KeyCorp (NYSE:KEY) was lifted to Neutral from Underweight at JPMorgan on Wednesday, with analysts raising the price target to $13 from $11.50 per share.
They told investors that with the company having more runway to comply with capital proposals, there is less risk of a dividend cut.
"With the company having guided down net interest income several times over the past few quarters, when KEY reported 2Q23 earnings it appeared that the NII miss risk story had for the most part played out," the analysts wrote. "In fact, with the pace of deposit cost increases as well as non-interest bearing deposit outflows likely to slow down from 2Q23, we now see Key's NII as reaching a trough in the next one to two quarters."
"The new capital rules for banks with $100 billion or more in assets will likely require them to include AOCI in regulatory capital calculations, said the JPMorgan analysts.
As a result of the new rules, JPMorgan's view was that trimming dividends would be a more likely action to accelerate the pace of capital accretion organically.
However, they noted that "while the devil will ultimately be in the details of final capital rules being released," the slow phase-in to comply with the proposed rules should provide KEY with "enough runway to manage its capital to required levels with less much risk of a dividend cut over the near-term."
"From this juncture, we see a more balanced risk/reward," the analysts concluded.