Bank of Nova Scotia Acquires 14.9% Stake in KeyCorp — Update

By Adriano Marchese

Bank of Nova Scotia has agreed to invest $2.8 billion in KeyCorp, positioning itself for new commercial opportunities and strengthening its foothold in the U.S. market.

The move by the Canadian financial institution targets one of its key markets, with the investment in KeyCorp significantly boosting its capital deployment in the U.S.

"This transaction provides attractive near-term returns to our shareholders and creates future optionality for Scotiabank in the North American corridor," Scotiabank Chief Executive Scott Thomson said Monday.

KeyCorp, which is based out of Cleveland, Ohio, operates about 1,000 branches across 15 states and has $187 billion in assets. The company offers commercial and retail banking, as well as investment advice and services.

While Scotiabank doesn't have a retail presence in the U.S., it does operate in the country through its financial services arms, Global Banking and Markets, Global Business Payments and Wealth Management.

Through the acquisition, the two companies also plan to explore commercial opportunities to partner together in the future to serve their respective client bases.

Scotiabank will pay $17.17 a share to acquire the ownership stake in the KeyCorp in two stages, starting with an initial 4.9% stake at the end of August. The second part of the investment is expected to complete after receiving approval by the Federal Reserve and satisfying other closing conditions in the first quarter of 2025.

Shares of KeyCorp have edged forward in 2024, gaining 1.5% since the beginning of the year and closing on Friday at $14.61. Scotiabank said the offer price represents an 11% premium to the volume weighted average price for the last 20 trading days.

Scotiabank expects the investment to be accretive to earnings per-share in the first full year following the close.

KeyCorp Chairman and CEO Chris Gorman said that the investment allows KeyCorp to speed up its capital and earnings improvement while bolstering its strategic position.

In conjunction with the new investment, KeyCorp will also consider potentially repositioning its available-for-sale securities portfolio to accelerate the timing of profitability, liquidity and capital improvements.

"This transaction creates greater capacity for growth by enabling additional investments in targeted scale across our franchise and increases Key's strategic agility as we navigate an uncertain environment from a position of strength," Gorman said.

KeyCorp estimates that the investment will bolster its common equity tier 1 capital ratio, a measure of a bank's capital strength and solvency, by 195 basis points to 12.4% and increase tangible book value per share by more than 10%.

It also expects the move to be low single-digit accretive to earnings in 2025 and then slightly accretive to earnings in 2026.

For Scotiabank, the initial investment is expected to lower its CET1 ratio by about 10 basis points and a further 40 to 45 basis points at the closing of the second part.

Write to Adriano Marchese at adriano.marchese@wsj.com

(END) Dow Jones Newswires

August 12, 2024 07:46 ET (11:46 GMT)

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