BY KEVIN KINGSBURY
KeyCorp, which disclosed plans to record big credit losses in the sec ond quarter, said it will raise some $1.5 billion from the sale of stock while slashing its dividend in half following an adverse U.S. federal ruling in a dispute over the tax treatment of leveraged leases.
Because of that decision-dis closed two weeks ago-the Cleve land-based regional bank will take a charge of between $1.1 billion and $1.2 billion in the current quarter.
Midday, KeyCorp shares were down 18% to $12.95 in New York Stock Exchange composite trading.
Like many banks, KeyCorp strayed from its local roots into fast-growing regions as theU.S. real-estate bubble expanded. Now, though, residential and commer cial real-estate loans in foreclosure- racked states such as California and Florida are a b讼part of Key- Corp's troubles.
The dividend cut to a 75-cent an- nual rate will save KeyCorp $200 million a year. It wifi end a streak of 43 consecutiveyears of dividend in- creases.
KeyCorp was one of the few ma- jor U.S. regional banks that hadn't yet cut its dividend or raised capi tal from outside investors. The corn- pany said last month its "capital p0- sition provides sufficient flexibil ity" to allow it to keep paying divi dends and possibly repurchase shares.
The capital raising is intended to shore up KeyCorp's balance sheet in the wake of the accounting charges. If the lease case hadn't gone against KeyCorp, "we proba bly would not have considered the capital-raising actions," said Chief Executive Henry Meyer.
"But the ruling forced our hand and prompted the decision to build on our strength with a capital raise, one that we think not only is pru dent in light of the economic cli- mate, but also is an appropriate move as we look to the future of the enterprise."
-David Enrich and Chad Clinton
contributed to this article.
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