KeyCorp fireside chat. We have the Bank of America presentations and dinner, which start at 5:00 P.M. at 100 Federal Street, as I mentioned this morning. It is literally a five-minute walk from the hotel. With that, let me sit down, and we will do our fireside chat with Randy and Clark. Thank you, gentlemen, for joining us for the 45th BAB conference. I know you have been here before, so again, thank you. Everybody knows KeyCorp, headquartered in Cleveland, with almost $200 billion in total assets. It has a very strong commercial banking franchise where they have interwoven over the years the capital markets business into that franchise, which really sets them apart from many of the other regional banks that they compete with. With us today, to my far right, your far left, is their CFO, Clark Khayat. I always mispronounce your last name, so I apologize.
Khayat.
Khayat.
Khayat.
I apologize. That was my Catholic school upbringing. It did not get good phonics. Clark is obviously also, in addition to being the CFO, a member of the Key Executive Leadership Team, Executive Council, and oversees all of the finance operations. To my immediate right is the President of Key Institutional Bank, Randy Paine. Randy Paine has been with Key for a number of years. I think you joined back in 1993. Is that correct?
Yes.
He has been through many years of growth with Key. With that, why do not we kick it off with some questions, and then we will open it up to the floor for some questions as well. Randy, maybe we will start with you, and can you remind the audience, what is the Institutional Bank?
Sure. We have three businesses at Key, really. It is our retail and wealth business, our commercial banking and commercial payments business, and then the Institutional Bank. The Institutional Bank includes our equipment finance business, as well as our entire real estate franchise, which I think is really one of the differentiating aspects of Key, one of those areas where we have a targeted scale, which you will hear us talk about, and then our corporate investment bank. We have eight industry verticals, one being real estate, the other seven being within the corporate investment bank. Obviously, we also do that within real estate. I really think that our size is an advantage. We are big enough to have a really broad suite of capabilities, but small enough to deliver them in a really unique way to our targeted clients.
That would be financial sponsors and certainly corporates, but really a focus on the middle market where we can lead transactions. I think the success that we've built, you can see it in the numbers. We monetize our lending at very, very high rates. That's a function of us delivering the institution in a very seamless way, a very client-focused way, and obviously right in tune with our relationship strategy.
Very good. You've also, in addition to the relationship strategies that you've had over the years Key has done bolt-on acquisitions, and you—
We have.
—announced one just this week, Atlantic-Pacific Capital.
Correct.
And maybe you could share with us, what does the acquisition do for you, and possibly should we expect more boutique investment types of acquisitions?
This is the fourth one that we've done during my tenure leading KeyBanc Capital Markets, first being Pacific Crest Securities about, what, 13 years ago, and then Cain Brothers earlier this year, and I'm sure we'll talk about it, Clearwater UK. But this week we announced that we're going to be acquiring Atlantic-Pacific Capital. Atlantic-Pacific has a 31-year history, a private capital advisor. Most of that history was raising new private equity funds. That'd be private equity, venture, some real assets. And what we've seen, and we've been looking for this type of addition to our capability set for a number of years, as we've seen private equity firms exit their holdings, certainly continuing to do that through traditional sell-side transactions, but also through what are being called and what are characterized as continuation vehicles. And it's now close to 10% of private equity exits.
As we've looked at these businesses and really felt like we could bring that capability to private equity firms that we serve, about 40% of our investment banking fees are from private equity-owned companies. We just needed to find the right one, and we really believe Atlantic-Pacific is the right one. They want to do more in the continuation vehicle side as well, and they need our deep industry expertise to further differentiate. We also believe that beyond private equity, that you're going to see a broader proliferation of these types of exits, certainly within the private credit space, and as you all know, hopefully we've got a big business within the Institutional Bank called Specialty Finance Lending, where we provide warehouse lines as well as ABS execution. And we think that we can leverage APC's capabilities with that client set.
Then in our real estate business, which is obviously full of institutional real estate investors, and the types of funds that might want to utilize these services. So we see a lot of opportunity for I always talk about, Gerard, 1+1 equaling more than two with these transactions, and it has to be not only for us as a buyer, but it has to be also for the new teammates that we're going to bring on through these transactions. You want them to see the opportunity and really be excited about it, and I can tell you they are. I was with the entire APC team Tuesday night, the day that we announced the transaction, and there was a lot of talk about new business being batted around.
That's very good. You touched on it, Clearwater was another bolt-on acquisition.
Correct
You guys completed earlier in the year. How is the integration going relative to your expectations, and where are the biggest opportunities for Clearwater with you folks?
Sure. Clearwater is a little bit bigger firm. APC, about 35 employees. Clearwater approaching 150 across four offices in the U.K. We closed on that transaction at the beginning of August. The integration is just right on track. We're very pleased with how it's progressing. I think we guided that Clearwater would add $20 million-$25 million in investment banking fees to Key here in 2026, captured about $10 million of that through the two months that we owned the business in the third quarter, and we're right on track as it relates to the fourth quarter. More importantly, our middle market customers, they operate globally, and our ability to access buyers, access acquisition targets, we needed to fill that hole. So that transaction is right in keeping with our focus from a middle market and industry standpoint. Clearwater has great overlap with us from an industry standpoint.
We are quite confident that in that case, 1+1 will equal more than two as well. We saw it literally the week that we closed the transaction, where we were invited into opportunities to pitch that we wouldn't have been without Clearwater being owned by Key. Just two weeks ago, we won a large transaction in the metal space that I don't think we would have pitched, even though we had a historical collaboration agreement, because our teams just weren't tight enough to kind of find this is a metals recycling business. It's pretty nichey. Through the integration efforts, they found out that we really are quite knowledgeable and have quite a transaction pedigree in that space. As a result, Clearwater was able to pitch it. We did it obviously with our team jointly, and we won the mandate.
Great. As we've said, you have done a handful of these deals in the past. Are there any on the horizon or spaces that you might want to fill in on the horizon in this investment boutique-y area?
Let me just I'll give you a list, like details. But two is a lot for us. We've done literally two in the previous 13 years. It's not our only growth lever, though. Obviously, we've talked a lot about adding bankers, and we've done that quite successfully, certainly the last few years. We've added teams to broaden our capabilities. That would be renewable energy M&A, ABS team, tax equity syndication for our affordable housing, as well as our renewable energy business. That's just a few examples. So this is just really one of multiple levers that we use to build out capabilities, grow, propel growth in the future. We will continue to look for these good tuck-in acquisitions. There have been quite a few opportunities over the last 24 months. I'm sure there'll be more, given the environment that we're in.
But what we're focused most on is, does it enhance what we can provide our targeted client set, and will that business fit with us culturally? When we find that, we'll try and get something done.
Got it.
I would just say we are not. To Randy's point, we have been doing this now for 14 years or so. We are not four for four.
Right.
We have probably seen almost any deal in this space because people know we are interested, and Randy's filter is quite narrow. When one hits it is probably a winner. But candidly, most of them just do not hit the hurdle.
We look at a lot.
Yep. No, that is good to know. Clark, if you look at the priority of your fee-based businesses, if you step back for a minute, in the third quarter, they grew 12% year-over-year, the fee-based business. How are you thinking about these businesses for Key going forward?
Yeah. I mean, we talk a lot about sort of monetizing our lending or having a differentiated set of fee platforms. This is sort of what makes it work. If you think about our lending book, it is not maybe as standard as every other regional's. We tend to be more investment grade. We tend to be a little bit more focused on people who have capital markets activities or international capabilities or more sophisticated operations, so we can serve them with the c apital markets teams Randy's built, the payments capabilities Ken built. We are making sure we get deposits every time we lend, or certainly as many times as we can. That really makes the lending work, because on a standalone basis, as Chris Gorman were sitting here, he would say on a standalone basis, no loan earns its cost to capital.
You have to do this business to make that work. For us, this is where being a relationship bank shows up. So, we have the capabilities, we find the clients that need them, and we make sure that the team shows up and delivers them.
One proof point to that, if you look at our commercial loan to deposit ratio, it skews very well vis-a-vis our peers. We have about $80 billion in commercial loans and $60 billion in deposits. But even at the institutional level, it is quite good. So, we have $60 billion of that $80 billion in loans and $40 billion in deposits in the Institutional Bank. So, it is not just about the capital markets, that is really important, but it is also about the payment side.
Very good. Key was an early entrant into the capital markets businesses with the acquisition of McDonald Securities way back.
I remember it well.
Okay, in the 1990s. We've seen a lot of attention within your peers on the capital markets business. How can Key keep and build this competitive advantage in this area?
Yeah. It's in some ways very nice to see that, and we certainly have watched it. I, not surprisingly, think that we're doing it quite differently. When we put together KeyBanc Capital Markets in 2002, so over two decades ago, we took the large corporate lending business at Key and the investment banking business at McDonald, which I was a part of, Chris Gorman was a part of, and we literally brought them together. So, our industry groups are full P&Ls, payments, lending, everything that we would do. So, the $3.4 billion of revenue that we'll do in the Institutional Bank, it goes into these industry groups. Our peers, while they have brought these capabilities, in some cases, not broadly, and certainly not as broadly as we have, and some industry expertise, they're still largely going to market geographically, and it just is a different approach.
I think ours is more effective. It is a better client experience. It enables us to take any of the friction away. Just think, if you're geographically oriented, you've got a budget for loans, you don't want to bring in an M&A partner. There are just conflicts that we did away with literally decades ago. I think that's a real differentiator for us. We're not standing still. We, multiple years ago, built out a unitranche lending capability, a $2 billion fund. We've built ABS capabilities. We built tax equity syndication capabilities. We just added private capital advising capabilities. We're constantly adapting to the environment, watching obviously where there's opportunity, and that too is something that we'll continue to do, obviously.
Very good. I'd like to talk a little bit about talent and banker productivity, and Clark, this is for you as much as Randy.
It's never enough. I can tell you that.
There you go. Never enough on the productivity. You continue to invest in frontline talent, of course, and how are those investments progressing within the Institutional Bank, and how should we think about the productivity increases of the new bankers once they come on board? Does that suggest maybe some better market share numbers for you guys as the new bankers get up and running?
Yeah, I'll speak to the Institutional Bank and certainly let Clark give you his thoughts. But we watch productivity very closely, as you would expect, and really generally would say it's a 12, 18-month ramp for bankers as we bring them onto the platform. Some ramp more quickly than that, hopefully more than that don't. But we watch it literally every quarter. We'll sit down with Chris and the leadership team, and certainly Clark and the finance team, and we're going through those metrics and focusing on our existing teammates that we promote into banker roles, and obviously legacy teammates. So, we have a rigorous process around it, Gerard. I've been really pleased that our productivity has actually gone up a bit as we've been hiring bankers and adding bankers across our commercial franchise.
I think that that next wave of growth that you are talking about in terms of productivity increases, that is coming at us, because these hires that we really started within the last few years, they are getting into that maturity phase. I am very optimistic about it, and we have got a lot of eyes on it.
Yeah. One follow-up on the hiring of the investment bankers. Do you find you have more success hiring from the bigger bulge bracket firms or other regional banks in bringing the investment bankers in?
I cannot say it is one or the other. We do hire bankers from much bigger institutions that frankly, oftentimes say, "Hey, I am focused on the middle market, and I just cannot get the product support or the credit support, you name it, to go after that client set.
Yeah.
That is a great tell. But we also have a lot of very productive talent that we bring in from boutiques that generally either provide M&A advice or take companies public. If you really want to serve your clients, we can help you do it in a much broader way.
Right.
So, we really have had success both ways. I would say, though, what is not talked about as much, but something we are very focused on, is that internal development.
We will have an analyst class of 80 analysts this year. We have had our classes growing continuously. I have been leading KeyBanc Capital Markets since 2010, and I can remember, actually, in those early days, because it was on the heels of the financial crisis, we took a couple years where we did not have a class, and it hurt us for many, many years after that.
And we have not done that through any of the recent chop in the market. We have continued with our campus programs, and we will continue to as long as I have a decision or say in that decision, because you have got to be I think we need to have a destination platform for talent. That is what my vision is. That is I know what all of our vision is, and that is not only the ability to attract external talent, but it is also for junior talent to have career opportunities and opportunities to grow over the life of their time at Key. We need to do both those things well.
Yeah. Clark, any color that outside the institutional thing?
Yeah. I think Randy's point on thought process and inspection is right. We are looking at kind of vintages of hires, how are they performing, how are they performing versus expectation versus prior years. I think we watch that pretty closely. I think maybe the most, a nd by the way, we do not get it all right, so in some cases, we lean into
It is an imprecise science.
Yeah. Lean into areas where we are having success and pull back on others to figure out why it is not working as well. I would say pretty consistently, the average productivity has been flat to up, including new bankers.
Right.
To keep that stable while you are adding people who effectively are not very productive in the first six or 12 months means everybody else is doing their job.
Yep. Very good. We will open it up to questions very shortly. But first, you guys talked about this $1 billion in revenues in the investment banking fees and—
Yep
—direct placement fees. I know Clearwater will help, obviously. You already said that in 2026 and 2027. But as we go forward, what kind of environment do you think we need for you guys to reach those levels?
Yeah. I would characterize the current environment, certainly for the middle market and from an M&A standpoint, as not very good. Announced middle market M&A activity is down 11% in 2026, and it was down the last two years. So, it is still not picked up, and I would have not expected that if I was here two or three years ago. But we have been fortunate. Our M&A fees are up 15% year to date, that we have been able to offset a little bit of that headwind, pull some other levers—
Yep
—that I think are so important, add some new capabilities. But as we think about that target, it is a target, it is not a destination.
Right.
We've got tons of headroom across all of our product areas, industry groups. But it's a goal that we put out internally, certainly long before we announced it externally.
Right.
But I have no worries that we won't achieve it, even in the kind of environment that we're in right now. If the M&A market picks up or the public equity market picks up for what I'll call regular way, non-SpaceX types of transactions, that would be upside for us.
Yep. Why don't we open it up to some I saw a couple of Let the gentleman come with the microphone. Why don't we go right here to Mike on your immediate right?
Let's assume the stock market today is right and that the AI trade is going to be much slower and longer and costly than you thought two days ago. How would KeyCorp be impacted directly and indirectly? And use your imagination, in other words, to justify the decline in stocks based on what could happen.
Yeah. Appreciate the question, Mike. Haven't been following the markets real close. I've seen a lot of red on my screen. In terms of directly, how would it impact us? Very little, because we have very little direct data center exposure. It's less than 1% of our loans. There's no doubt that our client base is seeing a lot of activity. The second, third derivative, we absolutely are seeing that. We obviously have a big power business, which is providing the capital to create the electrons to serve that build-out and certainly the other needs of the country. I'm more in the camp that maybe we don't get to $6 trillion of spend on new data centers between 2025 and 2030.
The math I've seen that was only about 25% of that was going to be spent in 2025 and 2026, and we've seen what that has done to the economy, and it's created some pretty robust growth. If it gets extended, I think that's good. I think it's going to be better for our clients. I think it's going to create less of a risk of a big bubble. I think it's going to create less price pressure. I'm fine with it. I don't know what it's going to do to the stock market today or tomorrow, but I don't think that we're not going to need that capacity. The way we look at it, data center capacity is at 99%+ . The stuff that's being built is, by and large, fully contracted.
If you look at data center lease rates since 2020, they've been growing at 9% per year, and they are expected to grow at 9% through 2030. So, I think there's a lot of demand out there, but if it gets slowed down and extended, I'm fine with that.
Another question up here.
Hi. Manan Gosalia, Morgan Stanley. I guess a question on banker productivity, and maybe this is a question for both of you, Clark, also given your role as head of technology. How is AI helping banker productivity, and what actions are you taking there?
Yeah. I would say our approach to AI is you've got what I'll characterize as bottoms-up, no regrets use cases, and then we've got some big initiatives. Maybe I'll let Clark speak to those. But within the Institutional Bank, we have literally 35 AI use cases that we're either exploring, we're putting through our tech team. I mean, it's everywhere. We haven't seen what I'd characterize as any major uplift in productivity yet. Do I think that we will see some? Yes. Can I size it for you sitting here today? No, but I can tell you there is broad-scale usage, and that some of the use cases are quite encouraging. I'm optimistic that we will see productivity lift.
But I also don't think that what we do is going to be take the human element out of it and the trust that needs to be built through humans working together. I'm realistic about that as well.
I think out back there's a question, and then up here.
You want to add to that ?
Oh, I'm sorry. Go ahead, Clark.
Okay. Look, I think the way we're thinking about productivity is right. We have lots of people creating whatever it is, 2% on the margin productivity, which is hard to aggregate, and we're going to let people continue to do that. I think to Randy's point about some bigger areas, what we're trying to do is create sort of flywheel client and banker experiences that take advantage of this technology in a way that isn't pick up the phone and call your client and ask them for this document while you're doing underwriting, for example, right? That is just a sort of manual back and forth process that still happens today. If we can do that, you free up the banker to not be in that process, you free up the team to onboard that client faster, you realize revenue faster, you move on to the next client faster.
It starts to compound in a really meaningful way. We're thinking about that in onboarding and servicing and underwriting, these kind of big, broad platforms that are about creating great, streamlined client experiences, making it easy for the banker so the banker's not caught up in the gears, and then making everything move more quickly. We don't know yet exactly what that looks like, but we think those could be pretty meaningful and unlock for value.
Out back, and then—
Saul Martinez, Piper Sandler.
Yes.
You mentioned the M&A environment as being not very good, and we've seen a lot of large strategic deals, but sponsor-backed activity has been pretty muted. I'm curious what your take on that is. Are you optimistic that that changes and we see more monetizations and liquidity return to LPs? How does the political environment affect that in your view? Is there a window now to do stuff before the 2028 elections, or is that the wrong way to think about it?
Yeah. I probably wouldn't think about it in the context for the middle market, the election. But I do think more stability from a tariff standpoint, from a rate standpoint, from an inflation standpoint would certainly be, I don't want to know if unlock is too strong a word, but would certainly help. The one thing to keep in mind, and we've been talking about private equity monetizing these investments for quite some time. There's a limit to the life of these funds that these investments are in. So, at some point, they have to be sold. So, we will get to that point, and I do think the combination of that along with some more just what I'll call calm waters will produce more activity.
But on our side, we're looking for not any huge pickup in that activity to hit the numbers we're talking about. I think there's upside if we get normalization there. I think at this point, we're sort of assuming it kind of keeps going at its current course and speed.
Got it. Scott?
Thanks. Scott Siefers, TD Cowen. I guess, one of the, I guess, advantages of your guys' business model has always been the optionality, right? You can either do traditional investment banking or you can put stuff on the balance sheet. I'd imagine in kind of choppier waters like we've got now, that optionality kind of kicks in. Is that the kind of stuff you're having different conversations now than, say, 90 or 180 days ago? From your standpoint internally, how does your risk appetite change when relatively more stuff than you might have anticipated does go on the balance sheet or could? How do the discussions overall end up changing?
Yeah. Thanks for the question, Scott. I would say nothing has changed materially. We certainly saw rates move up, not immaterially, at the end of the third quarter and beginning of this quarter, but they've come down quite rapidly. I do think we'll see a little bit less commercial mortgage banking fee revenue in the fourth quarter, which will probably result in some loans staying on our balance sheet a little bit longer, but it's not meaningful given the magnitude of those changes and the overall context of the environment. To the extent that we got into a meaningful rate escalation environment, absolutely, we'd see things. Just as we performed in the last big rate move, we feel really good about the quality of the underlying real estate, about the sponsors, about how those deals have been structured.
You will have to do some work around the edges, and that is why we work with sponsors that we know have liquidity. We feel really good about how we have underwritten that portfolio. That is where I would look first.
Yeah, and I mean, the comment I would make from my seat is that business model, I think, has been very enduring for us, right? We are trying to do the right thing for the client in the moment, not hit a capital markets number or hit a lending number. We just want to do the right thing. I think because of that, a lot of that capital markets revenue is repeat client business, a lot of that lending is repeat business, and most of it is connected. We can talk about a path to $1 billion in capital markets, but the reality is that is a huge number of revenue with the client base that is doing those capital markets deals because it is all a bigger relationship. If I look at Randy's business today, just north of a third of his revenue is credit revenue.
When I think about the return profile of that, we are lending money using the balance sheet, using capital, but we are getting paid two-thirds in fees.
As a follow-up question on commercial real estate, you folks are in a unique position because there is such a large mortgage servicer.
Yep.
You can see into. With the special servicing, you can see into the—
Correct
—pipeline. What are you guys seeing there in terms of special servicing? Is the product shifting from commercial office to multifamily or another product line?
Yeah.
What is the color?
Yeah. We are the second-largest commercial mortgage servicer, bank-owned commercial mortgage servicer in the U.S. We have about $750 billion of AUM. Great business for us. Countercyclical, drives about $10 billion of low-cost deposits. Of that $750 billion, we are probably $270 billion of special servicing within that portfolio. It has been pretty stable, certainly this year.
Yep.
And to my earlier comments to Scott, the chop that we saw from a rate standpoint, again, if that were to continue, it's countercyclical, we'd see those numbers spike up. Our active special servicing is just right about $10 billion. That too has also been stable. And the hotspots continue to be urban CBD office. There are pockets of multifamily that are a bit troubled, areas that were overbuilt, but very manageable. It's pretty much the same story you've been hearing.
Yep. And when you see properties come into the special servicing, is it because there's very large vacancy rates and the owners just can't afford to pay the mortgage, or is it a refinancing problem where they got in at much lower rates five years ago?
Yeah, the trip would be a default.
Okay.
Okay. So it'd be a payment default, a maturity default. You can also have a trip as a result of the maintenance of the property. There are requirements, as you might imagine, that the lenders have, if they step out of line.
Got it. Maybe we could touch on, when you look at private credit, it's grown quite dramatically. How competitive is it for your middle markets business, and can you partner with any of these private credit guys?
Yeah. We're frenemies with private credit. As you heard me say earlier, we've got a big business that private credit is our client. We compete with private credit in the syndicated loan market, certainly with sponsor M&A activity. We have seen a pullback in private credit, not surprisingly, which is good for our on-balance sheet and syndicated lending businesses. We also have a very unique view into private credit because when we lend in those warehouse facilities, it's an asset-based loan, and the collateral are the underlying loans. And we get reporting on the performance of those borrowers that have taken out those loans. And what I can tell you is that we really did not see and haven't seen any kind of credit issues. It really has been a redemption issue for the industry. But that's the nice thing about our model. We're able to pivot.
I don't see any credit cracks at this point.
Great. We're running out of time, so maybe as we wrap up here for both you and Clark, what do you think investors underappreciate the most about the Institutional Bank and its ability to contribute to Key's growth and returns over the years?
Oh, gosh.
Aside from the top talent, of course. I know that's underappreciated.
No, I think that people really I don't think that investors value our fee revenue stream the way that I think that they should. I've been leading KeyBanc Capital Markets since 2010, and our investment banking fees have compounded at 7%+ over those 16 years. I think most investors would take that revenue stream. I think that would be the most underappreciated. When you put the payment side to it, remember $40 billion of deposits in the Institutional Bank up against our $60 billion in loans, that's a pretty powerful combination.
Clark, something from you?
Yeah. Look, I think that's right. I think the consistency of the relationship proposition in particular. I mean, the businesses that we've had since I've been at Key that were indirect, we're not in anymore. We really have
Right
basically doubled down on we're going to do business with clients that we pick that value what we have to offer. And when we do that, I think we do it extremely well, and we're just trying to make that the sort of everyday activity. And I think that's starting to show up in the performance.
Got it. And with that, we've run out of time. Please join me in a round of applause for thanking Clark and Randy. And we'll see you over at 100 Federal Street. Thank you.