STT State Street Corporation

In an effort to enhance its commercial mortgage servicing business, KeyBank Real Estate Capital – a Commercial Real Estate Business unit of KeyCorp (KEY) – entered into a series of agreements. These include a deal with Bank of America Corporation (BAC) to buy commercial mortgage servicing rights from the latter.

KeyCorp is set to acquire Commercial Mortgage Servicing Rights (CMBS) and special servicing rights from the Global Mortgage & Securitized Products portfolio of BofA, which provides services to a diversified group of private investors. The transaction comprises CMBS and special servicing portfolio worth approximately $14 billion. The transaction is scheduled for completion in the second quarter of 2013.

BofA’s total commercial mortgage servicing portfolio is worth $110.5 billion as of Mar 31, 2013. However, it is anticipated that the Commercial Real Estate Banking portfolio of BofA will remain unaffected due to the acquisition.

Following the deal, KeyCorp’s commercial mortgage servicing portfolio is expected to be listed among the top three largest servicers of commercial or multifamily loans in the U.S. Moreover, KeyCorp’s servicing portfolio will be worth $205 billion, comprising approximately $14 billion in special servicing rights.

Concurrently, KeyCorp entered into an agreement with Berkadia Commercial Mortgage LLC. As per the deal, Berkadia consented to act as a sub-servicer on the entire CMBS primary servicing purchased by KeyCorp from BofA. Additionally, KeyCorp agreed to buy the CMBS special servicing portfolio of Berkadia.

The strategic deals with BofA and Berkadia are expected to auger well for Keycorp. Alongside, the company is expected to be named special servicer on about $47 billion of CMBS on a pro forma basis. This will position it as the fifth largest CMBS special servicer. However, the agreements with BofA and Berkadia are subject to the approval of rating agencies, regulators and investors.

KeyCorp carries a Zacks Rank #3 (Hold). Stocks that are performing well and are worth considering include Fifth Third Bancorp (FITB) and State Street Corporation (STT), which carry a Zacks Rank #2 (Buy).

 
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