KeyCorp Nearly Doubles Charge-Off Forecast

KeyCorp, America’s 16th largest bank by deposits, said Wednesday that it is drastically increasing its expectations for total charge-offs for all of 2008. Some analysts think that the news could set the stage for other banks.

The Cleveland-based bank nearly doubled its anticipated rate of charge-offs for the year, from a range of 0.65 – 0.9 percent of average loans to a new range of 1 – 1.3 percent of average loans. KeyCorp changed its forecast in a filing with the SEC.

In April, KeyCorp reported net income was down 38 percent in the first quarter of 2008 as the company’s provision for loan losses rose. The company reported $121 million in net charge-offs in the quarter, which totaled 0.67 percent of average loans. At that time, the company raised its full-year loan-loss estimate to between 0.65 and 0.9 percent, up from a range of 0.6 – 0.7 percent.

KeyCorp’s shares (NYSE: KEY) lost around 10 percent in trading Wednesday and Thursday to sit at $20. Analysts fear that KeyCorp’s upfront concession of charge-offs spiraling could mean more to come from other consumer banks.

"The disclosure is bad news," wrote Scott Siefers, an analyst for Sandler O’Neill & Partners LP, in a research note Wednesday. "Key simply happens to be among the first so far to increase its net charge-off guidance, and as time goes on, we would expect similar deterioration to impact many others."

KeyCorp has bank branches in more than a dozen states from the Midwest to Alaska. The company counts more than $100 billion in assets.