Scotiabank Acquires $2.8bn Stake in KeyCorp

KeyCorp’s shares surged 8.5% in pre-market trading on Monday after The Bank of Nova Scotia (Scotiabank) announced a $2.8 billion investment, securing a 14.9% stake in the U.S.-based bank.

The deal, priced at $17.17 per share, will be executed in two phases. The first tranche, worth $0.8 billion, will give Scotiabank a 4.9% stake in KeyCorp, expected to close by the end of August 2024 following the expiration of the Hart-Scott-Rodino Act antitrust waiting period. The second tranche, valued at $2.0 billion, requires Federal Reserve approval and is projected to close by the first quarter of 2025.

KeyCorp’s CEO Chris Gorman highlighted that the investment will enhance the bank’s growth capacity and strategic agility in a challenging economic environment. The capital infusion is expected to raise KeyCorp’s Common Equity Tier 1 (CET1) capital ratio by 195 basis points to 12.4% as of June 30, 2024, while increasing the bank’s tangible book value per share by over 10%.

KeyCorp is also considering repositioning its available-for-sale securities portfolio to improve profitability, liquidity, and capital resilience. The CET1 ratio post-transaction and portfolio adjustment is estimated to be between 11.3% and 11.6%, providing a solid buffer ahead of Basel III rule finalisation.

The capital raise is expected to contribute to a low single-digit increase in KeyCorp’s earnings per share in 2025, with further accretion in 2026.