Key Loss Fueled by Loan Loss, Tax Cushions

KeyCorp (KEY - Cramer's Take - Stockpickr) swung to a worse-than-expected loss in the second quarter due to a big increase in its cushion for loan losses and a previously announced unfavorable tax court ruling.

Key reported a loss from continuing operations of $1.13 billion, or $2.70 a share, vs. a profit of $337 million, or 85 cents a share, in the year-ago period. The loss was worse than the $2.58 loss predicted by analysts polled by Thomson Reuters.

The loss was primarily driven by the bank's $1.01 billion, or $2.43 a share, after-tax charge tied to the court decision, which Key plans to appeal. During the first quarter, the bank also increased its tax reserve for certain lease-in, lease-out (LILO) transactions resulting in after-tax charges of $38 million. Excluding the charges related to the ruling, Key would have lost 28 cents a share.

Key also increased its provision for loan losses to $647 million. That compares to $53 million for the same period one year ago and $187 million for the first quarter of 2008. Key has been selling portions of its residential construction loan portfolio and increasing its reserves, CEO Henry Meyer said in a company statement.

"The tax court ruling notwithstanding, Key's performance this quarter reflects an ongoing effort to fortify the company against a difficult economic environment for lenders," Meyer said in the statement.

Key's results look modest compared to the whopping $4.20-per-share loss posted by Wachovia(WB - Cramer's Take - Stockpickr), also announced Tuesday.

Fifth Third Bancorp (FITB - Cramer's Take - Stockpickr), a Midwestern superregional bank comparable to Key, announced a 37 cent loss on Tuesday. National City (NCC - Cramer's Take - Stockpickr), another Midwestern regional bank based in Cleveland, will report its results Thursday.