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Company: KeyCorp (KEY)
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  Accounting charges hit Key earnings

June 11,2008

The Ohio bank announced that it will take a Q2 after-tax accounting charge to earnings and capital in the range of $1.1-1.2 billion for the leveraged-lease tax litigation and all of its other contested leveraged-lease transactions. This action is in response to a previously announced ruling by a federal court in a dispute over tax treatment of a segment of its leveraged-lease portfolio.

Raising Dollars to Pay for the Charges

To accommodate an accounting charge of this extent, the Board approved transactions that will allow KeyCorp to raise approximately $1.5 billion of additional equity capital, consisting of common shares and non-cumulative perpetual convertible preferred stock.

And Cutting the Dividend

the company will cut its annual dividend by 50% to $0.75, reversing its record of raising dividends for 43 consecutive years.

This court loss is the latest setback for KeyCorp – the bank has already suffered from bad loans. It expects to record roughly $500 million of net loan charge-offs in the second quarter, which is a fourfold increase over the first quarter.

This charge-off increase is due to KeyCorp’s exposure to education loans and residential home builder portfolios.

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