KeyCorp at Goldman Sachs U.S. Financial Services Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ryan Nash - Goldman Sachs - Analyst : Absolutely. So when I think back, Chris, you and I sat up here last year talking about Key's RWA diet to improve capital, whether NII and NIM were bottoming, capital markets are under pressure, whether Key could maintain the dividend. I remember that that to you. A year later, obviously, things have shifted. NII is inflected, capital is in a much better place; both the strategic investment. And now the focus has shifted back to growth and profitability. So as you reflect upon the past year, what are the things that went well? Where do you see opportunity for improvement? And what are you most focused on as we head into 2025?

Question: Ryan Nash - Goldman Sachs - Analyst : And the answer is even more robust than the question.

Question: Ryan Nash - Goldman Sachs - Analyst : So Chris, maybe since the last time we've heard from you, obviously, there's been a lot of change -- rates, political. Curious, your take on what the new administration should -- could mean under a more business-friendly environment for Key. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 4:20PM, KEY.N - KeyCorp at Goldman Sachs U.S. Financial Services Conference

Question: Ryan Nash - Goldman Sachs - Analyst : Speaking of M&A deals, when you think about your capital markets business, you said you're on pace for the second-best year ever. Markets have become more optimistic about capital markets. You said you have a record backlog. Maybe just talk about what you're hearing from clients. What do you think activity looks like, not only into 2025, but in this more business-friendly environment?

Question: Ryan Nash - Goldman Sachs - Analyst : Maybe just building on the thoughts on activity. So 2024 was a slow year for loan growth given all the uncertainty, RWA focus earlier in the year, and obviously, the election. Now the markets are focused on when clients will obviously start borrowing again. So maybe just talk about what REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 4:20PM, KEY.N - KeyCorp at Goldman Sachs U.S. Financial Services Conference you're hearing from clients in terms of on their own growth prospects. You talked about obviously focusing on M&A and their borrowing needs. Are you anticipating it's going to start to pick up?

Question: Ryan Nash - Goldman Sachs - Analyst : Got you. So maybe before we dig a little bit deeper into your plans for next year and beyond. Maybe just any update on your guidance and you referenced? Capital markets is doing better. How is the fourth quarter progressing relative to your expectations across both the income statement and the balance sheet?

Question: Ryan Nash - Goldman Sachs - Analyst : Sounds like things are progressing well.

Question: Ryan Nash - Goldman Sachs - Analyst : Maybe just to put a finer point, you said down betas are doing better than modeled. We've obviously had 75 basis points of cuts. And you guys have been more upbeat in the recent months in terms of your expectations to bring it down. Maybe just talk about where you're -- how you're able to grow deposits and still able to bring down rate and where you're seeing better opportunity to optimize pricing.

Question: Ryan Nash - Goldman Sachs - Analyst : So Chris, maybe switching to 2025. I understand that we'll obviously get formal guidance in January. But you're just about through your budgeting process. Can you maybe just talk about this year's framework or maybe a top-down strategic and financial parameters you've told the businesses they need to follow as they come to you with their business plans? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 4:20PM, KEY.N - KeyCorp at Goldman Sachs U.S. Financial Services Conference

Question: Ryan Nash - Goldman Sachs - Analyst : Got it. Sounds positive. So Chris, you completed the first round of the bond restructuring and plated to completing another post the closing of the next tranche of Scotia, which we'll touch upon shortly. And given this, you've talked about 20% NII growth. Obviously, a lot of things have changed since the last time we talked to you -- curve steeper, less rate cuts. But you talked about needing to execute in order to be able to drive the NII. Can you maybe just talk about some of the key components to hitting that 20% NII that it sounds like you still feel good about?

Question: Ryan Nash - Goldman Sachs - Analyst : So I wanted to spend a minute talking about operating leverage. You guys have talked about that you're committed to it, which given the 20% NII, should position you well for it, I think one concern that I hear from investors is, again, given your tailwinds in NII, you noted there's more money to invest. It obviously makes it easier for positive operating leverage, but there's a temptation to spend a little bit more. Maybe just talk about how you're thinking about balancing more money to invest with greater positive operating leverage to improving the overall returns of the company? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 4:20PM, KEY.N - KeyCorp at Goldman Sachs U.S. Financial Services Conference

Question: Ryan Nash - Goldman Sachs - Analyst : Maybe just put a finer point on it. So what do you think that means for overall investment spend and overall expense growth next year? And maybe -- and it's been a while since you talked about the actual investment philosophy. It's clear that you just articulated some things that you're investing in, payments, investment banking. Maybe just give us an update on how you evaluate and prioritize these opportunities?

Question: Ryan Nash - Goldman Sachs - Analyst : So Chris, you guys successfully executed on the first tranche of the Scotia investment. The next tranche of investment, I believe, is slated for '25. Any updated thoughts either on the timing or how the process is going and how they've been as a partner thus far? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 4:20PM, KEY.N - KeyCorp at Goldman Sachs U.S. Financial Services Conference

Question: Ryan Nash - Goldman Sachs - Analyst : And maybe to build on the last question and not to put the cart before the horse, but assuming the final tranche of Scotia Bank investment gets approved, you'll be sitting on a decent amount of excess capital. Just so a two-part question of -- first, how are you thinking about your capital priorities into next year? And when can we begin to see Key returning incremental capital to shareholders?

Question: Ryan Nash - Goldman Sachs - Analyst : And I think listening to some of the discussions thus far this morning, I think there's generally a view, although nobody seems to think it will be them that M&A will pick up under over the next period of time. Where does Key fit into any strategic activity, do you think, once it starts up? But obviously, I know that improving the profitability of the company has been a much greater focus than going out and doing strategic activity. Just curious how that fits in for you?

Question: Ryan Nash - Goldman Sachs - Analyst : And you referenced in your prior response, just you've had a lot of success buying niche businesses. And as you think about your investment priorities, your key capabilities, do you see any opportunities or areas where you're thinking about adding inorganically to enhance your product offering?

Question: Ryan Nash - Goldman Sachs - Analyst : So I wanted to shift gears and talk a little bit about credit, a couple of different credit. We saw charge-offs pick up in the last quarter, as we saw a couple of charge-offs fall through. Although credit size were down, NPAs were stable. I think you commented that NPL and credit sizes are peaking out or should decline from current levels. Any initial thoughts about how you're thinking about credit into next year? Anything in particular that you're watching more closely? Are you feeling better about credit now that it feels to get a better view on the economy?

Question: Ryan Nash - Goldman Sachs - Analyst : And my other question on credit. So you mentioned earlier on that companies are borrowing. They're just not borrowing for banks, they're in from private credit. So two-part question. One, I know we have a partnership with Blackstone. Any color on how that is progressing? And as you think about the environment, we're hopefully moving into more business activity. Do you foresee private credit being an impediment to your ability to grow loans into 2025?

Question: Ryan Nash - Goldman Sachs - Analyst : So maybe in the last minute here, Chris, one question to answer to pull it all together. Your slides still talk about a 16% to 19% return. I realize that you said you'll adjust it once we know final rules, which as you just referenced are not there. But we have a decent sense whether they are not going to happen or they may be watered down. So you're running low double digits on returns today even when you factor in AOCI. So maybe the right number is mid-teens, but what's your returns back to where they need to be? And how long do you think it takes to get there?