Elavon, a part of U.S. Bancorp (USB) said on Tuesday that it has extended its joint venture agreement with KeyCorp (KEY) for the latter’s merchant referral business for another three years.
The leading global card acquirer, Elavon, markets its merchant processing services through KeyBank to business customers in 21 geographic districts straddling across a 13-state network of almost 1,000 commercial office and retail branch locations.
The extension of the agreement allows KeyBank to continue offering white-labeled merchant services supported by Elavon, which is solely dedicated to the payments industry. Elavon’s entire, robust solutions offerings are available to KeyBank merchants, from credit and debit processing to Dynamic Currency Conversion, Electronic Check, Gift Card, professional services and free online reporting.
As a strong leader in regional banking, KeyCorp provides exceptional value and innovation to Elavon’s customers, resulting in strong portfolio performance for the global card acquirer.
Weakening credit quality, net interest margin contraction and rating downgrades are major negatives for KeyCorp at this point, but the company is in the process of reducing its exposure to the home builders segment of its CRE business given the negative outlook for that segment.
During the last few quarters, KeyCorp’s total residential property exposure in CRE, including loans held for sale has reduced gradually. Also, the company has no subprime mortgage portfolio, credit card portfolio, or consumer auto loan portfolio.
Though the company will benefit from its initiatives to exit the risky and unprofitable businesses, we expect elevated provision requirements and a weak net interest to put significant pressure on profitability. As such, shares of KeyCorp carry an Underperform recommendation from us.
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