KeyCorp can rally nearly 70% as investors overlook a key metric, Citi says


Citi thinks KeyCorp ‘s strength may be overlooked by investors who aren’t focusing on what could be a better way to gauge a bank’s health than by looking at the share of uninsured deposits. Analyst Keith Horowitz upgraded the stock to buy from neutral. His price target of $20 implies the stock has an upside of 68.6% from where it closed Friday. Horowitz said bank stocks could face challenges due to higher interest rates or be at risk of bank runs. But KeyCorp could benefit from asset repricing and is considered a strong bank when looking at the average size of deposits. “KEY made some mistakes, but they represent near-term headwinds and we found they have the largest benefit from repricing of fixed rate assets which will benefit 2024 and 2025 earnings,” he said in a Monday note to clients. The stock surged 7.2% before the bell. KeyCorp shares have dropped nearly 32% since the start of the year as investors pulled away from bank stocks amid the industry crisis. Investors have been closely following banks’ shares of uninsured deposits, meaning those over $250,000, after the closure of Silicon Valley Bank prompted concerns that other banks could be subject to a bank run next. Horowitz said that looking at the percentage of uninsured deposits can be a poor way to identify bad business models, especially for small and medium sized banks as all uninsured deposits are not the same. A large share of uninsured deposits can actually be among the most valuable to a bank, he said, because they are core operating commercial accounts. Instead, he said investors should look at the average account size for uninsured deposits because it shows a stark contrast in larger regionals compared with Silicon Valley. This metric shows a stark contrast in the large regional banks Citi covers, he said. While Silicon Valley’s average account size of those with more than $250,000 and excluding individual retirement accounts was nearly $4.2 million, KeyCorp’s was closer to $1.5 million. In other words, KeyCorp’s average uninsured deposits represent a much smaller risk to the bank than those at Silicon Valley Bank. Silicon Valley Bank and Signature Bank, the two that were shut down, were the only ones on Citi’s list to have an average account size of accounts over $250,000 at more than $1.75 million. Horowitz was also bullish on M & T Bank , upgrading the stock to buy from neutral for the same reason. His $155 price target implies the stock could rally 34.9% from where it closed Friday. — CNBC’s Michael Bloom contributed to this report.

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