Citigroup Maintains KeyCorp Rating Despite Better Than Expected 3Q EPS

KeyCorp (NYSE: KEY) reported better than expected 3Q EPS mostly driven by a significant loan loss reserve release, but also nice PTPP trends led by stronger than expected net interest revenue helped by CD repricing and an increase in securities, slightly better fees with solid I-banking and letter of credit fees offsetting Reg E impact, and good expense control, Citigroup reports.

“We are raising our 2010 est. for the beat and better than expected credit and also raising our 2011 est. by $0.15 to $0.55 and our 2012 est. by $0.15 to $0.75 to reflect improving credit quality,” Citigroup writes. “In-line with higher est. raising target to $9 from $8. On plus side, we do not see a lot of downside to current consensus estimates and the stock is trading at a slight discount to its tangible book value of $8.50.”

However, Citigroup said that it continues to see normalized ROTE in the 12% range, “which we believe should limit the premium the market will pay on tangible book value (currently $8.50) and thus maintain our Hold rating.”

KeyCorp closed Monday at $8.08.