Regional banking firm KeyCorp disclosed a massive instance of fraud on Tuesday (July 16) that could potentially cost $90 million, according to a report by CNBC. Shares fell on the news.
In a K-8 filing, KeyCorp, which is based in Cleveland, said the fraud involved a “business customer” and that it was discovered “on or about” July 9. The event occurred in the beginning of Q3.
The customer involved in the fraud is Interlogic Outsourcing, which processes payrolls and is based in Elkhart, Indiana. The bank filed a suit against the company on July 9, claiming that Interlogic “fraudulently initiated wire transfers” and that Interlogic CEO Najeeb Khan knew there weren’t sufficient funds to cover the transfers.
An analyst at Baird said the revelations were “unfortunate” but “manageable.”
“While we acknowledge that this isn’t a pretty headline, we believe any weakness beyond 1.5 percent-2 percent is an opportunity to add to positions,” said Analyst David George. “Key remains well-positioned for the current environment, given its neutral rate positioning and opportunity to cut costs to the extent rates remain low.”
Shares in KeyCorp fell 1.8 percent and the company lost about $178 million from its market cap, dragging it to $17.56 billion from $17.735 billion.
“The company is working with the appropriate law enforcement authorities in connection with this matter,” KeyCorp said in the filing. The company believes the incident is an isolated one, based on the bank’s “review of the circumstances of the fraudulent activity.”
The company said it will “pursue all available sources” to minimize its losses. The bank is currently working with law enforcement on the issue.
KeyCorp’s stock had been performing well up to Monday (July 15), when it was up 19 percent.
The bank also recently announced an initiative to help local communities. “KeyBank’s five-year, $16.5 billion National Community Benefits Plan was launched in 2017 and drives investment for low- to moderate-income (LMI) individuals, families and communities through community development and affordable housing, mortgage and small business lending, and transformative philanthropy,” the bank said on its website.