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KeyCorp (KEY) Financial Misrepresentation Case
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- KeyCorp disclosed during MS Conf, that its financials will be softer than anticipated.
- $KEY fell 4.31% & lost $430M of market cap, damaging shareholders.
- Investors suspect Key of downplaying concerns with its liquidity while overstating the effectiveness of its liquidity strategy.
On June 12, 2023, at the Morgan Stanley Conference, KeyCorp’s CFO Clark H. I. Khayat disclosed that the Company anticipated Q2 2023 NII to be softer than earlier expected, “based on funding mix and deposit cost pressures.”
At the same conference, Key’s Chairman and CEO Christopher M. Gorman disclosed that clients are demanding higher interest rates on their deposits and that banks of Key’s size are likely facing higher capital and liquidity requirements by regulators.
On this news, $KEY fell 4.31% and lost $430 million of its market capitalization, damaging investors.
- On March 6, 2023, Key disclosed that it had downwardly revised its FY 2023 guidance for NII, stating that it expects FY 2023 NII to rise by 1% to 4% compared to FY 2022, representing a significant reduction from the Company’s prior guidance that FY 2023 NII would rise 6% to 9% compared to FY 2022. The Company attributed this negatively revised guidance to “Deposit Beta and Funding Costs”, explaining that “marginal funding costs are increasing with rising market interest rates, and are expected to weigh on NII.”
- On March 13, 2023, following the collapse of Silvergate Bank on March 8, 2023, Silicon Valley Bank on March 10, 2023, and Signature Bank on March 12, 2023, investors grew increasingly concerned about Key’s own liquidity. That same day, Odeon Capital downgraded the Company’s stock to hold from buy and BofA Global Research cut its price target on the Company’s stock to $17 from $20.
Taking all representations and consequent results into account, Investors have reasons to suspect that Key misled shareholders and downplayed concerns with its liquidity while overstating the effectiveness of its long-term liquidity strategy.
Failure to Disclose,
Shock Event Date
12 June 2023
04 August 2023
Hon. Donald C. Nugent