KeyCorp Raises $1.65 Billion, 10% More than Planned

KeyCorp, a large U.S. Midwest regional bank, said on Friday it raised $1.65 billion, 10 percent more than planned, to bolster its capital base.

A day earlier, the Cleveland-based bank cut its dividend in half and said an adverse federal court ruling on the taxation of leveraged lease transactions would cause a $1.1 billion to $1.2 billion second-quarter charge.

KeyCorp said it offered $1 billion of common stock, consisting of 85.1 million shares priced at $11.75 each. In addition, $650 million of preferred shares were priced with a 7.75 percent dividend yield and convertible into stock at $14.10 per share, 20 percent above the per-share price of the common stock offering.

KeyCorp said net proceeds total about $1.6 billion.

It also said both offerings may grow by 15 percent to meet demand, which would bring the total raised to $1.9 billion.

Shares of KeyCorp fell 23.7 percent on Thursday after the bank announced the capital-raising, which dilutes existing shareholdings, as well as the dividend cut and an expected increase in charge-offs for bad loans. The dividend cut follows 43 straight years of increases.

Chief Executive Henry Meyer said the offerings were significantly oversubscribed, and that the capital-raising "restores our capital ratios and better positions the company for current economic conditions and future growth opportunities."

KeyCorp is the latest of many U.S. banking companies this year to raise capital and lower their dividends, including Citigroup, Wachovia, Washington Mutual and Cleveland-based National City.

The bank has also been hurt by its exposure to lending in commercial real estate and homebuilding. KeyCorp has about 985 branches in 13 U.S. states.

Despite the demand, KeyCorp's preferred shares priced at the expensive end of the expected ranges. KeyCorp had forecast a 7.25 percent to 7.75 percent dividend yield, and a 20 percent to 25 percent conversion premium.

Shares of KeyCorp closed Thursday at $11.98, which is 67.7 percent below their 52-week high set last July 18.