KeyCorp. (NYSE:KEY) Q4 2018 Earnings Conference Call - Final Transcript
Jan 17, 2019 • 09:00 am ET
Thank you. (Operator Instructions) And first to the line of Scott Siefers with Sandler O'Neill. Please go ahead.
Good morning, everyone.
Hi. Don, quick question just on the cost outlook, you have lot of moving parts this year, you guys typically have, I guess, more seasonality in the quarterly cost base just to begin with given the investment banking component, then we're layering in the acquisition, but then you have the cost savings. So just hoping you could maybe give a little more color on how you would expect the quarterly base to kind of traject or flow throughout the year? In other words, is there a quarter like the 2Q that represents the high watermark and then we start to come down or with the fourth quarter be the low watermark for the year, in that we get the run rate cost savings in there, how do you see that all panning out?
Great. And like you said, there are number of moving parts there. When we did highlight the first quarter, we do expect to see a tick up in expenses reflecting the $30 million of higher benefit costs. Now, that would be offset slightly by the impact that we expect investment banking debt placement fees to be lower in the first quarter compared to the fourth quarter, which tends to be high point, but those two items will impact the first quarter. Whereas our continuous improvement or efficiency improvements we're making, we should see some small amounts come through in the first quarter, start to build in the second quarter. And really for the second half of next year, majority of those $200 million in run rate should be reflected in our expense levels. And so we would expect to see the improvements come through there.
Laurel Road, we talked about having an acquisition in mid year of '19 and that really is what drives that roughly $50 million in expenses and so you would see that in the second half of the year. So that would minimize some of the bottom line reduction as far as expenses that we would be achieving on the expense savings. But still in my mind show probably the low point in expenses, be it in the third quarter and fourth quarter being up a little bit just to reflect the seasonality we typically see in our capital markets related revenues where it would typically be stronger. But again, I think those all combined still get us to that 54% to 56% efficiency ratio range in the second half of the year.
Okay, that's perfect. Thank you for that. And then just quick question on the margin outlook. So you had a little liquidity build that you discussed, in the slide presentation, you note that some of the deposit inflows were kind of short term or and/or seasonal? So, one, how does that all play out? I imagine some of that securities portfolio that comes down if the