Key Takes a Charge, Raises Capital

KeyCorp(KEY Quote) is ending 43 years of increasing dividends as it is forced to raise capital after a U.S. district court ruled against the bank in a federal tax case.

Cleveland-based KeyCorp will issue common and noncumulative perpetual convertible preferred stock to raise about $1.5 billion. Key is expected to record a charge of up to $1.2 billion due to the adverse ruling. The case was related to tax treatment of a lease transaction. Key said it believes it complied with tax law and is considering an appeal.

In the meantime, however, the bank decided to reduce its dividend to 75 cents annually. The most recent quarterly dividend declared had been 37.5 cents per share, up from 36.5 cents a share last February. The cut is expected to save the bank $200 million annually.

"The decision to reduce our dividend after 43 consecutive years of annual increases was made after great deliberation," said CEO Henry Meyer in a company statement. "It was a record we were extremely proud of, but we must recognize the current economic realities as we manage our business for the future." ...