KeyCorp said Wednesday that the impact of higher interest rates will result in a $100 million fourth-quarter loss and lower-than-expected profits for the year.
The Cleveland-based banking company, parent company of Key Bank of Utah and other subsidiaries, said $25 million to $35 million of the loss will be recognized in the fourth quarter ending Dec. 30 and the rest during the 1995 first quarter.The charges will reduce 1994 per-share earnings to $3.45 to $3.50, from a projected $3.55. KeyCorp earned $2.89 a share, or $709.9 million, in 1993.
KeyCorp is the latest bank to report a loss related to the impact of higher interest rates. Rising rates have increased banks' borrowing costs. Meanwhile, the margin between what they earn from interest on investments and the interest they pay depositors has narrowed. Their investments also have declined in value because of weak financial markets.
Victor J. Riley Jr., KeyCorp chairman and chief executive officer, said many of the bank's businesses have suffered from higher rates.
"Significantly higher interest rates not only adversely affect Key's net interest income and margin but also its mortgage, asset management and securities businesses," Riley said in a statement.
KeyCorp, which became the nation's 11th-largest bank following its merger in March with Society Corp., said it is taking a number of steps to reduce its exposure to higher rates, including "reconfiguring" a portfolio of investment securities, securitizing and selling fixed-rate loans and allowing certain fixed-rate loans and investments to mature without reinvestment.
The actions will result in the loss. A spokesman declined to elaborate.
Partially offsetting the loss will be gains from the sale of the bank's mortgage subsidiary, expected to close early next year, and a strategic revenue-enhancement program, Riley said.
KeyCorp and other bank stocks have declined sharply in recent weeks as investors dumped shares of interest rate-sensitive companies. But Riley said analysts and investors have overreacted to interest rate fears.