KeyCorp CEO Says More Bank M&A Is Likely With Approvals Sped Up

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Watch KeyCorp CEO Says More Bank M&A Is Likely With Approvals Sped Up - Bloomberg on Dailymotion

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00:00What is it with a higher banking right now? Everyone seems to be focused on that in the

00:03regional bank space. What's it all about? Well, it's interesting. You know, there's been a dearth

00:07of transactions for many years, and then all of a sudden there's been several. And I think there's

00:12a few reasons for that. I think, one, it used to take so long to get these deals approved

00:17that I think people were hesitant to do it. And now what we're seeing is these deals are getting

00:21approved in like four months, which I think after being a dearth of activity, I think you're going

00:25to see probably more consolidation in our industry. After all, there's 4,400 market

00:31participants. Lisa, we saw this in the previous administration. There would be deals that would

00:34cross. And you and I would both turn to Anne-Marie, even if the deal made sense, never mind how long

00:38is this going to take, is it even going to happen? What is even Michael Kors? What was it? Michael

00:43Kors? Not in the industry. Entry-level luxury. Yeah, yeah. Affordable luxury. Whatever that means. I mean,

00:48there was a real question of what's going to get across. So there's a question now of whether these

00:53are deals that have been pent up or whether these are deals that need to happen for efficiencies of

00:57scale and to compete with the big dogs, right? Do you need to actually have this consolidation?

01:01Christy, you feel like you need to make this happen. You need to participate.

01:04No, we really don't. We have a great path for organic growth, which creates a ton of value.

01:10And so we're not really focused on acquisitions. We're not really focused on growing scale

01:15that way. The scale question is an interesting one. I said there were 4,400 market participants.

01:21There's only, you know, those that are over $100 billion, there's only 30 of us. And so you have

01:29this strange market structure where you have all these market participants, but you do have a lot

01:34of consolidation at the top. The four biggest lenders have probably 25% of the assets if you

01:40look, or 50% of the assets if you look on the top 25 banks. So we feel like, you know, our strategy is

01:46to go out there and we always talk about targeted scale, knowing where we want to grow our business,

01:50where we win, how we win, why we win. And so our strategy is really one of organic growth.

01:56So where are you winning? How are you winning? And why are you winning right now?

01:58Sure. So we're focused on a couple of things. We have seven industry verticals and where we're

02:04focused as middle market. We have this integrated corporate and investment bank focused on the

02:08middle market. So where we win is in those seven industry verticals where we spend all of our time

02:13and where we frankly deploy all of our capital. We research these companies. That's where we win

02:19and we win consistently. We're talking about M&A in the banking sector, but there's been a huge wave

02:24of M&A more broadly throughout the sector, in particular middle market. And I wonder what do

02:28you see as behind that? Is this an endorsement of credit markets, capital markets being wide open

02:33and saying, please go for it and we'll finance it? Or is this out of necessity that in order to grapple

02:38with tariffs, in order to grapple with policy uncertainty, in order to grapple with inflation,

02:42they need to be bigger. They need to have efficiencies of scale.

02:45I think it's all those things. And I think, you know, you've seen a lot of large deals announced

02:50just recently. The middle market is just picking up steam and the private equity firms are sitting

02:55on about a trillion dollars of dry powder. There haven't been a lot of exits. There's about three

03:01or four trillion of those probably in the backlog. And so all of a sudden, based on tariffs,

03:06based on the need to get larger, based on the need for liquidity of many of the holders of

03:11these middle market companies, we see our backlogs are at record levels right now. So I think the

03:16middle market is really going to start to, you'll see a lot of announcements.

03:20How much of that is predicated on the idea that the Fed's going to be cutting rates further and that

03:23the Fed already has been reducing those benchmark interest expenses?

03:27Yeah, I don't think, Lisa, I don't think that's what drives it. I think when the forward showed that

03:32there'd be four cuts or six cuts or seven cuts, I think that stymied people because why not wait?

03:38But I think most everyone, it's kind of settled in, kind of a four percent, 10-year, I think that you

03:44can transact, you know, consistently there. I don't think the Fed cutting another once or twice

03:49is going to make any difference.

03:51When it comes to bank consolidation, we're sitting here on the morning after a massive election where

03:55the margins for Democratic winners were very big. Are you concerned that all of this consolidation,

04:01deregulation, is just going to change hands in three years' time?

04:05I hope not. I think from a regulatory perspective, it's not a healthy environment to have the pendulum

04:10swinging back and forth. You know, when you're running these businesses, what you want is you

04:15don't want the politicization of regulation. What you want is consistent regulation, particularly in

04:20banking around safety and soundness. And safety and soundness really consists of three things.

04:25It's liquidity, capital and earnings. And I think that's where the regulators are. So I think

04:30it'll be consistent going forward.

04:31Is it fair to say that hope is not a strategy and there's a three-year window now to get it done if

04:35you need to?

04:36I don't look at it that there's a narrow window. I think, you know, we're playing the long game.

04:41I think you have to, I think, you know, you have to think way ahead. You have to think five and

04:4610 years ahead. And I don't think trying to jam something in some kind of window that may or may not

04:51exist, I don't think that's a good strategy.

04:54We wanted to spend some time with you as well, tracking credit quality. We spent the last 40

04:57minutes or so talking about it. What are you seeing with loans at the moment, non-performing

05:01loans, net charge-offs? How are things developing?

05:03Our credit book is in really good shape. If you look at any metrics, delinquencies,

05:09criticized, classified. If you look at our consumers, our consumers have more money in

05:14their accounts today than they did pre-pandemic. Hard to believe. And now we have, we have a super

05:20prime book, but we're not seeing any cracks in the credit cycle.

05:25Well, that's what I wanted to get to, Chris. Does that tell me more about the discipline of

05:27KeyCorp? Or does it tell me something about the broader economy?

05:30Well, I'd like to think that we are a very disciplined lender. I mean, we've always thought,

05:35you know, we don't go out and look for assets per se. We go out and we target certain customers.

05:41We bring them into the bank. And to the extent we can help them with our balance sheet,

05:44we do. But we're not out there just trying to grow assets. I think we're very disciplined,

05:49but I also think the economy is in good shape. My personal view is that the growth of the economy

05:54is probably accelerating.

05:56Does that include acceleration in hiring early next year? We've talked about how a lot of companies

06:01have put on hold some of their investment plans and their hiring plans to try to get more policy

06:06certainty. Do you see that coming to the fore in the first quarter? And then we'll see that

06:10re-acceleration that you're talking about.

06:11I think it depends on the industry. We, for example, have been very public. We think we've

06:16got these unique platforms. We're trying to grow our frontline folks by 10% this year. We'll

06:21continue to be in the market recruiting next year. And I do think, you know, people do find

06:26efficiencies, though. I think one of the things that, you know, you really learn during the

06:31pandemic is that people can get pretty efficient pretty quickly. And so I'm not sure there's,

06:36I think the labor market, my view of the labor market is, I don't think it's completely rolling

06:40over. But Lisa, I think it's going to be relatively flat. You know, the Fed's going to have a decision

06:46to make. I think at some point, you know, do they focus on the labor market or do they focus on an

06:50economy that might be accelerating?

06:52I'm so pleased you've gone there. And Lisa's right to bring it up. We hope we see the employment

06:56alongside the growth. But there is a question mark over that. We're trying to work out what's

06:59holding it back. So you talk about re-acceleration, but you're not leaning into hiring aggressively.

07:04And we've heard that from others, too. Is it technology and technological advancements that

07:08give you pause at the moment to wait to see how things develop? What is it?

07:11Well, I think people just get more and more and more efficient. And I think people realize they

07:16can do more with less. We actually are hiring, particularly, as I mentioned, our frontline folks.

07:22But I think it's possible to have a growing economy and a relatively flat labor market. And,

07:30you know, if you think about technology, if you think about people getting just better at really

07:36processing their business, if you think about businesses getting more focused, doing fewer

07:40things better. So I think there's a lot at play.

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