What happened
After falling 10.1% in April, KeyCorp (KEY 0.14%) had another rough month as its stock price dropped 17.1% in May, according to S&P Global Market Intelligence. Year to date, the stock is down about 41%, and was trading at around $10 per share on Monday.
The S&P 500 ticked up 0.3% in May, while the Dow Jones Industrial Average was down 3.5%. The Nasdaq Composite was up 5.9%.
So what
KeyCorp, the holding company for regional financial institution KeyBank, was still feeling the effects of the high-profile bank failures that occurred in March and April.
For the most part, its downward moves last month seemed to be related to issues within the broader banking industry that soured investor sentiment on most regional banks.
NYSE: KEY
Key Data Points
One negative catalyst occurred on May 11, when the Federal Deposit Insurance Corp. (FDIC) said it would implement a special assessment on 113 of the largest U.S. banks to recover money lost by the Deposit Insurance Fund after the bank failures. The bulk of the assessments, about 95%, will be on banks with more than $50 billion in assets. That group includes KeyCorp, which has $195 billion in assets.
Also on May 11, PacWest said in an SEC filing that it lost 9.5% of its deposits on May 4 and 5 following news reports that it was in talks with potential investors and partners. This negative news contributed to declines in most bank stocks.
KeyCorp also sank at the end of May after the FDIC issued a report saying the U.S. banking system had lost $472 billion in deposits in the first quarter -- 2.5% of its total. That was the largest quarterly drop since the FDIC began tracking this data in 1984.
Now what
These issues impacted regional banks as a whole and were not specific to KeyCorp. Overall, investor sentiment toward regional banks remains wary.
On the first-quarter earnings call, executives lowered the guidance range for KeyCorp's net interest income for 2023 to growth in the range of 1% to 3%. Previously, the bank had guided for growth in the range of 1% to 4%. This dialing back of expectations was due in part to higher deposit costs and a shift in the bank's funding mix. The bank maintained its guidance that deposits would be in the range of flat to down 2% for the year, while loans are expected to rise by 6% to 9%.
KeyCorp's deposits have held up relatively well, and the stock, though it held up better than most of its peers, is extremely cheap, trading below book value and at a price-to-earnings ratio of 5.4. It's a good stock at this valuation, but given the turmoil in the space and the uncertainty about the direction of the broader economy, it is best to remain cautious with regional banks, and wait to see what we learn from their second-quarter reports.
