KeyBank 2006 Annual Report Download - page 33

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33
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
In 2005, the growth in noninterest income resulted from increases of $60
million in net gains from loan securitizations and sales, $23 million in
letter of credit and loan fees, $16 million in loan securitization servicing
fees, $12 million in income from investment banking and capital
markets activities, $12 million in net gains from principal investing and
$11 million in electronic banking fees. In addition, “miscellaneous
income” rose by $48 million, due largely to higher net gains on the
residual values of leased vehicles and equipment sold, and growth in
various service charges. These increases were offset in part by a $27
million decline in service charges on deposit accounts and a $22 million
decrease in income from trust and investment services.
The following discussion explains the composition of certain elements
of Key’s noninterest income and the factors that caused those elements
to change.
Trust and investment services income. Trust and investment services is
Key’s largest source of noninterest income. The primary components of
revenue generated by these services are shown in Figure 9.
FIGURE 9. TRUST AND INVESTMENT SERVICES INCOME
Year ended December 31, Change 2006 vs 2005
dollars in millions 2006 2005 2004 Amount Percent
Brokerage commissions and fee income $235 $247 $265 $(12) (4.9)%
Personal asset management and custody fees 156 153 156 3 2.0
Institutional asset management and custody fees 162 142 143 20 14.1
Total trust and investment services income $553 $542 $564 $ 11 2.0%
Asignificant portion of Key’s trust and investment services income
depends on the value and mix of assets under management. At
December 31, 2006, Key’s bank, trust and registered investment advisory
subsidiaries had assets under management of $84.7 billion, representing
a10% increase from $77.1 billion at December 31, 2005. As shown in
Figure 10, the increase was due primarily to Key’s equity portfolio,
reflecting improvement in the equity markets in general. Key’s securities
lending business and the higher-yielding hedge funds obtained in the
acquisition of Austin Capital Management, Ltd. on April 1, 2006, also
contributed to the increase.
December 31, Change 2006 vs 2005
dollars in millions 2006 2005 2004 Amount Percent
Assets under management by investment type:
Equity $41,877 $35,370 $34,788 $6,507 18.4%
Securities lending 21,146 20,938 16,082 208 1.0
Fixed income 11,242 11,264 12,885 (22) (.2)
Money market 9,402 9,572 10,802 (170) (1.8)
Hedge funds 1,032 — — 1,032 N/M
Total $84,699 $77,144 $74,557 $7,555 9.8%
Proprietary mutual funds included in assets
under management:
Money market $ 7,579 $ 7,884 $ 9,103 $ (305) (3.9)%
Equity 5,713 4,594 3,651 1,119 24.4
Fixed income 629 722 827 (93) (12.9)
Total $13,921 $13,200 $13,581 $ 721 5.5%
N/M = Not Meaningful
FIGURE 10. ASSETS UNDER MANAGEMENT
When clients’ securities are lent to a borrower, the borrower must
provide Key with cash collateral, which is invested during the term
of the loan. The difference between the revenue generated from the
investment and the cost of the collateral is shared with the lending client.
This business, although profitable, generates a significantly lower rate
of return (commensurate with the lower level of risk) than other types
of assets under management.
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