Scotiabank completes $2bn investment in KeyCorp, strengthening U.S. banking partnership

KeyCorp (NYSE: KEY) announced the completion of a significant milestone in its financial strategy as The Bank of Nova Scotia (Scotiabank) (TSX: BNS) (NYSE: BNS) concluded a $2.0 billion investment to secure a 14.9% minority stake in KeyCorp. The deal, which aligns with KeyCorp’s capital growth objectives, underscores the growing importance of cross-border partnerships in strengthening banking institutions amid economic uncertainties.

KeyCorp’s Evolving Role in the U.S. Financial Landscape

KeyCorp, with a heritage dating back almost two centuries in Albany, New York, has established itself as one of the nation’s premier financial institutions. Headquartered in Cleveland, Ohio, it reported total assets of approximately $190 billion as of 30 September 2024. Operating under the KeyBank National Association brand, it offers retail banking, corporate lending, and investment management services across 15 states through a network of 1,000 branches and 1,200 ATMs.

The bank’s corporate and investment banking arm, KeyBanc Capital Markets, provides tailored solutions in mergers and acquisitions advisory, public and private equity, and financial derivatives, serving middle-market businesses in various industries. This diverse portfolio of offerings positions KeyCorp as a pivotal player in the U.S. banking sector, meeting the financial needs of individuals and businesses alike.

Strategic Importance of the Scotiabank Investment

The $2.0 billion infusion from Scotiabank follows an agreement reached in August 2024, where Scotiabank committed a total of $2.8 billion to acquire a minority stake in KeyCorp at $17.17 per share. This transaction, which secured Federal Reserve approval on 12 December 2024, represents a strategic collaboration designed to bolster KeyCorp’s capital structure while facilitating growth in key banking sectors.

Chris Gorman, Chairman and CEO of KeyCorp, described the investment as a “transformational opportunity” that would enable the bank to accelerate its capital and earnings trajectory. He emphasized that the additional financial cushion enhances KeyCorp’s ability to pursue expansion initiatives in areas such as investment banking, payments solutions, and wealth management.

This partnership also strengthens KeyCorp’s ability to navigate an uncertain economic environment from a position of resilience, as the banking industry faces evolving regulatory and market challenges.

Financial Gains and Strategic Benefits

The transaction significantly impacts KeyCorp’s financial position, with the CET1 capital ratio increasing by 195 basis points to a robust 12.4%. The investment also raises tangible book value per share by over 10%, providing a solid foundation for future growth.

Additionally, KeyCorp plans to evaluate a repositioning of its available-for-sale securities portfolio, aiming to improve liquidity, profitability, and capital strength. This strategy is expected to result in low single-digit accretion to earnings per share by 2025, enhancing shareholder value while maintaining flexibility in balance sheet management.

Collaborative Opportunities Between KeyCorp and Scotiabank

This deal also sets the stage for future commercial partnerships between KeyCorp and Scotiabank. Both institutions intend to leverage their combined expertise to explore synergies, enhancing client services and broadening their market reach. These collaborations are anticipated to drive innovation, particularly in digital banking solutions and cross-border financial services.

Advisory Teams and Regulatory Approvals

J.P. Morgan Securities LLC and KeyBanc Capital Markets provided financial advisory services to KeyCorp, while Sullivan & Cromwell LLP acted as legal counsel. The transaction, completed in two tranches, followed rigorous scrutiny under the Hart-Scott-Rodino Act and Federal Reserve guidelines, ensuring compliance with U.S. regulatory standards.

Outlook: A Partnership for Sustainable Growth

The completion of Scotiabank’s investment in KeyCorp marks a pivotal moment for both banks. For KeyCorp, the strengthened capital base enables greater strategic flexibility to adapt to market dynamics. For Scotiabank, the deal represents a calculated expansion into the U.S. banking market, furthering its global footprint.

This partnership reflects a shared vision of financial growth and innovation, setting the stage for sustained value creation for stakeholders and clients alike.