KeyCorp’s 0.44% pop this week barely scratches the surface of what’s shifting under the hood.
The $20 billion regional bank is still labeled “fairly valued” by much of the market, but the setup looks better than that.
Strong capital reserves, a fresh infusion from Bank of Nova Scotia, and a $1 billion buyback authorization give management multiple levers to pull in the next few quarters.
Yet sentiment remains muted, a leftover hangover from years of operational drag and rising credit provisions.
For value investors, that gap between balance sheet strength and market skepticism is where the opportunity starts.
Action: Accumulate shares below $18.50 ahead of H2 2025 buyback execution, which could catalyze a re-rating into 2026 as capital return accelerates and loan growth stabilizes.
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Why the Market Overcorrected and What Comes Next
KeyCorp’s multi-year performance lagged sector peers, with net interest income growing only 2.4% annually from 2020–2024 and its efficiency ratio deteriorating by 33.8 percentage points.
Fee income consistently landed at the lower end of guidance, while elevated credit provisions pressured profitability and reinforced a cautious market narrative.
Insider selling outpaced buying by over $2.1 million in the past year, adding to the overhang.
Provisions for credit losses have been higher than anticipated in several recent quarters, despite improvements in the non-performing assets to net charge-offs ratio.
This signaled to investors that credit quality could deteriorate further, particularly in commercial real estate, and the market discounted shares accordingly.
At 1.2x forward P/B, KeyCorp trades below the 1.5x peer average. Recent trends suggest the bottom may be in.
The C&I loan portfolio has outperformed expectations, net interest margin guidance calls for a 12 bps expansion over the next three quarters, and a 9.8% pro forma CET1 ratio provides flexibility.
Combined with a $1 billion buyback launching in H2 2025, these factors form a path toward valuation recovery without relying on aggressive economic assumptions.
From my seat, the ingredients for a re-rating are already on the table, stable margins, improving loan performance, and capital return.
The market is still pricing yesterday’s risks, while KeyCorp is quietly executing on tomorrow’s catalysts.
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Investment Banking Momentum Could Be the Spark
KeyCorp’s investment banking and corporate services arm posted record fees in recent quarters, with strength in debt capital markets and advisory.
This segment is increasingly important, contributing a growing share of non-interest income at a time when many regional banks remain heavily reliant on net interest spreads.
Middle-market coverage is where KeyCorp has carved out an advantage.
Recent mandates in healthcare, industrials, and technology verticals have expanded its reach, while cross-selling into treasury and cash management services has deepened client relationships.
These cross-sell wins not only diversify revenue but also increase client stickiness in a competitive market.
Geographic expansion opportunities remain in underpenetrated regions, particularly in the Southeast and Mountain West, where KeyCorp’s investment banking brand recognition is lower but market appetite for mid-cap financing is strong.
Success here would reduce concentration risk and expand the advisory pipeline for 2026.
From my seat, this isn’t an ancillary business line anymore, it’s a growth engine capable of moving the needle on earnings and diversifying KeyCorp’s revenue mix at a time when diversification is a premium in bank valuations.
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Structural Catalysts on the Horizon
The $2.0 billion equity investment from Bank of Nova Scotia pushed KeyCorp’s pro forma CET1 ratio to 9.8%, giving it one of the strongest capital cushions among large regionals.
That balance sheet strength provides room to execute on growth initiatives while deploying $1 billion toward buybacks in H2 2025.
Management’s securities repositioning program lifted portfolio yields by 400 basis points, intentionally shifting into higher-return assets.
This should begin contributing to net interest income in the coming quarters, delivering margin expansion without relying on favorable rate moves, a structural earnings lever rather than a one-off boost.
Selective M&A remains on the table.
With both capital capacity and integration experience, KeyCorp can target bolt-on acquisitions to deepen market share in high-growth geographies or expand niche service capabilities, all while avoiding overextension.
Key catalysts to watch:
$1 billion buyback program execution in H2 2025
Incremental NII gains from higher-yield securities portfolio
Targeted M&A in strategic markets
Enhanced capital deployment flexibility from 9.8% CET1
This blend of surplus capital, yield lift, and strategic optionality is rare in regional banking, and has the potential to materially reshape how the market prices KeyCorp over the next 12–18 months.
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Sector Tailwinds
Regional banking conditions are shifting into a steadier phase, giving well-positioned institutions like KeyCorp a more predictable operating backdrop. Several macro and industry factors could enhance the impact of its internal catalysts.
Supportive industry trends
Credit costs expected to ease into 2026 as delinquency rates stabilize.
Loan pricing discipline holding, protecting spreads despite competitive lending markets.
Funding cost pressure moderating as deposit mix normalizes.
Revenue model advantage
Established investment banking platform benefits from the sector pivot toward fee-based income.
Cross-selling between corporate services, treasury, and lending deepens client relationships and retention.
ESG-driven capital flows
$80.7 million in affordable housing investments and $2 million+ in recent community grants enhance institutional ESG appeal.
Partnerships like the Pro Football Hall of Fame naming rights deal bolster brand recognition in core markets.
The combination of easing credit headwinds, a diversified revenue mix, and alignment with ESG-focused capital provides KeyCorp with sector-level tailwinds that can magnify its execution gains in the quarters ahead.
Risks and Re-Rating Potential
No value setup comes without its pressure points, and KeyCorp’s current positioning is no exception.
While capital strength and strategic catalysts are in place, there are factors that could delay or cap a re-rating if left unchecked.
Credit quality: Rising NPAs in commercial real estate could force higher provisions and pressure profitability.
Margin pressure: NIM guidance calls for a 12 bps expansion over the next three quarters, but weaker rate conditions could stall that improvement.
Fee income pace: Growth is tracking at the low end of guidance; softness in capital markets activity could weigh on investment banking fees.
Competition: Larger banks and fintech entrants continue to push into profitable middle-market and corporate service segments.
Valuation remains a counterbalance. At roughly 1.2x forward P/B versus the peer average near 1.5x, KeyCorp is still priced at a discount.
Sustained loan growth, stable margins, and capital return execution could close that gap without needing aggressive economic assumptions, a path that rewards patient shareholders.
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Closing the Gap on Mispriced Strength
KeyCorp has the capital, the strategic levers, and the sector backdrop to shift market perception over the next 12–18 months.
Years of operational drag and credit caution still hang over the stock, but execution is already moving the story forward.
With a 9.8% CET1 ratio, a $1 billion buyback launching in H2 2025, and an investment banking arm posting record fees, the pieces for a re-rating are already in place.
The market’s discount is rooted in yesterday’s challenges, not today’s balance sheet strength or tomorrow’s earnings potential.
This is a contrarian setup built on tangible catalysts, not speculative turnarounds, and that’s the kind of rebuild worth owning before the crowd catches on.
Action Recap
✅ Buy Zone: Accumulate under $18.50 ahead of H2 2025 buyback execution and continued C&I loan growth momentum.
✅ Catalysts to Watch: $1 billion share repurchase launch, 12 bps projected NIM expansion, record investment banking fees, and incremental NII from higher-yield securities.
✅ Medium-Term Target: Re-rating toward 1.5x forward P/B could push shares into the low-$20s over the next 12–18 months.
✅ Risk Management Tip: Monitor credit quality in commercial real estate, fee income pace, and competitive pressure in middle-market banking.
That’s our coverage for today, thanks for reading! Reply to this email with feedback or any names you want us to dig into next.
Best Regards,
—Noah Zelvis
Undervalued Edge
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