KeyBank departure adds to analyst concerns

CLEVELAND – The announcement by KeyCorp (NYSE: KEY) that it will exit the retail and commercial marine and RV business conducted through Key Recreation Lending has analysts concerned about the implications on the marine industry.

While Key’s exposure in the marine industry is more concentrated in the retail-lending segment, the company’s departure follows other banks that have withdrawn from marine lending, such as GE Money, Wachovia and Citizens Bank.

“This is a strategic decision, consistent with our commitment to allocate our capital to Key businesses with higher risk-adjusted returns and to strengthen Key’s position as we move through the current credit cycle,” said Grant Skeens, president and CEO of Key Recreation Lending. “We intend to work closely with our dealers over the coming weeks to ensure a smooth transition.”

“This news adds to our concerns over tightening credit in the RV/Marine space,” wrote RBC Capital Markets analyst Edward M. Aaron in a report filed yesterday afternoon. “The remaining lenders on the retail side continue to pull back by reducing approval and advance rates and eliminating automatic approval practices. Credit availability seems to be migrating toward regional, as opposed to national sources.

“We remain very concerned about the supply/demand imbalance in both industries.”

While honoring existing retail loan commitments, Key Recreation Lending retail, or consumer loans sold through dealers, will cease taking applications for new retail loans on October 27, 2008.  The company says it will continue servicing the existing loans in its portfolio and that it will be working with its marine and RV commercial floor plan dealers to arrange for an orderly transition of their loans to another lender consistent with their agreements with Key.

Key says it will continue to offer retail marine and RV loans directly to consumers through its 13-state branch network.

Key says that this decision is consistent with its strategy focusing on its core relationship businesses, and follows similar actions in other lending categories over recent years.

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