Has

KeyCorp

(KEY) - Get Report

, an underperforming regional bank, suddenly started making optical networking gizmos? If not, then why is its stock ramping like

JDS Uniphase's

(JDSU)

?

Upswing
Key's recent rally

Since last Wednesday, the Cleveland-based bank's shares have rallied 18%. Monday alone they jumped $1.81, or 8.1%, to close at $24.31. Moves like that have inevitably led some to wonder whether the Cleveland-based bank is about to be taken over. A couple of big deals suggest that large financial institutions have regained an appetite for acquisitions. In particular, witness

Citigroup's

(C) - Get Report

planned purchase of

Associates First

(AFS)

for $30 billion, announced last week.

Due to its failure to post peer-beating profitability, Keycorp is periodically seen as prey.

Wells Fargo

(WFC) - Get Report

TheStreet Recommends

and

Firstar

(FSR)

, neither of which returned calls seeking comment, are usually mentioned as potential buyers.

KeyCorp declined to comment, citing a policy of saying nothing about market rumors.

Scissors?

However, the current explanation for the stock's rise is that KeyCorp is about to announce some more details of a cost-cutting plan that could, if successful, significantly boost profitability. The restructuring, announced in November last year, is planned to reduce expenses over 2000 and 2001. By the end of September, the bank says it will update investors on the drive's progress.

Backtracking
Key's up-and-down year

Source: BigCharts

Last Wednesday,

CIBC World Markets

analyst Tom McCandless upgraded the stock to strong buy from hold, adding that the restructuring could add 20 cents to 35 cents to earnings per share once it is completed. Analysts surveyed by

First Call/Thomson Financial

reckon that KeyCorp will earn $2.30 per share this year and $2.50 in 2001. (CIBC hasn't done recent underwriting for the bank.)

Rock

But some analysts remain doubtful, noting that, over the past few years, KeyCorp has done a number of restructurings that haven't amounted to much. "When a company does as many restructurings as this bank -- without delivering -- you have to look at it skeptically," says Larry Cohn, banks analyst at

Ryan Beck

. (He rates KeyCorp a hold, and his firm hasn't done any underwriting.) KeyCorp declined to comment on this criticism.

When it announced this restructuring, KeyCorp said it wanted its costs to come down to 52% of revenue by the end of 2002. The bank has a long way to go. In the year's second quarter, they were equivalent to 60%. Super efficient banks such as Firstar's costs are as low as 42% of revenue.

Reflecting doubts about management, KeyCorp's stock trades at around 10.6 times First Call's 2000 estimates, vs. 13.6 times for the

KBW Banks Index

, which tracks the nation's 24 largest banks. Analysts expect KeyCorp's annual earnings to decline 2.6% this year, and then grow at an anemic 8.7% in 2001.