KeyCorp Confident in $1 Billion Fee Target Despite M&A Slowdown

KeyCorp (KEY) executives said the Cleveland-based bank remains confident it can reach its target of $1 billion in investment banking and direct placement fees, despite a subdued middle-market merger environment. Randy Paine, president of Key Institutional Bank, said announced middle-market mergers and acquisitions declined 11% in 2026 after falling in each of the prior two years. Key's M&A fees nonetheless rose 15% year to date. "I have no worries that we won't achieve it, even in the kind of environment that we're in right now," Paine said. He added that a pickup in M&A or public equity activity would provide upside. Chief Financial Officer Clark Khayat said the bank was not relying on a major increase in deal activity to hit its targets, though a return to more normal activity levels could provide an additional boost.

The comments followed Key's agreement to acquire Atlantic-Pacific Capital, a private capital adviser with about 35 employees. Paine said the deal would add capabilities including continuation vehicles, which private equity firms use when exiting holdings. About 40% of Key's investment banking fees come from private equity-owned companies, he said, and he sees opportunities to cross-sell Atlantic-Pacific's capabilities to clients in private credit and institutional real estate. Paine said integration of Clearwater, a U.K. firm acquired at the beginning of August, is on track. Key had projected Clearwater would add $20 million to $25 million in investment banking fees in 2026 and contributed about $10 million over the two months it owned the firm in the third quarter. Executives said Key will continue evaluating smaller acquisitions, but only those that add capabilities for targeted clients and fit culturally; Khayat said most opportunities reviewed do not meet those criteria.

On banker productivity, Paine said newly hired bankers generally take 12 to 18 months to reach full productivity. Productivity has risen slightly as Key added bankers across its commercial franchise, and he expects recent hires to contribute further. Khayat said average productivity has been flat to up including new hires, and that Key tracks hire cohorts against expectations and prior years, increasing investment where results are strong and pulling back where they are weaker. On artificial intelligence, Paine said the Institutional Bank has 35 use cases being explored or run through its technology team but has not yet seen a major productivity uplift, though he expects some benefit he could not quantify. Khayat said Key is examining broader AI applications in client onboarding, servicing and underwriting.

In real estate and credit, Paine said Key expects slightly lower commercial mortgage banking fees in the fourth quarter as some loans remain on its balance sheet longer, an effect he characterized as not meaningful. Key has about $750 billion in commercial mortgage servicing assets, including roughly $270 billion in special servicing, with active special servicing at about $10 billion and stable. Urban central business district offices remain a trouble spot, while some overbuilt multifamily markets face manageable pressures. Paine said Key both competes with and lends to private credit lenders, and that it has seen a pullback in private credit benefiting its balance-sheet and syndicated lending businesses. He said warehouse-facility reporting shows no significant credit issues and described the industry's challenges as a redemption issue. Asked about slower AI infrastructure spending, Paine said Key's direct data center exposure is less than 1% of loans, while clients in its power business have indirect exposure to the build-out.