OREANDA-NEWS. Fitch Ratings has affirmed KeyCorp (KEY) ratings at 'A-/F1'. The Rating Outlook remains Stable.

The rating action follows a periodic review of the large regional banking group, which includes BB&T Corporation (BBT), Capital One Finance Corporation (COF), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), PNC Financial Services Group (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), UnionBanCal Corporation (UBC), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION).

Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Large Regional Bank Periodic Review,' to be published shortly.

KEY RATING DRIVERS
IDRS, VRs AND SENIOR DEBT

Fitch's affirmation of KEY's Issuer Default Rating (IDR) and Stable Outlook is supported by the company's strong capital position, solid asset quality performance, diversified revenue mix, and reduced risk profile. Although gradually improving, the company's earnings measures fall on the lower end of most large regional banks.

Ratings incorporate KEY's strong capital position, which is amongst the highest of its peer group with a TCE of 9.86% at the second quarter of 2015 (2Q15) and CET1 ratio of 10.71%. Additionally, given the company's reduced risk profile over the years, credit performance continues to be better than peers with an average of net charge-offs (NCOs) of 0.22% and nonperforming assets (NPAs) of 0.76% over the last five quarters.

Fitch also considers the company's diversified revenue base as a rating strength evidenced by noninterest income contributing roughly 44% of total revenues, consistently above the peer group average.

KEY's profitability measures tend to fall on the lower-end of peer averages such as return on assets (ROA) and net interest margin (NIM) for the large regional group although the gap to the peer group averages is closing. Some of this may be attributed to the company's above average operating costs and lower loan yields given large component of commercial and industrial (C&I) loans tied to LIBOR rates. KEY's NIM is also modest, although, positively, the company has experienced less NIM compression than some of peers.

Incorporated in the affirmation is that profitability will trend positively and pull to peer-averages over time. Further, the company's cost savings initiatives should also lead to improvements in profitability.

Fitch also notes that KEY still has about \\$3.67 billion in its exit and discontinued operations portfolio (of which \\$1.9 billion relates to student loans). KEY has reduced this exposure over the last year thorough loan sales to third party. Given KEY's focus on core businesses, this is in line with expectations. It also helps lessen concerns with the heightened political sensitivities for student lending.

The company also has a sizeable home equity book totaling \\$10.5 billion, of which 98% branch originated, at 2Q15. Although to date, credit performance has been stable, Fitch believes this loan book could be negatively impacted by the entry into amortization following the end-of draw period and higher interest rates. Offsetting this risk, only 12% of the portfolio comes to end of the draw period of the next four years.

SUPPORT RATING AND SUPPORT RATING FLOOR

KEY has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, KEY is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

KEY's subordinated debt is notched one below its VR of 'A-'. The company's trust preferred securities are notched four below the VR reflecting two notches down for loss severity and two notches down for non-performance. KEY's preferred securities are rated five notches below its VR. Preferred stock is notched two times from the VR for loss severity, and three times for non-performance.

Subordinated debt and other hybrid securities ratings are in accordance with Fitch's criteria and assessment of the instruments' non-performance and loss severity risk profiles. Thus, these ratings have been affirmed due to the affirmation of the VR.

HOLDING COMPANY

KEY's IDR and VR are equalized with those of its operating companies and banks, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary default probabilities.

SUBSIDIARY AND AFFILIATED COMPANY

The IDRs and VRs of KEY's bank subsidiaries benefit from the cross-guarantee mechanism in the U.S. under FIRREA, and therefore the IDRs and VRs of Huntington National Bank are equalized across the group.

LONG- AND SHORT-TERM DEPOSIT RATINGS

KEY's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

RATING SENSITIVITIES

IDR, VR, AND SENIOR DEBT
Fitch believes that KEY's current ratings are at the high-end of its rating potential given that financial performance lags similarly rated large regional peers although the gap is narrowing. However, KEY's relatively strong capital position, reduced risk profile, solid asset quality and diversified business mix continue to support its rating.

Negative rating action could ensue should the company take a more aggressive approach to capital management such as a rapid decline of capital that is not offset with improved earnings generation and retention.

Additionally, unexpected changes to current business strategy or key executive management, a declining trend in operating performance would also be viewed negatively.

KEY has been active with acquisitions such as Pacific Capital, purchasing credit portfolio, bank branches. To date, acquisitions have been modest in size and manageable. Should KEY's future acquisition activity be of material size and/or appear to be out of line with current strategies, ratings would be reviewed.

SUPPORT RATING AND SUPPORT RATING FLOOR
KEY's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of subordinated debt and other hybrid capital issued by KEY and its subsidiaries are primarily sensitive to any change in KEY's VR.

HOLDING COMPANY
Should KEY's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely though for KEY given the strength of the holding company liquidity profile.

SUBSIDIARY AND AFFILIATED COMPANY

As the IDRs and VRs of the subsidiaries are equalized with those of KEY to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in KEY IDRs.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by KEY and its subsidiaries are primarily sensitive to any change in KEY's long- and short-term IDRs.

Fitch has affirmed the following ratings:

KeyCorp
--Long-term IDR at 'A-'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability at 'a-';
--Senior debt at 'A-';
--Subordinated debt at 'BBB+';
--Preferred stock at 'BB';
--Short-term debt at 'F1';
--Support at '5';
--Support Floor at 'NF'.

KeyBank NA
--Long-term IDR at 'A-'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability at 'a-';
--Long-term deposits at 'A';
--Senior debt at 'A-';
--Subordinated debt at 'BBB+';
--Short-term deposits at 'F1';
--Support at '5';
--Support Floor at 'NF'.

Key Corporate Capital, Inc.
--Long-term IDR at 'A-'; Outlook Stable;
--Short-term IDR at 'F1'.

KeyCorp Capital I - III
--Preferred stock at 'BB+'