KeyCorp Q1 2023 Earnings Call Transcript

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

Question: Erika Najarian - UBS Investment Bank, Research Division - Analyst : Yes. If I could ask the NII protection question another way. Clark, the loan beta of your commercial portfolio was something like 52% in the second half of 2022 and about 65% this quarter. As we think about the protection for down short rates, and I think a lot of investors are expecting down short rates in 2023. Should we interpret your protection as a lower sensitivity to each 25 basis points of cuts that we've seen to the upside?

Question: Erika Najarian - UBS Investment Bank, Research Division - Analyst : Yes. Yes. So I wanted to understand Slide 11 in a different way, right? So the protection on your commercial portfolio and locking in the upside. So we saw the sensitivity to higher short rates in terms of the carry through to your yield at about the low 50s in the second half of last year and in the mid-60s this quarter, right? The way investors are interpreting protection to the downside is a lower sensitivity as the Fed cuts, right? And so should we expect the key commercial yields have a lower sensitivity to cut on the way down than it did to increases in rates on the way up?

Question: Erika Najarian - UBS Investment Bank, Research Division - Analyst : Okay. And what you're showing us on Slide 11 is essentially the assumption that your current swap book as it rolls off, gets replaced with a higher received fixed rate?

Question: Erika Najarian - UBS Investment Bank, Research Division - Analyst : Got it. And I'm sorry to just put this all together in the third question. But as investors are thinking about whether bank stocks are truly cheap, I think they're thinking about '24 EPS as a trough. So as I think about your commercial yield today, right? There are essentially sort of "headwinds" right? So the first would be the lower received rate -- received fixed rate on your notional. And the second would be -- on the other side of that, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 20, 2023 / 2:00PM, KEY.N - Q1 2023 KeyCorp Earnings Call right, the yield will be better protected as the Fed cuts. So am I thinking about sort of the message on downside NII protection the right way as it relates to your commercial book?