KeyCorp announced a $2.8 billion investment from the Bank of Nova Scotia on Monday. Scotiabank will acquire a 14.9% stake in KeyCorp in two stages. The initial investment of $0.8 billion will give Scotiabank a 4.9% stake and is expected to close by the end of August, pending antitrust approval.
The remaining $2 billion investment for a total 14.9% stake is anticipated to be completed in early 2025, subject to Federal Reserve approval. KeyCorp CEO Chris Gorman stated, “This opportunity allows us to raise capital on attractive terms. While we remain comfortable with our current capital position, we determined that the investment enables Key to accelerate our well-communicated capital and earnings improvement while bolstering our strategic position.”
The minority investment is estimated to increase KeyCorp’s CET1 capital ratio by 195 basis points to 12.4% as of June 30, 2024.
It is also expected to increase tangible book value per share by more than 10%.
Scotiabank invests in KeyCorp expansion
KeyCorp plans to evaluate repositioning its available-for-sale securities portfolio to accelerate profitability, liquidity, and capital improvements.
The capital raise and potential repositioning are projected to result in a CET1 capital ratio of 11.3% to 11.6%, while being accretive to earnings per share in 2025 and 2026. As part of the transaction, KeyCorp and Scotiabank intend to explore future commercial partnership opportunities to serve their respective client bases better. KeyCorp’s shares surged 9.1% on the news, marking the day’s top performance in the S&P 500.
However, Scotiabank’s shares fell 3.4% despite executives touting the deal’s benefits. Some analysts believe Scotiabank may use this initial deal as a stepping stone to take greater control of KeyCorp after a five-year standstill agreement ends. Others note that the critical factor for investors will be seeing whether the proposed strategic benefits can accrue to both parties or if this is simply an investment.
