KeyCorp Q4 2024 Earnings Call Transcript

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

Question: John Pancari - Evercore ISI - Analyst : Good morning. Just wanted to get a little more color on the 20% NII outlook, you maintained it despite completing the bank in Novoscotia stake earlier plus the steeper curve. So -- and I appreciate the walk that you gave, but can you give a little bit more color around the rationale in keeping that 20%? I know you alluded to that your assumptions, at least around the Fed could be conservative. Is there any other conservativeness built into this -- and where could there be upside to this expectation as you look out? Thanks.

Question: John Pancari - Evercore ISI - Analyst : Thanks, Clark. I appreciate the color. I guess, just related to that, maybe you can elaborate a little bit more on your loan growth assumptions. I believe you had indicated it implies about flat on an EOP basis. Correct me if I'm wrong there. But -- and you're not the first to take a more conservative approach in guiding given the uncertain loan demand backdrop. I wanted to see if you can give a little bit more color on what you're seeing in terms of commercial borrowing activity and where the levers are there. Thanks.

Question: John Pancari - Evercore ISI - Analyst : Thanks. Chris. Appreciate the detail.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Morning. I just wanted to follow up, Chris. I think regarding this -- as we think about pickup in M&A, we are seeing some large transactions being announced despite whatever the policy uncertainty is still prevailing. Given kind of your look at both these businesses and understand them extremely well. Give us any historical correlation where you should think about? Can M&A pick up without a pickup in lending demand customers taking on more leverage understanding that it may or may not come on bank balance sheets go towards capital markets. But I'm just wondering if we get a pickup in M&A when we hear your statement around the pipelines being as strong as they've ever been, should that imply that if M&A picks up loan demand has to pick up?

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Got it. And maybe one for you, Clarke. Sorry if I missed it, if you gave a specific guidance in terms of deposit growth. Give us a sense of what you're doing on the funding side on deposits? Is there still some remix that we should think about? And how should we think about just the average size of the balance sheet in terms of average earning assets relative to what you reported for fourth quarter? Thank you.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Got it. If you don't mind clarifying just average earning assets, how we should think about that trending from here? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 1:00PM, KEY.N - Q4 2024 KeyCorp Earnings Call

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Thanks for taking my questions.

Question: Bill Carcache - Wolfe Research - Analyst : Thank you. Good morning, Chris and Clark. Chris, you've talked in the past about an operating environment where you envision key balance sheeting less risk and focusing more on generating fee income in your role as sort of a credit facilitator for your clients? Is that a fair characterization? And maybe if you could just update us on how you're thinking about the impact of a more pro-growth administration, just trying to think high level about how to think about the trajectory of your fee income mix over time given the investments that you're making in payments, Wealth Management, Investment Banking, and over time, do those investments sort of affect that sort of, I guess, remixing?

Question: Bill Carcache - Wolfe Research - Analyst : That's really helpful, Chris. Thank you. And if I may follow up, Clark, on your comments around being able to generate greater fee income growth to the extent your clients continue to take advantage of tight credit spreads and fund themselves via capital markets. Do you think we'll need to see -- I guess, to what extent do you think we'll need to see credit spreads widen before banks broadly and are key more specifically see a notable uptick in loan growth, given as you mentioned, we've been waiting for a long time sort of yet to manifest? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 1:00PM, KEY.N - Q4 2024 KeyCorp Earnings Call

Question: Bill Carcache - Wolfe Research - Analyst : Thanks, Chris and Clark. Very helpful. Appreciate you taking my questions.

Question: Manan Gosalia - Morgan Stanley - Analyst : Hi. Good morning. Can you talk about your ability? And can you talk about your ability and willingness to do more securities repositioning here? given that CET1, including AOCI is close to 10%, you're not -- you're going to be accreting more capital from here AOCI impacts are coming down, loan growth is going to be flat. Why not do more on the securities repositioning front?

Question: Manan Gosalia - Morgan Stanley - Analyst : Got it. Is there a CET1 ratio, including AOCI that you're targeting that you don't want to go below? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 1:00PM, KEY.N - Q4 2024 KeyCorp Earnings Call

Question: Manan Gosalia - Morgan Stanley - Analyst : Got it. And maybe if I can just follow up on the securities question. I think you mentioned about 50% of long-dated securities are currently yielding. Well, you've already sold about 30% of long-dated securities yielding less than 2%. Is there a large chunk of that remaining 50% that matures in more than two years from here?

Question: Manan Gosalia - Morgan Stanley - Analyst : Got it. Thank you.

Question: Matthew O'Connor - Deutsche Bank - Analyst : Good morning. First, just a quick clarification. Clark, I think I heard you mention the NIM could reach 2.8% in the fourth quarter if loan growth tracks what you're expecting. But I think you [hinting] 2.7 in the deck. Maybe I misheard, but just clarify that. Thanks.

Question: Matthew O'Connor - Deutsche Bank - Analyst : Okay. That's helpful. And then just separately, kind of bigger picture. I know a lot of focus on the capital and the loan growth. But just conceptually, Key went from a bank that didn't have as much capital as you wanted, had the RWA diet, had to pull back on lending and that impacted some of your fee categories. Like how do you get the company kind of more front-footed like, hey, we've got all this capital. We've got more than peers. Let's kind of restart some of these relationships that maybe have been on pause. How do you just mobilize the people internally? How do you communicate that to customers now that you're so strongly positioned in such a competitive environment? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 1:00PM, KEY.N - Q4 2024 KeyCorp Earnings Call

Question: Matthew O'Connor - Deutsche Bank - Analyst : Okay. And then just when you put that all together, how do you think about your commercial loan growth versus the age eight? Obviously, it could fluctuate quarter-to-quarter. But as you think out over the next four, six, eight quarters? How would you peg your growth to Hakos.

Question: Matthew O'Connor - Deutsche Bank - Analyst : Okay. Thank you very much.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Hi. I think I asked this every call. I mean I get the -- you guys don't care if it's your -- you serve your clients through capital market or through lending, whatever the client wants is what you'll do. And so maybe if NII does a little bit worse and capital markets do better, you're just completely fine with that. Is that a fair statement?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : So what percent of your middle market client base has access to capital market? And how much do you think that impacts your loan growth? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 1:00PM, KEY.N - Q4 2024 KeyCorp Earnings Call

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Okay. And if you only had one rate cut instead of two, your guide for up 20% in NII would go to what roughly?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : And Clark, just correct me if I'm wrong, I think on this call, you said about 20% higher for 2025 for NII, and I think your guide was 20% with the plus time. Did I see that wrong? And it just -- and I know there's a lot of attention on one line item and the one-line item might be a little bit weaker in investment banking might be a lot stronger, but just to clarify that.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Great. And then separately, Chris, the Board December 30 of the Compensation Committee, granted a special performance award to the named executive officers to increase stock ownership, help retention and help you drive value from Scotiabank. And I'm just wondering with the Board besides this, consider to be valuable. I mean you're the third bank in a series of a few months along with Goldman Sachs, just last week or so and then Truist a few months ago, doing the -- what I call the double bonus, maybe that there's another name for that. I just wonder why -- what is this competition? What does the Board see in terms of competition and the need for Key to retain the talent? What's happening there?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : That'd be great. Thank you.

Question: Erika Najarian - UBS Equities - Analyst : Thank you. First question is just a clarification question. What Clark deposit beta are you assuming in that up 20% NII guide?

Question: Erika Najarian - UBS Equities - Analyst : Got it. And the next question is for Chris. And I guess I'm just going to take a step back. I feel like now you have a 12% CET1, maybe I feel like the questions are a little misdirected. I feel like a larger company won't give you capital just for you guys to fix balance sheet decisions that were made in the past by a previous management team and buy back stock, right? And so the environment is what it is, and the consumer book is doing what it's doing. But I guess I'm just wondering, is there an appetite for more aggressively adding talent. I think in your prepared remarks, you talked about adding wealth managers. But given that you have all this capital and given that there's so much on your balance sheet, that's a natural cure to your net interest income, I'm wondering if there's an appetite, again, I'm not going to ask you the deal question, but if there's an appetite to be more aggressive at adding commercial bankers and using this capital for really like forward thinking on growth?

Question: Erika Najarian - UBS Equities - Analyst : It does. Thank you so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 1:00PM, KEY.N - Q4 2024 KeyCorp Earnings Call

Question: Brian Foran - Truist Securities - Analyst : Hey. Just a quick one, a couple of quick ones. When you kind of talked about 2.7%, maybe even 2.8% on NIM, can you just remind us where you see that in terms of a longer-term normalized range? Is that at the bottom of the range? Or I think in the past, you've talked about up to 3% or I forget the exact wording, but as we think about '26 and '27, what we do deem as a kind of normalized NIM range?

Question: Brian Foran - Truist Securities - Analyst : 3% or better even in '26?

Question: Brian Foran - Truist Securities - Analyst : Okay. And then just as we model out loan growth, is the runoff of consumer over in '25? Or should we think about some more in '26 and beyond?

Question: Brian Foran - Truist Securities - Analyst : Okay. Thank you so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 1:00PM, KEY.N - Q4 2024 KeyCorp Earnings Call

Question: Thomas Leddy - RBC Capital Markets - Analyst : Hi. Good morning, everyone. This is Thomas Leddy standing in for Gerard. Can you have a reserve release in '24 and 2025 guidance for NCOs just 40 to 45 bps or relatively flat from current levels. With this in mind, should we expect to see further releasing in 2025?

Question: Thomas Leddy - RBC Capital Markets - Analyst : Okay. That's helpful. And then just quickly on C&I loans. It looks like period end loans ended this quarter a little bit higher than last. Can you give us some color on what you're seeing in the C&I book?

Question: Thomas Leddy - RBC Capital Markets - Analyst : Understood. Okay. Thank you. That's helpful. And thank you for taking my questions.