on warned that it would post a fourth-quarter loss due to deteriorating credit quality in loans made to homebuilders and other writedowns in its fixed income business.
The Cleveland bank said late Thursday that it expects to record a fourth-quarter loss of up to 5 cents a share. Analysts polled by Thomson Financial expected Key to earn a profit of 64 cents a share in the final three months of the year.
The warning, made after the closing bell, came as Key increased its quarterly dividend by 27% to 37 cents a share.
Shares of Key fell 61 cents, or 2.8%, to $21.30 after the close Thursday.
After reviewing its $3.7 billion commercial real estate portfolio, specifically loans made to residential homebuilders, Key said it ceased doing any business with "non-relationship homebuilders outside its 13-state" footprint. The company had already curtailed its condominium development lending business.
The company blamed its troubles on deteriorating real estate market conditions, mainly in Florida and California.
Key transferred approximately $1.9 billion of homebuilder and condo loans to a "special asset management group," it said. The company estimates that net charge-offs range between $110 million and $120 million in the quarter. Its provision for loan losses will exceed charges by up to $270 million, it said.
Further, as a result of widening credit spreads, Key expects to take writedowns in the range of $55 million to $65 million related to its commercial mortgage-backed securities, trading assets and other "real estate-related" investments.
Key plans to eliminate approximately 1,040 positions as a result of the losses and restructuring.
Banks large and small have been hit hard by the mortgage industry deterioration and the credit crunch. Key joins several other regional banks including
, along with several national banks like
Bank of America
to warn that quarterly earnings would come in short of consensus.