crisis Hits KeyCorp Profit," Cleveland Plain Dealer, October 17, 2007, p. C3.
Novack, Janet, "Behavior Modification," Forbes, June 17, 1996, p. 54.
"'Old Stone Bank' Is 88 This Week," Cleveland Plain Dealer, June 13, 1937, p. 29A.
Papiernik, Richard L., "The Honeymooners," Financial World, March 29, 1994, pp. 90-91.
Phillips, Stephen, "KeyCorp to Shut up to 560 Branches," Cleveland Plain Dealer, October 12, 1995, p. 1C.
Rehak, Judith, "Banking on Change," Chief Executive (U.S.), June 1997, p. 25.
Reilly, Patrick, "KeyCorp Junking Car Leasing Biz," American Banker, May 18, 2001, p. 1.
------, "KeyCorp Putting Retail Banking, Specialty Units Under One Roof," American Banker, December 18, 2000, p. 1.
Ringer, Richard, "Society Corp. Wins Trustcorp with Bid of $455 Million," American Banker, June 20, 1989, pp. 1+.
Schiller, Zach, "KeyCorp Set to Acquire McDonald Brokerage," Cleveland Plain Dealer, June 16, 1998, p. 1A.
Sherman, Henry Stoddard, Myron T. Herrick (1854-1929): Cleveland Banker, Governor of Ohio, Ambassador to France--And the Society for Savings, 1849-1949, New York: Newcomen Society in North America, 1949, 28 p.
"A Small Success," Economist, November 10, 1990, p. 101.
Stern, Gabriella, and Joseph Pereira, "KeyCorp to Buy Maine, Vermont Banks," Wall Street Journal, June 27, 1994, p. A4.
Strozniak, Peter, "Agent of Change," Inside Business, October 2002, pp. B32+.
Svare, J. Christopher, "Society Launches Bid for Great Lakes' Supremacy," Bank Management, April 1992, pp. 22+.
Vanac, Mary, "KeyCorp Chief to Retire," Cleveland Plain Dealer, January 19, 2001, p. 1C.
------, "KeyCorp Stands at Crossroads," Cleveland Plain Dealer, January 25, 2002, p. C1.
------, "Tough Calls," Cleveland Plain Dealer, February 9, 2003, p. G1.
Wilke, John R., "The Inter-Regional: Nationwide Banking Is Getting a Preview at Growing KeyCorp Offices from Alaska to Maine," Wall Street Journal, May 31, 1991, p. A1.
Wiseman, Paul, "Life of Riley--A Wild and Woolly Banker," USA Today, September 14, 1992, p. 2B.
------, "'Wal-Mart of Banking' Built on Discipline," USA Today, September 14, 1992, p. 1B.
— April S. Dougal; Updated by Wendy J. Stein, David E. Salamie
