In the crowded, publicly traded banking space of investing, what's one to make of the investment appeal of KeyCorp (NYSE:KEY)? The Cleveland, Ohio-based bank meets a number of the characteristics for Foolish investing, including a leading brand in its primary markets, which include Ohio, New York, Washington, Colorado, and a handful of other states. It's also quite profitable, as are most well-run banks that earn a spread between the money they take in the form of deposits and loan out to businesses and individuals.
KeyCorp also runs a successful fee-based business that includes investment management and corporate and investment banking segments, just to name a few. In other words, it's not the largest bank out there, but it possesses a decent amount of business and geographic diversification. Recently released fourth-quarter and year-end results speak to KeyCorps' solid fundamentals.
However, I find it difficult to consider investing in KeyCorp. As I mentioned, the banking industry is very crowded, with large players including Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE:JPM), US Bancorp (NYSE:USB), and more regional firms such as Huntington Bancshares (NASDAQ:HBAN) and National City Corp (NYSE:NCC). And most trade with low-double-digit earnings multiples and yield in the neighborhood of 4%.
I think KeyCorp is stuck in the middle. The larger players have even higher brand awareness, are able to use their clout to drive efficiencies in a business that benefits from economies of scale, and can also throw their weight around by acquiring market share. As a result, they've been able to grow faster than KeyCorp. The smaller players I mentioned above aren't growing that fast, either, but in general, smaller banks can grow rapidly because of lower market penetration. Even behemoth Wells Fargo has found a way to consistently grow in the double digits year in, year out.
KeyCorp has only managed to grow total net interest and non-interest revenue a couple of percent annually over the past five years. And unless it starts buying market share, few analysts expect growth to pick up soon. Sure, the dividend and valuation are appealing, but that's the case for most banks. Things can always change, but for the time being, I'll refrain from depositing my funds into a stock holding of KeyCorp.
For related Foolishness:
National City, US Bancorp, and JPMorgan Chase are Income Investor recommendations.
Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.
