KeyCorp’s woes and the kitchen sink

If you haven’t figured it out just yet, the second quarter earnings about to be reported by more traditional banks and Wall Street’s i-banks isn’t exactly shaping up to be a pretty one. The latest case in point are woes at Cleveland-based regional bank KeyCorp, which shook up the financial headlines this week with news that it would raise $1.5 billion in capital and cut its dividend. What’s amusing to almost no end is how ongoing financial woes continually lead analysts to the so-called “kitchen sink” analogy:

The Cleveland-based regional bank’s troubles are an ominous sign for second-quarter results due next month. “It’s going to be a disaster,” said Jefferson Harralson, a bank analyst at Keefe, Bruyette and Woods in Atlanta. “It’s going to be a big kitchen-sink quarter, but the issue is: Is it the first of many?”

For many financials, we’ve been hearing from analysts that each quarter is the proverbial kitchen sink. For Wall Street’s i-banks, that speculation was rampant in Q3 of last year. Then Q4. And again in Q1 of 2008. Each quarter the write-offs somehow seem to get bigger. The fact that the same analogy is now being applied to regional banks can’t bode well for the near-term future, in our estimation. And are we the only ones that seem to recall KeyCorp rumored to be among suitors for fellow Ohio-based bank National City Corp., which is wrapped up with its regulators? Just imagine how great that sort of marriage would have been. Note: None of the staff contributing to this report held positions in National City or KeyCorp, and they’re pretty glad they don’t.

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