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KeyCorp, TD Merger Unlikely: Analysts

NEW YORK ( TheStreet) -- KeyCorp (KEY - Get Report) is unlikely in discussions to sell to TD Bank (TD - Get Report), according to several analysts.

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"I don't buy the rumors," said Stifel Nicolaus analyst Christopher Mutascio in an email.

KeyCorp's stock rose over three percent Thursday on a DealReporter article that said that bank was in discussions with the Canadian bank. Speculation that KeyCorp is a target has accelerated since CEO Henry Meyer announced his retirement in November 2010.

Beth Mooney, formerly vice chair of KeyCorp, is stepping up to replace Meyer in May 2011.

"Beth Mooney will want a chance to run the company when she takes over in May," said Morgan Keegan & Co.analyst Robert Patten. Patten predicts that KeyCorp will pay back $2.5 billion in money owed to the U.S. Treasury Department's Troubled Asset Relief Program (TARP) shortly after Mooney takes office.

KeyCorp has yet to receive regulators' approval to repay the bailout, but has been discussing a repayment with regulators.

Patten said that if KeyCorp sold prior to repaying TARP,"the credit market and loan portfolio would be prohibitive [for] the deal."

KeyCorp has been whittling down loans losses on its balance sheet and expects to continue for the next three years.

So far its strategy has worked. The bank reported fourth-quarter net income of $279 million. KeyCorp's fourth-quarter provision for loan losses was $97 million, up slightly from $94 million the previous quarter but down from $756 million a year earlier. Net charge-offs totaled $256 million.

Not all analysts feel the same. CLSA analyst Mike Mayo said a deal is possible in a research note, and believes that KeyCorp could be bought for $10 to $11 per share. The bank is currently trading at $9.25 a share.

"I don't think Beth Mooney is a seller and I think TD is more interested in the east coast - not the rust belt," Mutascio countered.

Canadian banks such as Royal Bank of Canada (RBC - Get Report), TD and U.S. Bancorp (USB - Get Report) and PNC (PNC - Get Report) have all been reported as potential bidders for KeyCorp.

The Cleveland-based bank has branches primarily in the Great Lakes area, Rocky Mountain or Northwest area and in Maine, Vermont and New York State areas. While, TD already has locations throughout the Northeast and has been expanding in the Mid-Atlantic, DC and Florida markets.

Patten says TD CEO Ed Clark just stated during a fourth quarter conference call that another large deal was out of the question.

"They would need to raise capital to get another deal done," said Patten. "Besides they are digesting acquisitions in the South and have shown they want to grow in Florida and have demonstrated that they want to be a top depository in the area."

A KeyCorp spokesperson said the bank would not comment on market speculation.

--Written by Maria Woehr in New York.

To contact the writer of this article, click here: Maria Woehr.

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KEY $12.19 -2.20%
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RBC $64.17 -1.30%
TD $43.96 -1.10%
USB $42.52 -1.00%


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