KeyBank 2014 Annual Report Download - page 192

13. Acquisitions and Discontinued Operations
Acquisitions
Pacific Crest Securities. On September 3, 2014, we acquired Pacific Crest Securities, a leading technology-
focused investment bank and capital markets firm based in Portland, Oregon. This acquisition, which is being
accounted for as a business combination, expands our corporate and investment banking business unit and adds
technology to our other industry verticals. During the fourth quarter of 2014, we recorded identifiable intangible
assets of $13 million and goodwill of $78 million in Key Corporate Bank for this acquisition. The identifiable
intangible assets and the goodwill related to this acquisition are non-deductible for tax purposes. Additional
information regarding the identifiable intangible assets and the goodwill related to this acquisition is provided in
Note 10 (“Goodwill and Other Intangible Assets”).
Mortgage Servicing Rights. On June 24, 2013, in the first of multiple closings, we acquired substantially all
third-party commercial loan servicing rights consisting of CMBS Master, Primary, and Special Servicing as well
as other servicing from Bank of America’s Global Mortgages & Securitized Products business. Simultaneously,
we entered into a subservicing agreement with Berkadia Commercial Mortgage LLC related to all CMBS
primary servicing. This acquisition was accounted for as a business combination and aligned with our strategy to
drive growth. At the time, the acquisition resulted in KeyBank becoming the third largest servicer of commercial/
multifamily loans in the U.S. and the fifth largest special servicer of CMBS. The acquisition date fair value of the
MSRs acquired on June 24, 2013, which were included on our balance sheet at June 30, 2013, was approximately
$117 million. Three additional and related closings occurred on July 22, 2013, August 26, 2013, and October 7,
2013. The acquisition date fair value of the MSRs acquired in these transactions was $3 million. As a result of
this acquisition, the total fair value of the MSRs acquired during 2013 and included in our December 31, 2013,
financial results was $120 million. In addition to the MSRs acquired, Key, as a master servicer, acquired $216
million of principal and interest advances. These principal and interest advances recorded at fair value were
primarily associated with the June 24, 2013, acquisition of MSRs. No goodwill was recognized as a result of this
acquisition. Additional information regarding our mortgage servicing assets is provided in Note 9 (“Mortgage
Servicing Assets”).
Discontinued operations
Education lending. In September 2009, we decided to exit the government-guaranteed education lending
business. As a result, we have accounted for this business as a discontinued operation.
As of January 1, 2010, we consolidated our 10 outstanding education lending securitization trusts since we held
the residual interests and are the master servicer with the power to direct the activities that most significantly
influence the economic performance of the trusts.
On September 30, 2014, we sold the residual interests in all of our outstanding education lending securitization
trusts to a third party for $57 million. In selling the residual interests, we no longer have the obligation to absorb
losses or the right to receive benefits related to the securitization trusts. Therefore, in accordance with the
applicable accounting guidance, we deconsolidated the securitization trusts and removed trust assets of $1.7
billion and trust liabilities of $1.6 billion from our balance sheet at September 30, 2014. As part of the sale and
deconsolidation, we recognized an after-tax loss of $25 million, which is recorded in “income (loss) from
discontinued operations, net of tax” on our income statement. We continue to service the securitized loans in
eight of the securitization trusts and receive servicing fees, whereby we are adequately compensated, as well as
remain a counterparty to derivative contracts with three of the securitization trusts. We have retained interests in
the securitization trusts through our ownership of an insignificant percentage of certificates in two of the
securitization trusts and two interest-only strips in one of the securitization trusts. These retained interests were
remeasured at fair value on September 30, 2014, and their fair value of $1 million was recorded in “discontinued
assets” on our balance sheet. These assets were valued using a similar approach and inputs that have been used to
value the education loan securitization trust loans and securities, which are further discussed later in this note.
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