KeyCorp Sued for Downplaying Liquidity Issues Amid SVB Collapse

KeyCorp misled investors about subsidiary KeyBank’s liquidity for more than three years, culminating in the stock’s worst selloff since the 2008 financial crisis, a shareholder suit says.

After KeyBank downwardly revised 2023 projections for net interest income, its share price began to decline, the complaint filed in US District Court for the Northern District of Ohio says. The selloff then accelerated as the collapse of Silicon Valley Bank intensified liquidity concerns across the banking sector.

The bank attributed the lower projection for net interest income to deposit beta and funding costs, revising the revenue guidance on March 6 from a 6% to 9% range down to just 1% to 4%. KeyCorp told investors that marginal funding costs were increasing with rising market interest rates, and were expected to weigh on net interest income, the complaint says.

“[KeyCorp] has repeatedly assured investors that its strong core deposit base, in conjunction other funds, supports the company’s liquidity risk management strategy, and that the company’s liquid asset portfolio […] exceeds the estimated amount needed to manage through an adverse liquidity event,” the complaint says.

After news of this downward revision, KeyCorp’s stock fell 3.3% the following day.

Then on March 13, following the collapse of Silvergate Bank, Silicon Valley Bank, and Signature Bank, KeyCorp stock was downgraded by Odeon Capital Group LLC and its price target was cut to $17 from $20 at BofA Global Research. The share price fell another 27% that day, its biggest drop since 2008, according to data compiled by Bloomberg.

Source: Bloomberg

After KeyCorp CEO Christopher Gorman and Chief Financial Officer Clark Khayat made remarks at a conference on June 12 regarding the net interest income and higher interest rates on deposits, as well as the higher capital and liquidity requirements regulators were likely to impose on banks like KeyBank, the stock price fell another 4.3%, closing at $10.22 per share, the complaint says.

Shareholder Menachem Gurevitch seeks to establish a class with all other investors who bought KeyCorp stock between Feb. 27, 2020 and June 9, 2023. He alleges that the company and its executives violated the Securities Exchange Act and seeks to recover damages as well as legal fees, according to the complaint.

A KeyCorp spokeswoman declined to comment.

Dittmer, Wagoner & Steele LLC and Pomerantz LLP represent the plaintiff and the proposed class.

The case is Gurevitch v. KeyCorp, N.D. Ohio, No. 1:23-cv-01520, complaint filed 8/4/23