KeyCorp, a large U.S. Midwest regional bank, said it plans to raise $1.5 billion in equity capital and cut its dividend in half, following an adverse federal court ruling over the tax treatment of leveraged leases.
The Cleveland-based bank said the ruling will result in a $1.1 billion to $1.2 billion second-quarter charge, covering all leveraged lease transactions it is contesting.
It also plans to cut its quarterly dividend per share to 18.75 cents from 37.5 cents, saving $200 million a year, reflecting what Chief Executive Henry Meyer called "current economic realities." KeyCorp had raised its dividend for 43 straight years.
Shares of KeyCorp fell $2.21, or 14 percent, to $13.50 in morning trading, and touched their lowest level since 1995.
KeyCorp also announced plans to boost loan reserves by about $600 million in the second quarter, and said full-year net charge-offs should be $750 million to $1 billion.
The bank joins a growing number of rivals to raise equity capital and lower their dividends this year as loan losses mount.