DBRS Confirms KeyBank N.A. at A (high), KeyCorp at “A” - Trends Stable

DBRS has today confirmed the ratings of KeyCorp (KeyCorp or the Company) and related entities, including the Company’s Issuer & Senior Debt at “A” and Short-Term Instruments at A (low). The rating actions followed a detailed review by DBRS of the Company’s operating results and financial fundamentals. All trends are Stable.

DBRS notes that KeyCorp continues to make progress on its strategic priorities of fine-tuning its business model, sustaining profitable revenue growth in its commercial businesses and maintaining a strong credit culture while tightly controlling expenses. At the same time, the Company has addressed its anti-money laundering and other compliance controls as evidenced by the June 2007 release from the OCC consent order and the Federal Reserve Bank of Cleveland Memorandum of Understanding. Additionally, KeyCorp is on track to complete the Union State Bank acquisition within the next two quarters.

As with most of the industry, the Company’s asset quality has deteriorated over the past few quarters. Disruption in the housing market has negatively impacted KeyCorp’s residential housing construction portfolio, particularly in Florida and California. DBRS believes that additional future loss content is embedded in the Company’s $3.7 billion residential construction portfolio, the $1.6 billion in commercial mortgage loans held for sale and the $5.3 billion in second-lien home equity loans. In DBRS’s opinion, however, KeyCorp has ample loan loss reserves and earnings power to absorb said losses. The Company recorded $53 million in net losses from loan sales and write-downs in Q3 2007, primarily reflecting the markdown of value on KeyCorp’s pipeline of commercial real estate placements. DBRS expects incremental rather than outsized further markdowns of this type as the loans are sold and new production is priced to current market levels.

KeyCorp’s loan portfolio realignment through proactive reductions in non-core assets (such as sub-prime and prime auto loans and leases, and brokered home equity loans) has certainly benefited the Company amidst the deteriorating credit environment. Early in 2007, KeyCorp completed the sale of both its McDonald Investments’ branch network and its Champion Mortgage (Champion) subsidiary following the late 2006 sale of the $2.5 billion Champion loan portfolio. DBRS notes that KeyCorp management’s early exit from Champion with a goodwill write-down loss and the sale of its assets was a prudent and well-timed decision. Meanwhile, the Company continues to make small acquisitions to build out the product mix. Most recently, in October 2007, KeyCorp completed the acquisition of Tuition Management Systems, Inc. which provides outsourced tuition and payments services to more than 700 educational institutions.

KeyCorp’s ratings are supported by a diversified community banking-focused franchise, stable and recurrent earnings and profitability from a more focused business strategy and a conservative approach to risk. DBRS believes that further improvement in profitability is largely dependent on achieving higher operating efficiency and deepening client relationships. The Company’s operating efficiency still lags the median for its peer group.

The ratings also consider KeyCorp’s below-peer profitability, relatively weak organic loan and deposit growth and managing through the severe real estate downturn. The holding company’s stand-alone risk profile is sound: double-leverage is modest and unencumbered liquidity to meet all operating expenses and debt service obligations is ample without taking into account dividend income from the regulated bank subsidiary.

KeyCorp, a bank-based financial services company headquartered in Cleveland, Ohio, reported $97 billion in balance sheet assets at September 30, 2007.

Note:
All figures are in U.S. dollars unless otherwise noted.