KeyCorp uses the sale of indirect auto loans to accelerate share buybacks

KeyCorp has sold what remains of its portfolio of indirect auto loans and plans to use the proceeds to repurchase up to $585 million of its own stock.

Key transferred the $3.2 billion portfolio to an investment vehicle managed by a subsidiary of Waterfall Asset Management, the Cleveland-based company said in a Sept. 10 securities filing.

The sale came nearly a year after KeyBank’s parent company announced that it get out of indirect car loans and focus more resources on consumer mortgages and his fledgling business Laurel Road, which now includes a digital bank for doctors and dentists. These moves are emblematic of the bank’s strategy of seeking to build deeper relationships with customers.

KeyCorp’s board authorized a $1.5 billion share buyback plan in June. The sale of a $3.2 billion loan portfolio will allow the Cleveland company to accelerate some of the buybacks.


“We are a relationship bank and there is nothing relationship” about the indirect auto lending business, Chairman and CEO Chris Gorman said Monday at an industry conference.

KeyCorp acquired the indirect auto loan portfolio as part of its 2016 purchase of First Niagara Financial Group in Buffalo, New York. The portfolio, which stood at $4.6 billion last fall, has since been depleted.

Analysts who cover Key have responded favorably to both the portfolio sale and share buyback plans. Shares of Key were up 3.4% on Monday at noon.

The sale will “accelerate the ‘clean-up’ of the loan portfolio,” while the proceeds will “allow Key to pre-empt” some share buybacks, Piper Sandler analyst Scott Siefers wrote in a research note.

Exiting indirect auto loans now and buying back shares “maximizes shareholder value,” Wedbush Securities’ Peter Winter wrote in a research note. He argued that expanding the Laurel Road business – which includes student loan refinancing and digital banking – “is a much better use of capital” than growing a single product line like auto loans. indirect ones that do not generate the same levels of returns. that Key’s relationship-based businesses have produced.

The buybacks will be part of an accelerated share buyback program. In June, KeyCorp’s board of directors approved $1.5 billion in share buybacks.

KeyCorp expects to receive a first batch of 23.5 million shares on Tuesday, or about 2.5% of its outstanding common stock, according to the securities filing.

Along with the sale of the portfolio, KeyCorp also purchased $2.8 billion of senior notes from a securitization that will be collateralized by the loans sold, the company said of the $181 billion in assets in the filing.

KeyCorp said it would remain the auto loan manager. The sale price of the portfolio has not been communicated.