KeyBank 2015 Annual Report Download - page 36

agencies may no longer support such initiatives. The discontinuation of such initiatives may have unanticipated
or unintended impacts, perhaps severe, on the financial markets. These effects could include a sudden move to
higher debt yields, which could have an unfavorable effect on the quantity and cost of borrowed funds. In
addition, new initiatives or legislation may not be implemented, or, if implemented, may not be adequate to
counter any negative effects of discontinuing programs or, in the event of an economic downturn, to support and
stabilize the economy.
We rely on dividends by our subsidiaries for most of our funds.
We are a legal entity separate and distinct from our subsidiaries. With the exception of cash that we may raise
from debt and equity issuances, we receive substantially all of our funding from dividends by our subsidiaries.
Dividends by our subsidiaries are the principal source of funds for the dividends we pay on our common and
preferred stock and interest and principal payments on our debt. Federal banking law and regulations limit the
amount of dividends that KeyBank (KeyCorp’s largest subsidiary) can pay. For further information on the
regulatory restrictions on the payment of dividends by KeyBank, see “Supervision and Regulation” in Item 1 of
this report.
In the event KeyBank is unable to pay dividends to us, we may not be able to service debt, pay obligations or pay
dividends on our common or preferred stock. Such a situation could result in Key losing access to alternative
wholesale funding sources. In addition, our right to participate in a distribution of assets upon a subsidiary’s
liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
We are subject to liquidity risk, which could negatively affect our funding levels.
Market conditions or other events could negatively affect our access to or the cost of funding, affecting our
ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, or
fund asset growth and new business initiatives at a reasonable cost, in a timely manner and without adverse
consequences.
Although we maintain a liquid asset portfolio and have implemented strategies to maintain sufficient and diverse
sources of funding to accommodate planned as well as unanticipated changes in assets, liabilities, and off-
balance sheet commitments under various economic conditions (including reducing our capacity of wholesale
funding sources), a substantial, unexpected or prolonged change in the level or cost of liquidity could have a
material adverse effect on us. If the cost effectiveness or the availability of supply in these credit markets is
reduced for a prolonged period of time, our funding needs may require us to access funding and manage liquidity
by other means. These alternatives may include generating client deposits, securitizing or selling loans, extending
the maturity of wholesale borrowings, borrowing under certain secured borrowing arrangements, using
relationships developed with a variety of fixed income investors, and further managing loan growth and
investment opportunities. These alternative means of funding may result in an increase to the overall cost of
funds and may not be available under stressed conditions, which would cause us to liquidate a portion of our
liquid asset portfolio to meet any funding needs.
Our credit ratings affect our liquidity position.
The rating agencies regularly evaluate the securities of KeyCorp and KeyBank, and their ratings of our long-term
debt and other securities are based on a number of factors, including our financial strength, ability to generate
earnings, and other factors. Some of these factors are not entirely within our control, such as conditions affecting
the financial services industry and the economy and changes in rating methodologies as a result of the Dodd-
Frank Act. We may not be able to maintain our current credit ratings. Following Key’s announced acquisition of
First Niagara in October 2015, S&P and Fitch affirmed Key’s ratings but changed the outlook to negative.
Moody’s placed Key’s ratings under review for downgrade. The Moody’s review could be outstanding beyond
the targeted merger completion date. A rating downgrade of the securities of KeyCorp or KeyBank could
24